Remember there is strong debate and criticism re the methodology adopted by Mercer, with NZ Superannuation Guru Michael Littlewood a strong critic.
Mercers comments are wide ranging and do add to the commentary mix on NZ Retirement income
Less adequate, more sustainable: NZ a B-keeper in global pension rankings
NZ remains a B-grade retirement income system despite eking out a minor scoring boost in the latest Mercer Global Pension Index (GPI).
According to the 16th annual Mercer GPI, produced in association with the CFA Institute, NZ increased its overall score by 0.4 year-on-year to reach 68.7 (out of a possible 100) – still deep in the B-territory range of 65-75.
Mercer says the slight NZ uptick was “primarily due to improvements in our understanding of the prevalence of DB [defined benefit schemes] in the pension system”.
NZ has a small DB residue, notably about 50,000 or so members covered by the Government Super Fund and various National Provident Fund schemes. A further 28,000 members – mostly pensioners – are also in legacy private employer DB schemes.
While KiwiSaver has lifted the NZ rankings in the Mercer study over time, the latest report shows the country lost ground as measured by pension adequacy, one of the three ratings sub-categories along with sustainability and integrity.
The study ranks NZ as 28th out of 48 jurisdictions for retirement savings adequacy, 11th in sustainability, 17th for integrity and 14th overall.
Sarah Whitelock, Mercer NZ consumer wealth leader, said in a release that KiwiSaver, in particular, needs “further improvements” to ensure better retirement outcomes.
“The success of a long-term savings plan will be boosted by additional contributions from employers and the Government, and these should be underpinned by an overall enhancement in the importance of KiwiSaver as part of a financial plan,” Whitelock said.
In line with previous years, the Mercer report calls for higher contributions, broader membership coverage and better “tax efficiency” settings to lift KiwiSaver assets under management.
Furthermore, Mercer says the NZ system should target “retirement income as the primary purpose of KiwiSaver, and work to increase decumulation options”.
“The Netherlands had the highest overall index value (84.8), closely followed by Iceland (83.4) and Denmark (81.6),” the Mercer release says. “The Netherlands’ pension system has continued to be the best system, as it moves from a DB structure to a more individual DC approach. The system also features strong regulations and offers participants guidance regarding their pensions.”
And Australia lost its crown as the highest-ranked Asia-Pacific retirement savings system falling to sixth behind the fifth-placed Singapore.
Among other broad recommendations, the report says global retirement income systems should expand coverage to “non standard workers” such as self-employed, lift state pension eligibility ages and “reduce leakage” from retirement savings schemes.
With the increasing prevalence of DC schemes, retirees will also require better guidance on complex spending and drawdown decisions, Mercer says.
“In an ideal world, accessible and affordable financial advice should be available to all retirees. Unfortunately, most retirement income systems have not yet reached this point of maturity.”
The report also reveals a key Mercer Australia retirement with senior partner and GPI originator, David Knox, to step down next year.
“… I am retiring in 2025, so this will be my 16th and last Index report,” Knox says in the report. “It’s been a wonderful journey, and my hope is that together we have improved pension systems and the outcomes for retirees.”
Tim Jenkins, Mercer Australia partner, will take over GPI duties for the next edition.