Australia slips in Mercer CFA Institute Global Pension Index 2024, highlighting the need to focus on retirement income 

• The Netherlands retains top spot as world’s leading retirement income system
• Australia’s retirement income system loses its position as best in Asia Pacific for the first time

MELBOURNE, October 15, 2024 — Mercer, a business of Marsh McLennan (NYSE: MMC) and a global leader in helping clients realise their investment objectives, shape the future of work and enhance health and retirement outcomes for their people, and CFA Institute today released the 16th annual Mercer CFA Institute Global Pension Index (MCGPI) and report.

The MCGPI, an international comparison of retirement systems, found that Australia must do more to keep its retirement income system world class and to make it more sustainable for an ageing population.

According to the report, for the first time Australia has dropped from being the highest ranked retirement system in the Asia Pacific region, with Singapore ranking ahead of Australia in fifth and sixth place respectively.

According to Dr David Knox AM, lead author of the report and Senior Partner at Mercer, Australia needs to encourage more older Australians to make the best use of their retirement savings through taking out long-term retirement income streams.

“All but one retirement system in the Global Pension Index’s top 10 has a focus on income in retirement. Australia is the exception. Greater encouragement of retirement income streams will give aging Australians more confidence to plan, spend, and in turn, improve their wellbeing in their golden years,” said Dr Knox.

“Our system is celebrated for being among the best in the world at securing and growing retirement savings through compulsory superannuation. A focus on retirement income is the most significant improvement we can make to our system and the lives of Australian retirees as they live longer,” he said.

The Netherlands’ retirement income system has retained the top spot on the list, with Iceland and Denmark remaining in second and third places, respectively. 

Retirement systems around the world are increasingly moving away from defined benefit (DB) plans and shifting to defined contribution (DC) arrangements. The report explores the opportunities and challenges associated with DC plans for both pension plans and individuals.

“The ongoing shift to defined contribution pension plans introduces many financial planning challenges, which are falling squarely on the shoulders of tomorrow’s retirees,” said Margaret Franklin, CFA and CFA Institute’s President and CEO. “DC plans require individuals to make complex financial planning decisions that may significantly impact their financial circumstances, and yet many individuals are not well prepared to manage the required decisions. The Index serves as an important reminder of the gaps that remain in providing long-term financial security and advice for individuals. The need for credentialed and ethical financial advisors once again stands out, and that’s why we have launched new initiatives in the private wealth space to meet this gap.”

Despite these challenges, as people live longer, the increased flexibility and personalisation offered by DC programs will be critical. The concept of retirement is shifting, and many individuals are transitioning gradually to retirement or rejoining the workforce in a different capacity after their initial retirement. DC plans also offer important benefits to gig and contract workers, who have often been left out of traditional DB schemes.

“Significant retirement income system reforms are needed to meet the financial needs of retirees and their evolving work expectations,” commented Dr. David Knox, lead author of the report and Senior Partner at Mercer. “There is no single solution to getting retirement systems onto more solid ground. Now is the time for governments, policymakers, the pension industry and employers to work together to ensure that older populations are treated with dignity and can maintain a lifestyle similar to what they experienced through their working years.”

The Netherlands had the highest overall index value (84.8), closely followed by Iceland (83.4) and Denmark (81.6). The Netherlands’ pension system has continued to be the best system, as it moves from a DB structure to a more individual DC approach. The system also features strong regulations and offers participants guidance regarding their pensions.

The Index uses the weighted average of the sub-indices of adequacy, sustainability and integrity. For each sub-index, the systems with the highest values were the Netherlands for adequacy (86.3), Iceland for sustainability (84.3) and Finland for integrity (90.8).

“Australia continues to perform strongly, particularly in integrity reflecting strong governance and regulation where we compare favourably with global peers,” said Maria Wilton, AM, CFA, Member of the CFA Institute Board of Governors. “The challenge remains in improving pension adequacy, an area where Australia lags behind. The Government's initiatives, such as paying superannuation to government-funded parental leave and increasing compulsory contributions to 12 percent from 2025, are important steps towards addressing this gap. Yet, it's crucial that future policy proposals avoid allowing leakage, which can undermine pension savings by reducing the benefits of compounding and increasing reliance on the Age Pension."   

Increasing longevity, high interest rates and rising costs of care have put increased pressure on government budgets to support pension programs, causing scores to be slightly lower this year overall. Several systems, including China, Mexico, India and France, have undertaken pension reforms in recent years. The most recent pension reforms in China, announced in September, are not reflected in its Index score.

The MCGPI benchmarks retirement income systems around the world and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits.

This year, it compares 48 retirement income systems across the globe, including a new entrant, Vietnam, and covers 65% of the world’s population.

The Global Pension Index is a collaborative research project co-sponsored by CFA Institute, the global association of investment professionals, and Mercer, and is supported by the Monash Centre for Financial Studies (MCFS), part of Monash Business School at Monash University. Find more information about the Mercer CFA Institute Global Pension Index here.

As the global association of investment professionals, CFA Institute sets the standard for professional excellence and credentials. We champion ethical behavior in investment markets and serve as the leading source of learning and research for the investment industry. We believe in fostering an environment where investors’ interests come first, markets function at their best, and economies grow. With more than 200,000 charterholders worldwide across 160 markets, CFA Institute has 10 offices and 160 local societies. Find us at www.cfainstitute.org or follow us on LinkedIn and X at @CFAInstitute. 

A research centre based within Monash University's Monash Business School, Australia, the MCFS aims to bring academic rigour into researching issues of practical relevance to the financial industry. Additionally, through its engagement programs, it facilitates two-way exchange of knowledge between academics and practitioners. The Centre’s developing research agenda is broad but has a current concentration on issues relevant to the asset management industry, including retirement savings, sustainable finance and technological disruption.

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