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Ireland enters Top 10 in latest Melbourne Mercer pension index

Finland moved up two spots and Ireland edged into the Top 10 in the latest Melbourne Mercer Global Pension Index of global pension systems, while changes to net replacement-rate calculations adversely affected countries such as Switzerland.

Denmark, the Netherlands and Australia maintained the three top spots, in that order, in what is the eighth edition of the index. 

Denmark and the Netherlands – with an index value of more than 80, equivalent to an A grade – are considered to have “first-class” retirement systems.

Finland, Switzerland and the UK were the biggest movers among the European countries in the Top 10 in last year’s index.

Finland moved up into fourth place, having been sixth in the 2015 index, while Switzerland and the UK each slipped two spots, into sixth and 11th place, respectively.

Sweden also moved down the rankings, into fifth.

Selected Melbourne Mercer 2016 Global Pension Index results
CountryRanking 2016Ranking 2015 Overall index score 
Denmark1180.5
Netherlands2280.1
Australia3377.9
Finland4672.9
Sweden5471.4
Switzerland6468.6
Singapore71067
Canada8766.4
Chile8866.4
Ireland101162
UK11960.1
 Out of 27Out of 25 

Ireland moved into the Top 10, which is completed by Singapore, Canada and Chile.

Singapore experienced the biggest change in ranking among the Top 10, moving up from 10th in the 2015 index to 7th in this year’s.

Germany remains ranked 12th and France 13th.

The country’s pensions systems are scored on their adequacy, sustainability and integrity, with more than 40 indicators taken into account.

Twenty-seven countries were assessed in 2016, with Argentina and Malaysia new additions.

The producers of the index, Mercer and the Australian Centre for Financial Studies (ACFS), warn against drawing too definite a comparison between countries’ systems when the difference in the overall index value is less than 2 points.

But they also state that when the difference is greater than that, “it can be fairly concluded that the higher index value indicates a country with a better retirement income system”.

Eighteen-and-a-half points [corrected from 12.5] separate Denmark in first place (80.5) and Ireland in 10th (62). 

Replacement rate rejigs

The average decline in the overall score was 1.5, with most countries’ scores affected by “minor changes”.

In some instances, however, the score changed by more than 2 points.

For Canada, Chile, Germany and Switzerland, this was due to changes made to the calculation of net replacement rates the Melbourne Mercer Global Pension Index sources from the OECD’s Pensions at a Glance publication.

The decline in the UK score was also primarily caused by the reduction in the net replacement rate, which Mercer and the ACFS attributed to the introduction of a state pension, and voluntary contributions linked to auto-enrolment being excluded from the calculation.

“However,” they added, “the ongoing introduction of the auto-enrolment process should improve the index value in future years, with broadening coverage and an increase in the level of funded retirement benefits.”

The overall index value for several countries was also affected by new questions asked by Mercer and the ACFS as part of the index this year, such as about the requirements, if any, for independent trustees or fiduciaries and the balance between employer and member representatives on the governing board of a pension scheme.

The decline in Sweden’s score was primarily caused by the reduction in the household savings rate and the assumed level of funded mandatory contributions set aside for the future, according to Mercer and the ACFS.

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