RETHINKING RETIREMENT PLANS

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RETHINKING RETIREMENT PLANS

Mercer and the CFA Institute published their 14th Annual Global Pension Index. This research benchmarks 44 retirement income systems worldwide, highlighting challenges and opportunities within each. The index comprises three sub-indices – adequacy (how much do you get?), sustainability (can it keep delivering?), and integrity (can it be trusted?) – to measure each retirement income system against more than 50 indicators. Iceland, the Netherlands, and Denmark are the top three countries with the best pension systems. South Africa had an index score of 54.7, a C rating, and ranked #34 ahead of Japan and one behind Austria. Thailand placed the lowest of the countries surveyed.

In this year's findings, the report noted that ageing populations, rising government debts, and low birth rates threaten pension systems, necessitating lifting retirement ages. As people increase their levels of education, they enter the workplace later, retiring at the same age and not having saved enough to support a longer life after retirement. The UN forecasts that the world's population aged 65 and above will rise from 9.7% this year to above 16% in 2050.

This year's report focused on increasing change to defined contribution pension plans from defined benefit schemes. The main research findings are noted hereunder.

  • Employers are stepping away from financial guarantees
  • Individuals bear the risks before and after retirement
  • Retirees receive a lump sum, not an income stream
  • Households are not equipped to make financial decisions at retirement
  • Governments are considering reducing financial support during retirement

IN SUMMARY

In summary, the burden of retirement planning increasingly rests on individuals' shoulders. People should carefully consider extending their working life beyond age 65 to enhance their retirement savings and prepare for a longer and healthier post-retirement.