The NZ pension system retained a B-ranking in the latest Mercer global retirement savings report despite copping a slight score reduction on technical grounds.
Now in its 14th edition, the Mercer Global Pension Index (produced in association with the CFA Institute) marked the NZ aggregate score down to 68.3 from 68.8 in the 2022 edition following a change to grading of the ‘integrity’ metric – one of three attributes assessed along with adequacy and sustainability.
While the average integrity mark fell by 2.3 post the makeover, the NZ score in the category dropped from 82.1 last year to 78.3 in the latest rankings.
The integrity sub-index “considers the role of regulation and governance, the protection provided to plan members from a range of risks and the level of communication provided to individuals”, the Mercer report says.
NZ rose slightly for adequacy from 64 to 65.6 with its sustainability score fading somewhat year-on-year.
Effectively, however, the NZ retirement savings system holds its long-time B-grade status quo in the Mercer analysis, which offers the same improvement remedies as in previous years including:
- raising the “level, coverage and tax efficiency of KiwiSaver contributions”;
- increasing savings and lowering household debt;
- introducing a government “carer” contribution for those looking after young children; and,
- requiring KiwiSaver schemes to offer regular retirement income payments.
Netherlands topped the Mercer pension charts again followed by Iceland, Denmark and Israel in the elite quartet of A-list countries: Australia, Finland and Singapore sit just behind in the B+ group.
Meanwhile, Argentina, India, Philippines, Thailand and Turkey fill the bottom D-grade retirement income system rankings.
Mercer now covers 47 countries and almost two-thirds of the global population in its pension analysis with Botswana, Croatia and Kazakhstan new arrivals in the 2023 report.
CFA Institute chief, Margaret Franklin, says in the 2023 edition that the global pension system faces some urgent “very real challenges” as current economic concerns add to aging populations.
“Each year, this index serves as a critical reminder that there is a long way to go in many jurisdictions to make pension schemes function at their best and for the long-term financial security of beneficiaries,” Franklin says. “Pension systems and retirement plans also serve as vital aspects of the capital markets, and yet the effectiveness of these systems varies significantly.”
The Mercer report also calls out artificial intelligence (AI) as a potential boon for retirement savers with the prospect of better investment returns, individualised advice at scale and more efficient administration.
“…AI can enable automation of middle and back offices and thus reduce costs. These lower costs may also narrow the differential between active and passive investment strategies,” the study says.
But AI poses risks, too, for retirement planning, Mercer says, such as inaccuracies, fake outputs and in-built biases while the technology can also be used to engineer sophisticated frauds.