Global Pension Index ranks Ireland in 13th place and calls for urgent reform to address gender pension gap – Mercer/CFA


19 October 2021

Ireland, Dublin
 

  • Ireland’s pension system ranks 25th for sustainability; 11th for integrity and 7th for adequacy
  • Increase in State pension and decision not to raise retirement age impact sustainability for Ireland
  • Ireland ranks behind the OECD average (in 20th place out of 34 countries) in terms of its gender pension gap

 

Ireland’s pension system is ranked in 13th place out of 43 countries in the 2021 Mercer CFA Institute Global Pension Index (MCGPI). Ireland has moved up one position from last year, and is ahead of larger European countries such as Germany (14th), Belgium (17th) and France (21st), but behind Iceland, the Netherlands and Denmark which were ranked in the top 3 places respectively.

 

Ireland’s retirement system received a B-grade, with the Irish index value increasing from 65.0 in 2020 to 68.3 in 2021 primarily due to increases in net replacement rates (the percentage of pre-retirement earnings covered by the State pension), higher household savings, and implementation of the EU’s IORP II Directive to improve occupational pension scheme governance and risk management.

 

The MCGPI is a comprehensive study of global pension systems, accounting for two-thirds (65 per cent) of the world’s population. It benchmarks retirement income systems around the world highlighting some shortcomings in each system and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits. The top three systems, all receiving an A-grade, were sustainable and well-governed systems, providing strong benefits to individuals.

 

Ireland’s relatively strong overall ranking masks a poor performance in terms of sustainability: in this subcategory Ireland’s pension system is ranked in just 25th place compared to 7th for pension adequacy and 11th for integrity. This points to future challenges as the population ages, given that the ratio of workers to pensioners in Ireland is set to fall from 4.5:1 today to just 2.3:1 by 2051.

 

There are three key policy areas impacting Ireland’s sustainability score: firstly, the State retirement pension, already generous in an international context, was increased by €5 in last week’s Budget. Secondly, the State retirement age has now been fixed at 66 for the foreseeable future, with the legislation which would have increased it to 68 by 2028 being repealed earlier this year. Thirdly, the introduction of an automatic enrolment system in Ireland, which would further improve private pension saving, also continues to be delayed with no indication as to when it might arrive.

 

This year the Index also carried out a detailed review of the gender pension gap which showed all pension systems have a marked disparity between pension provision for men and women. Ireland ranked 20th out of 34 OECD countries, with a gender pension gap of 27.9%, slightly above the OECD 34 average gap of 25.6%. The gap is defined as the difference between the average male and female pension, expressed as a percentage of the average male pension – a higher percentage indicates greater disparity between the genders.

 

Commenting on Ireland’s 2021 ranking, John Mercer, CEO of Mercer Ireland said:

 

“It is positive to see that Ireland’s retirement income system continues to compare relatively well in a global context. While Ireland’s ratings for adequacy and integrity are strong and improving, question marks still remain in relation to the long-term overall cost and sustainability of our system.

 

The arrival of the IORP II legislation in Ireland this year should give rise to a more robust regulatory environment in which private sector pension savers can look forward to improvements to and better services from their pension plans and, hopefully, enhanced outcomes as a result.”

 

Addressing the policy issues that are shaping the pension landscape in Ireland, Mr. Mercer commented:

 

“Government policy needs to focus on ensuring the sustainability of our system and some of the key ways to do this are to continue to increase supplementary pension coverage, improve overall benefit security, and incentivise saving.  While it was encouraging to see the recent report by the Pensions Commission make specific recommendations as to how the State pension could be strengthened, we would urge the government to expedite action in this area in conjunction with wider reform of the pensions system.      

The government also needs to urgently address the relative inadequacy of retirement incomes for women as compared to men. There has rightly been more attention on Ireland’s gender income gap in recent months, with gender pay gap reporting now mandatory for employers, but the MCGPI report shows that the continued inequality between male and female average retirement incomes in Ireland needs to also be addressed as a matter of urgency.”

 

Ireland’s retirement income system comprises a flat-rate basic social security scheme and a means-tested benefit for those without sufficient social insurance contributions. Voluntary occupational pension schemes and personal pension schemes provide supplementary income in retirement but, according to the Irish Central Statistics Office, these currently only cover about 65% of the working population.

 

The 2021 MCGPI report notes that the overall index value for the Irish system could be increased by:

 

  • continuing to increase coverage of employees in occupational pension schemes thereby increasing the level of contributions and assets
  • introducing a State-sponsored automatic enrolment supplementary retirement savings system thereby increasing the level of assets
  • increasing the labour force participation rate at older ages as life expectancies rise
  • continuing to improve the regulatory requirements for private pension plans

President and CEO at CFA Institute, Margaret Franklin, CFA, said it was more important than ever to understand how retirement benefits could be improved.

 

“The pandemic has exacerbated socio-economic inequality in many parts of the world. And, from a long-term investment perspective, we’re operating in an extremely challenging environment with historically low interest rates and, in some cases, negative yields clearly impacting returns,” Ms Franklin said.

 

“Compounding the issue, the gender pension gap presents additional and urgent challenges, with women facing their retirement years with fewer benefits. With these concerns in mind, the promise of a secure retirement depends on policymakers and industry stakeholders taking collective action to examine the strengths and weaknesses of pension systems, with the purpose of delivering better retirement benefits to every individual,” she said.

