Saving for retirement is the primary investment objective for most individuals. Yet the ability to meet this objective depends not only on the investments made, but on the system on which retirement income provision rests. Put simply, how well a pension system is designed, including the level of benefits it provides, its sustainability, and its governance, has a critical bearing on the ability to meet one’s retirement goals.
Pension funds, as some of the biggest institutional investors in financial markets, play an influential role in capital allocation and the generation of wealth and well-being for individuals’ retirement. The framework in which they operate provides the key infrastructure supporting pension system effectiveness.
An annual examination of 39 different retirement income systems around the world rates the strengths and weaknesses of different pension systems. The findings, published in the Mercer CFA Institute Global Pension Index, provide accurate and comparable data on retirement systems covering approximately two-thirds of the world’s population.
The index is comprised of three sub-indices that measure the adequacy, sustainability, and integrity of pension systems, respectively. The adequacy sub-index includes certain core features such as the design of the system and level of benefits it provides in retirement.
The sustainability index examines factors such as demography, public expenditure, government debt and economic growth, while the integrity sub-index evaluates the governance and regulation of the pension system, including transparency, costs and investor protections. The index covers all the pillars of retirement income provision, namely state pensions, personal and occupational pensions, and additional private savings or assets held outside of a pension.