NZ has held steady in the latest Mercer global pension system review, ranking 15th out of the 44 countries covered in the 2022 report released last week.
However, NZ remains a B-grade country in the Mercer retirement savings analysis despite recording a slight uptick in the overall index score.
“The New Zealand index value increased from 67.4 in 2021 to 68.8 in 2022,” the Mercer report says, mostly on the back of new scoring methodology that boosted results for the adequacy and sustainability sub-sectors.
By contrast, NZ saw its score for integrity – the last of the three categories in the Mercer survey – fall slightly, albeit remaining at the upper end of the global spectrum.
The A-grade integrity ranking, in fact, keeps NZ above the broad global average with only C+ results in the other two categories.
Since entering the Mercer pension survey for the first time in 2017, the NZ total index score has ranged from a low of 67.4 last year to the 2019 peak of 70.1.
As well as increasing KiwiSaver contributions, raising household savings and reducing debt, the Mercer report says the NZ retirement system could be improved by introducing “a carer’s pension credit or contribution for those caring for young children”.
European countries, as usual, top the Mercer rankings with only Iceland, the Netherlands and Denmark gaining A-ratings for scores above 80 on the index. Iceland pipped the Netherlands to retain its number one ranking from the previous year.
The Mercer study, produced this year in association with the CFA Institute, is based on a slew of global and national data to highlight best-practice ideas for retirement savings policy-makers and industry participants.
The report – now in its 14th edition – offers insight into how various countries are implementing retirement income solutions as most shift from defined benefit (DB) to defined contribution (DC) schemes.
“The conversion of DC pension pots into appropriate retirement products is gradually emerging around the world, and there is no single or perfect answer [to converting savings into long-term retirement income],” the study says.
“… The global pension industry and policymakers need to recognize these issues and develop a range of flexible products and policies to deliver the best possible outcomes for individuals and households who will enter their retirement years in a wide range of financial situations while also facing significant uncertainties.”
Among a range of recommendations, the 2022 Mercer report says DC schemes, such as KiwiSaver, should allow members to withdraw only half of their funds at retirement subject to a minimum threshold.
“At least half of the [retained] pension pot should be converted into an income stream that provides regular and relatively stable income, when measured in real terms,” the study says. “The permitted income streams should include an annuity, a pooled arrangement or a programmed withdrawal product, thereby encouraging some flexibility.”
David Knox, Mercer senior partner, said the DC retirement income challenge is growing even tougher amid an increasing volatile and uncertain global backdrop.
“Despite differences in social, political, historical or economic influences across geographies, many of these challenges are universal,” Knox said. “And while the necessary reforms may take time and careful consideration, policymakers must do all they can to ensure retirement schemes are supported, developed and well-regulated.”
The Mercer study included recently updated United Nations global population statistics that show both declining fertility and rising life expectancy trends – although the latter is “leveling off in some developed economies”.
“Therefore, as a result of these trends, the percentage of the world’s population aged 65 or over is expected to increase from 9.7% in 2022 to 16.4% in 2050,” the report says.
“These long-term trends inevitably affect the sustainability of all pension programs. Therefore, the scores for the demography-related questions in the sustainability sub-index have fallen for the majority of systems, with China, Saudi Arabia and Thailand suffering the largest reductions. This has reduced their overall Index scores by about 1.2.”