Retirement savings regimes must adapt to changing employment patterns including the rise of the ‘gig’ worker, according to David Knox, Mercer Australia senior partner.
Knox said as traditional work-for-life careers disappear in favour of less-structured employment paths – such as the walk-on-walk-off individual contractual arrangements constituting the so-called ‘gig economy’ – retirement savings providers need to find new ways to engage with savers.
“The workforce is changing faster than we think,” he said. “There’s a growing number of people in unstructured employment who may not be covered by retirement savings systems.”
Even in Australia – one of the higher-ranked jurisdictions in Mercer’s updated Global Pension Index (GPI) released last week – just 70 per cent of the working-age population was covered by the country’s compulsory superannuation system.
“The rest are self-employed or gig workers who aren’t covered by super,” Knox said.
Globally, he said the influence of employers on retirement savings was waning with the onus now falling on individuals to provide for post-work life, spurred along by government-mandated systems.
According to Knox, the best savings regimes in the Mercer GPI – topped once again by Denmark with the Netherlands a close second – follow a “multi-pillar” approach featuring a basic government pension with incentivised private retirement funds and occupational savings options also on offer.
NZ made its debut on the Mercer GPI this year with a respectable ninth-placing out of 30, scoring 67.4 (of a 100 maximum) in the grading system that ranks countries on more than 40 factors covering the three ‘sub-indexes’ of adequacy, integrity and – new this year – sustainability.
Knox said NZ scored well on integrity – encompassing regulation and governance, member protection, and costs – but lagged on adequacy and, especially, sustainability.
Mercer says the new sustainability index measures “the economic importance of the private pension system, its level of funding, the length of expected retirement both now and in the future, the labour force participation rate of older workers and the current level of government debt”.
Despite NZ’s relatively low sustainability rating, Knox said the country has an impressive record in keeping older people in the workforce.
However, the generous level of the government pension beginning at age 65 (which the new Labour-led administration has promised to retain) and comparatively low contribution rates for KiwiSaver counted against the NZ sustainability ranking.
“KiwiSaver has been a good beginning,” Knox said. “With growing coverage, and if contribution levels rise, we expect the NZ score in the index should improve.”
Overall, the introduction of the sustainability measure has seen the two perennial index outperformers – Denmark and the Netherlands – slip below the 80 per cent threshold for A-ranked status in the GPI.
Knox said the sustainability index accounts for 35 per cent of the total score, with proportional reductions in the influence of adequacy and integrity, now weighted 40 per cent and 25 per cent by Mercer.
Colombia and Norway joined NZ as new entrants in the Mercer GPI in 2017 with other countries expected to join over coming years.
The aim of the index – now in its ninth iteration – is to feed into the development of global best-practice standards for pension systems. In the developed world, Mercer says Japan, Austria, Italy, and France had some of the least sustainable pension systems.
“We know there is no perfect system that can be applied universally, but there are many common features that can be shared for better outcomes,” he said in a statement.
Developing countries such as China and India had different problems such as a growing divide between urban and rural populations, Knox said.
“For example, the challenge in India is how to engage with informal markets in rural communities about the need to save for retirement,” he said. “In a funny way, it’s similar to the problem with gig workers in the developed world.”