Singapore’s retirement savings system, the Central Provident Fund (CPF), saw a slight decline in its index value, resulting in a drop from a B grade to a C+ grade in the 2015 Melbourne Mercer Global Pension Index (MMGPI). Singapore’s overall score decreased to 64.7 in 2015 from 65.9 in 2014, moving it further away from an ‘A’ grade, which is awarded to pension systems scoring above 80. Denmark and the Netherlands are the only countries to have achieved an A grade in the index’s history.
This decline can be attributed to three factors: a change in the calculation method used to determine pension assets as a percentage of GDP, representing the amount of money saved for retirement; recent data from the Economic Intelligence Unit indicating a decrease in Singapore’s net household savings rate; and updated life expectancy figures from the United Nations’ World Population Prospects: The 2015 Revision report, which showed a continued decline in mortality rates for Singapore.
Neil Narale, Asia Retirement Leader for Mercer, acknowledged that while Singapore’s retirement income system is among Asia’s best, it’s not the best globally. He believes improvements will depend on the legislative and regulatory environment. However, he also noted that Singapore is headed in the right direction, citing 2016 CPF improvements. These include raising the wage limit and contributions, increasing guaranteed investment returns for older members, and introducing the Silver Support Scheme to assist low-income retirees.
Now in its seventh year, the MMGPI evaluated 25 retirement income systems using more than 40 indicators across three sub-indices: adequacy, sustainability, and integrity. As the world’s most comprehensive comparison of pension systems, the MMGPI covers nearly 60% of the global population. It offers insights for governments on providing adequate and sustainable benefits to protect their citizens against longevity risk. This risk, defined as the potential for an aging population to outlive their savings, is a significant economic and social concern facing many retirees.
Report author and Mercer Senior Partner Dr. David Knox emphasized the critical importance of implementing effective reforms to enhance pension systems and ensure financial security in retirement for both individuals and societies. He views the MMGPI as a vital tool for policymakers worldwide to learn from the most adequate and sustainable systems, acknowledging that while a universally applicable perfect system doesn’t exist, many common features can be adopted for better outcomes.
In addition to the annual rankings, the 2015 MMGPI examined changes over the past seven years, assessing the long-term viability of different pension systems. Dr. Knox highlighted the importance of measures like adjusting the state pension age, increasing workforce participation among aging populations, and funding additional contributions for future retirement income.
The report revealed that all 11 countries participating in the MMGPI since its 2009 inception have experienced an increase in the expected length of retirement, rising from an average of 16.6 years to 18.4 years between 2009 and 2015. To counteract this trend, five countries—Australia, Germany, Japan, Singapore, and the UK—have raised their pension ages, although these measures haven’t been sufficient to fully offset the increasing retirement length.
Looking ahead 20 years, the Index reveals that three countries—Canada, the Netherlands, and the US—are projected to see a reduction in the average expected length of retirement. For Canada and the Netherlands, this is attributed to a planned increase in the state pension age from 65 to 67, while a slight reduction in life expectancy is the reason for the US. The remaining eight countries examined are expected to see an increase in retirement length.
Since the 2011 report, the average labor force participation rate for individuals aged 55 to 64 has risen from 57.9% to 62.2% between 2011 and 2015, representing an increase of just over 1% per year across the 16 countries participating in the MMGPI since 2011. However, this average masks variations between countries. For instance, the participation rate at older ages declined in the US, while Brazil, India, and China saw increases of less than 4%.
Dr. Knox emphasized that extending working years is one of the most effective strategies for creating sustainable retirement systems, especially as life expectancies increase. While acknowledging a natural limit to participation rates at older ages—most countries are still below 70%—he believes there is significant room for improvement globally, which would enhance the sustainability of many pension systems.
Assessing the sustainability of a pension fund requires examining the amount of funds reserved to cover future retirement benefits to prevent undue financial burden on future generations. The level of pension assets held varies greatly across countries, ranging from 1.8% of GDP in Indonesia and 6% in Austria to 160.6% in the Netherlands and 168.9% in Denmark.
Dr. Knox attributes this diversity in pension assets as a percentage of GDP to the fact that some countries have limited private pension schemes, while others have well-developed and mature systems. He sees this as a crucial reminder for all nations to prioritize preparation.
The MMGPI suggests that there is potential for improvement in all countries’ retirement income systems. For Singapore, recommended measures include: reducing obstacles to establishing tax-approved group corporate retirement plans; making CPF accessible to non-residents, who make up over a third of the workforce; and increasing the labor force participation rate among older workers.
Narale believes that policies encouraging employer participation would further boost Singapore’s ranking in the future, noting ongoing employer interest in sponsoring corporate retirement plans or managing portions of CPF investments.
The Index provides an objective assessment of both the publicly funded and private components of a retirement income system, as well as personal assets and savings held outside the pension system. It is a collaborative effort, published by the Australian Centre for Financial Studies (ACFS) in conjunction with Mercer and financed by the Victorian State government of Australia.
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