Post by Banjo on Oct 23, 2011 16:47:04 GMT 7
The Netherlands’ pensions top the league table – again
Many of the world’s pensions systems teeter on the brink of failure, weakened by mountains of government debt, a wave of baby boomers entering retirement and dismal bond and equity market conditions.
But there are still countries where pensioners live well in their golden years, according to this year’s global pensions index, which was published this month by the consulting house Mercer and the Australian Centre for Financial Studies.
Repeating its laudable showing in 2010, the Netherlands again finishes first in this year’s league tables, just ahead of Australia, Switzerland, Sweden, Canada and the UK. China, India and Japan, meanwhile, are “cellar dwellers” who struggle to compete.
What characteristics do the winners share? The Netherlands, Australia, Switzerland and Canada award generous payouts to mothers who stay home to raise children and other retirees who never worked. Second, company pensions also help to relieve pressure on their state systems as workers must sign up for them. The governments that fare better tend to boast more resilient balance sheets as well, and their countries’ so-called pension replacement rates, the percentage of a worker’s income that a pension replaces, are higher.
Other differences raise or lower countries’ scores as well.
The Netherlands, for example, gives elderly citizens a flat-rate public pension and also requires them to contribute to company pensions in their youth along with their employers. Australia, meanwhile, provides a means-tested pension that is paid for from general government revenue and also requires employers to contribute a mandatory amount to their employees’ pensions.
Meanwhile, Japan, which faces severe funding difficulties thanks to its ageing population, and China surface on the black list partly for failing to offer tax incentives to encourage voluntary pension contributions. Japan also receives poor scores due to its massive government debts.
One reason last-place China, which did manage to eke out limited improvement from its showing last year, fails to measure up is the alleged inadequacy of its private pension system. Questions regarding the integrity of its pensions system also continue to hamper its ability to rise in the league tables.
Optimists and pessimists alike remain cynical about the future of state pensions. Having declined to award an A grade even to the Netherlands, Mercer recommends governments continue raising retirement ages and to encourage workers to set aside larger funds for retirement.
In Mercer’s utopia, retirement systems would include tax incentives to encourage middle-income earners to contribute voluntarily to funded pension plans, the introduction of more pensions that could be transferred easily to another company when workers switch jobs, as well as a higher-age cut-off for retirement.
As David Knox, the report’s author and a senior partner with Mercer, sees it: “The risk of governments not being able to financially support their ageing population is becoming more of a reality. Significant pension reform needs to be made now.”
And even the Netherlands garners its share of criticism. Just last year, for example, directors from the Confederation of Netherlands Industry and Employers (VNO-NCW), expressed grave concerns about the sustainability of their country’s pensions system, pushing for a retirement age that would rise in line with life expectancy as well as a sharp push away from expensive defined benefit schemes and towards defined contribution plans, where employees shoulder more of the burden for pensions.
Trade unions and the Dutch government eventually met many of their demands, says Cees Oudhoorn, a policy director with VNO-NCW, who remains sceptical that companies will be able to avoid buckling under the weight of pensions. “We had concerns last year and we still have the same concerns.”
The release of Mercer’s pension index follows the publication of a study on the same topic conducted by the Organisation for Economic Co-operation and Development. It argues that while most OECD countries’ pension fund asset levels recovered last year, with the Netherlands reporting an impressive net real investment return of 18.6 per cent and Chile and New Zealand both claiming returns of 10 per cent, conditions remain challenging.
Corporate pension funds will continue to face pressure to pare back their allocations to risky assets and cut down on volatility as international accounting standards take precedence. DC schemes will replace DB schemes. And further regulatory changes are likely in the European Union following the unveiling of the workplace based pensions directive, which remains under review.
Rising inflation poses further concern as investment managers will find it tough to outperform it. Pension fund assets, for example, again climbed above the level they reached at the end of 2007, with the average OECD country’s pension reporting a net investment return of 3.5 per cent in real terms and 5.4 per cent in nominal terms last year. And asset allocation remains an arduous task given the mercurial nature of the markets, though bonds are still the dominant asset accounting for at least 50 per cent of most schemes’ assets.
But the importance of pension schemes is swelling, so industry experts are quick to warn that changes must be made quickly to correct the industry’s course.
The OECD weighted average asset to gross domestic product ratio for pension funds jumped to 71.6 per cent last year from 68 per cent in 2009.
The US still accounts for the biggest share of the pensions market within OECD countries, with assets worth $10,600bn. But its dominance is waning and its share of OECD pension fund assets shrank from 67 per cent in 2001 to 55 per cent last year.
Other countries with large pension fund systems include the UK, with assets worth $1,900bn; Japan, with $1,400bn; and the Netherlands and Australia, with $1,100bn each respectively.
www.ft.com/intl/cms/s/0/940be74c-fa40-11e0-b70d-00144feab49a.html#axzz1bb0BVClW
Global Pensions index
Ranking (by overall index value) 2011 2010
Netherlands 1 1
Australia 2 4
Switzerland 3 2
Sweden 4 3
Canada 5 5
UK 6 6
Chile 7 7
Poland 8 -
Brazil 9 8
US 10 10
Singapore 11 9
France 12 11
Germany 13 12
Japan 14 13
India 15 -
China 16 14
Source: Mercer
Many of the world’s pensions systems teeter on the brink of failure, weakened by mountains of government debt, a wave of baby boomers entering retirement and dismal bond and equity market conditions.
