SOUTH Africa ranks 31st in the Global Pension Index, which compares 43 retirement income systems, covering two-thirds of the world’s population.
The country had an overall index value of 53.6 points among the countries analysed and for the sub-indices scored 44.3 points for adequacy, 46.5 points for sustainability and 78.5 points for integrity. In comparison to last year, the sub-indices were 43, 46.7 and 78.3 points, respectively.
Iceland had the highest overall index value (84.2 points), followed by the Netherlands (83.5 points). Thailand had the lowest (40.6 points).
The index uses the weighted average of the sub-indices of adequacy, sustainability and integrity.
For each sub-index, the systems with the highest values were Iceland for adequacy (82.7 points), Iceland for sustainability (84.6 points) and Finland for integrity (93.1 points).
The systems with the lowest values were India for adequacy (33.5 points), Italy for sustainability (21.3 points), and the Philippines for integrity (35 points).
In comparison to last year, China and the UK showed the most improvement as a result of significant pension reform, which improved outcomes for individuals and pension regulation.
Alexander Forbes head of best practice Vickie Lange said last week that South Africa’s improved score for adequacy was mainly due to reforms that came into effect in March this year.
“Members of provident funds, who were younger than 55 on March 1, 2021, must purchase an income stream with at least two-thirds of their savings at retirement, unless their savings is less than R247 500.
“This, however, excludes savings until March 1, 2021 with growth, which can still be taken as a cash lump sum,” said Lange.
In South Africa, the report suggested increasing the minimum level of support for the poorest aged individuals, increasing the coverage of employees in occupational pension schemes thereby increasing the level of contributions and assets, introducing a minimum level of mandatory contributions into a retirement savings fund and introducing preservation requirements when members withdraw from occupational pension funds.
The annual Mercer CFA Institute Global Pension Index is a comprehensive study of global pension systems, accounting for two-thirds (65 percent) of the world’s population.
Mercer senior partner and lead author of the study Dr David Knox said it was imperative for participants in the pension industry to act now.
“Governments… have responded to Covid-19 with… economic stimulus, which has added to government debt, reducing the future opportunity for governments to support their aged population. Retirement schemes globally are tipping further towards accumulation-style plans, away from traditional defined benefit plans. Despite the challenges, now is not the time to put the brakes on pension reform – in fact, it’s time to accelerate it.
“Individuals are having to take more and more responsibility for their own retirement income, and they need strong regulation and governance to be supported and protected,” said Knox.
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