Sweden, Belgium and Denmark are the three highest-ranking countries worldwide in terms of the sustainability and adequacy of their pension systems, according to the latest Allianz Pension Index (API).

The Netherlands, Norway and Bulgaria also featured in the top 10. Among other European countries, the UK ranked 16, Italy 18 and Germany 26, while France came 51st.

However, with demographic change set to accelerate within the next few decades – for instance, the dependency ratio will reach 51% in Western Europe by 2050 – the study said that pensions policy globally had been eclipsed by other topics, particularly climate change.

The report’s authors – Arne Holzhausen, head of wealth, insurance and trend research, and Michaela Grimm, senior economist, both at Allianz Global Investors – said: “’Ageing’ has vanished from the headlines in recent years, and so has the pension reform assiduity of many governments. Instead, pension reforms have been postponed, already adopted measures revoked, or new and costly benefits introduced.”

And they warned: “Against the background of demographic change, time to fix the pension systems, in order to guarantee not only intra- but also inter- generational equity, is running out for all countries.”

The API was last published four years ago. Since then, its methodology has changed, combining the indices for sustainability and adequacy, and including demographic and fiscal prerequisites. But this proved more difficult than expected, said Allianz.

The index, covering 70 countries, is based on three sub-indices: demographic change and the public financial situation (financial leeway); sustainability; and adequacy (providing a sufficient standard of living in old age).

It takes into account 30 parameters, rated on a scale of 1 to 7, with 1 being the best grade. The results are based on the latest available data as of March 2020.

While there are similarities with the annual Melbourne Mercer Global Pension Index (MMGPI), Allianz said its API places a greater focus on demographics, while the MMGPI puts greater weight on administration and regulation.

Meanwhile, the current pandemic has now pushed up the need for pension reform several notches, said Holzhausen.

Holzhausen told IPE: “COVID-19 is a game changer. Before, pension reform complacency could at least partially be explained by benign economic and fiscal conditions. Those times are gone for good, thanks to the devastating effect of COVID-19 on public debt. Pension policy has acquired a new urgency.”

But he added that the political landscape after the pandemic might open up new opportunities for – even radical – reforms.

He told IPE: “COVID-19 showed that rapid, formerly unthinkable change is possible. It would be a pity if the crisis is not used for far-reaching changes, but wasted.”

And he added: “It’s all about the balance, between adequacy and sustainability, between social security and individual efforts, between younger and older generations. That’s why we think that an open public debate is of the essence.”

He told IPE: “Our rankings reveal that demography is not destiny. Even countries with dismal prospects – like China, Japan or Germany – can have decent pension systems, if the relevant parameters are right.”

He concluded: “Pension policy is not rocket science, it requires ‘only’ bold policymaking.”

The next API report is expected to be published in two years’ time. Meanwhile, Allianz intends to publish regional editions, with more detailed analysis of the countries in focus.

The full report, Allianz Global Pension Report 2020: The Silver Swan, can be found here.

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