But there are still countries where pensioners live well in their golden years, according to this year’s global pensions index, which was published this month by the consulting house Mercer and the Australian Centre for Financial Studies.
Repeating its laudable showing in 2010, the Netherlands again finishes first in this year’s league tables, just ahead of Australia, Switzerland, Sweden, Canada and the UK. China, India and Japan, meanwhile, are “cellar dwellers” who struggle to compete.
What characteristics do the winners share? The Netherlands, Australia, Switzerland and Canada award generous payouts to mothers who stay home to raise children and other retirees who never worked. Second, company pensions also help to relieve pressure on their state systems as workers must sign up for them. The governments that fare better tend to boast more resilient balance sheets as well, and their countries’ so-called pension replacement rates, the percentage of a worker’s income that a pension replaces, are higher.
Other differences raise or lower countries’ scores as well.
The Netherlands, for example, gives elderly citizens a flat-rate public pension and also requires them to contribute to company pensions in their youth along with their employers. Australia, meanwhile, provides a means-tested pension that is paid for from general government revenue and also requires employers to contribute a mandatory amount to their employees’ pensions.
Meanwhile, Japan, which faces severe funding difficulties thanks to its ageing population, and China surface on the black list partly for failing to offer tax incentives to encourage voluntary pension contributions. Japan also receives poor scores due to its massive government debts.
One reason last-place China, which did manage to eke out limited improvement from its showing last year, fails to measure up is the alleged inadequacy of its private pension system. Questions regarding the integrity of its pensions system also continue to hamper its ability to rise in the league tables.
Optimists and pessimists alike remain cynical about the future of state pensions. Having declined to award an A grade even to the Netherlands, Mercer recommends governments continue raising retirement ages and to encourage workers to set aside larger funds for retirement.
In Mercer’s utopia, retirement systems would include tax incentives to encourage middle-income earners to contribute voluntarily to funded pension plans, the introduction of more pensions that could be transferred easily to another company when workers switch jobs, as well as a higher-age cut-off for retirement.
As David Knox, the report’s author and a senior partner with Mercer, sees it: “The risk of governments not being able to financially support their ageing population is becoming more of a reality. Significant pension reform needs to be made now.”
And even the Netherlands garners its share of criticism. Just last year, for example, directors from the Confederation of Netherlands Industry and Employers (VNO-NCW), expressed grave concerns about the sustainability of their country’s pensions system, pushing for a retirement age that would rise in line with life expectancy as well as a sharp push away from expensive defined benefit schemes and towards defined contribution plans, where employees shoulder more of the burden for pensions.
Trade unions and the Dutch government eventually met many of their demands, says Cees Oudhoorn, a policy director with VNO-NCW, who remains sceptical that companies will be able to avoid buckling under the weight of pensions. “We had concerns last year and we still have the same concerns.”
The release of Mercer’s pension index follows the publication of a study on the same topic conducted by the Organisation for Economic Co-operation and Development. It argues that while most OECD countries’ pension fund asset levels recovered last year, with the Netherlands reporting an impressive net real investment return of 18.6 per cent and Chile and New Zealand both claiming returns of 10 per cent, conditions remain challenging.
Corporate pension funds will continue to face pressure to pare back their allocations to risky assets and cut down on volatility as international accounting standards take precedence. DC schemes will replace DB schemes. And further regulatory changes are likely in the European Union following the unveiling of the workplace based pensions directive, which remains under review.
Rising inflation poses further concern as investment managers will find it tough to outperform it. Pension fund assets, for example, again climbed above the level they reached at the end of 2007, with the average OECD country’s pension reporting a net investment return of 3.5 per cent in real terms and 5.4 per cent in nominal terms last year. And asset allocation remains an arduous task given the mercurial nature of the markets, though bonds are still the dominant asset accounting for at least 50 per cent of most schemes’ assets.
But the importance of pension schemes is swelling, so industry experts are quick to warn that changes must be made quickly to correct the industry’s course.
The OECD weighted average asset to gross domestic product ratio for pension funds jumped to 71.6 per cent last year from 68 per cent in 2009.
The US still accounts for the biggest share of the pensions market within OECD countries, with assets worth $10,600bn. But its dominance is waning and its share of OECD pension fund assets shrank from 67 per cent in 2001 to 55 per cent last year.
Other countries with large pension fund systems include the UK, with assets worth $1,900bn; Japan, with $1,400bn; and the Netherlands and Australia, with $1,100bn each respectively.
www.ft.com/intl/cms/s/0/940be74c-fa40-11e0-b70d-00144feab49a.html#axzz1bb0BVClW
Global Pensions index
Ranking (by overall index value) 2011 2010
Netherlands 1 1
Australia 2 4
Switzerland 3 2
Sweden 4 3
Canada 5 5
UK 6 6
Chile 7 7
Poland 8 -
Brazil 9 8
US 10 10
Singapore 11 9
France 12 11
Germany 13 12
Japan 14 13
India 15 -
China 16 14
Source: Mercer