 

Senior Partner at Mercer and lead author of the study, Dr David Knox, agreed with Ms Franklin, saying it was imperative for participants in the pension industry to act now.

 

“Governments the world over have responded to COVID-19 with significant levels of 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,” Dr Knox said.

 

Gender differences in pension outcomes

 

The MCGPI’s analysis highlighted that there was no single cause of the gender pension gap, despite all regions having significant differences in the level of retirement income across genders.

 

“The causes of the gender pension gap are mixed and varied. Every country and region has employment-related, pension design and socio-cultural issues contributing to women being far more disadvantaged than men when it comes to retirement income,” Dr Knox said.

 

While employment issues are major contributors and are well known – more female part-time workers, periods out of the workforce for caring responsibilities and lower average salaries, for example – the study found that pension design flaws were aggravating the issue. This includes non-mandatory accrual of pension benefits during parental leave, absence of pension credits while caring for young children or elderly parents in most systems, and the lack of indexation of pensions during retirement, which have a larger impact on women due to longer life expectancy.

 

“We know that closing the gender pension gap is an enormous challenge given the close link of the pension to employment and income patterns. But, with poverty among the aged more common for women, we can’t afford to sit idle,” said Dr Knox.

 

“There are a number of actions that pension industries can take. As a start, they must remove eligibility restrictions for individuals to join employment-related pension arrangements. Regardless of how much you earn, how much you work or how long you’ve been working for, every individual should have the ability to participate in a pension scheme that provides adequate benefits.

 

“Pension funds can also introduce credits for those caring for the young and old. Carers provide a valuable service to the community and shouldn’t be penalized in their retirement years for taking time out of the formal workforce,” he said.

 

By the numbers

 

Iceland had the highest overall index value (84.2), closely followed by the Netherlands (83.5). Thailand had the lowest index value (40.6).

 

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), Iceland for sustainability (84.6) and Finland for integrity (93.1). The systems with the lowest values across the sub-indices were India for adequacy (33.5), Italy for sustainability (21.3) and the Philippines for integrity (35.0).

 

In comparison to 2020, China and the UK showed the most improvement as a result of significant pension reform, which improved outcomes for individuals and pension regulation.

 

2021 Mercer CFA Institute Global Pension Index

 

System

Ranking

Overall Index Value

Sub-index value

Adequacy

Sustainability

Integrity

Iceland

1

84.2

82.7

84.6

86

Netherlands

2

83.5

82.3

81.6

87.9

Denmark

3

82

81.1

83.5

81.4

Israel

4

77.1

73.6

76.1

83.9

Norway

5

75.2

81.2

57.4

90.2

Australia

6

75

67.4

75.7

86.3

Finland

7

73.3

71.4

61.5

93.1

Sweden

8

72.9

67.8

73.7

80

UK

9

71.6

73.9

59.8

84.4

Singapore

10

70.7

73.5

59.8

81.5

Switzerland

11

70

65.4

67.2

81.3

Canada

12

69.8

69

65.7

76.7

Ireland

13

68.3

78

47.4

82.1

Germany

14

67.9

79.3

45.4

81.2

New Zealand

15

67.4

61.8

62.5

83.2

Chile

16

67

57.6

68.8

79.3

Belgium

17

64.5

74.9

36.3

87.4

Hong Kong SAR

18

61.8

55.1

51.1

87.7

USA

19

61.4

60.9

63.6

59.2

Uruguay

20

60.7

62.1

49.2

74.4

France

21

60.5

79.1

41.8

56.8

Malaysia

22

59.6

50.6

57.5

76.8

UAE

23

59.6

59.7

50.2

72.6

Spain

24

58.6

72.9

28.1

78.3

Colombia

25

58.4

62

46.2

69.8

Saudi Arabia

26

58.1

61.7

50.9

62.5

Poland

27

55.2

60.9

41.3

65.6

China

28

55.1

62.6

43.5

59.4

Peru

29

55

58.8

44.2

64.1

Brazil

30

54.7

71.2

24.1

71.2

South Africa

31

53.6

44.3

46.5

78.5

Italy

32

53.4

68.2

21.3

74.9

Austria

33

53

65.3

23.5

74.5

Taiwan

34

51.8

40.8

51.9

69.3

Indonesia

35

50.4

44.7

43.6

69.2

Japan

36

49.8

52.9

37.5

61.9

Mexico

37

49

47.3

54.7

43.8

Korea

38

48.3

43.4

52.7

50

Turkey

39

45.8

47.7

28.6

66.7

India

40

43.3

33.5

41.8

61

Philippines

41

42.7

38.9

52.5

35

Argentina

42

41.5

52.7

27.7

43

Thailand

43

40.6

35.2

40

50

Average

 

61

62.2

51.7

72.1

 

 

GENDER PENSION GAP TABLE

 

Country

Gender pension gap

Japan

47.4%

Mexico

42.3%

Austria

40.6%

United Kingdom

40.5%

Luxembourg

40.4%

Netherlands

40.1%

United States

33.7%

France

32.5%

Italy

31.9%

Germany

31.7%

Switzerland

31.2%

Spain

31.0%

Chile

28.7%

Sweden

28.1%

Ireland

27.9%

Norway

26.8%

Turkey

26.5%

OECD34

25.6%

Greece

24.9%

Belgium

24.6%

Portugal

24.5%

Finland

23.2%

Canada

21.8%

Poland

21.4%

Latvia

20.9%

Colombia

16.6%

Lithuania

16.5%

Slovenia

16.2%

Australia

15.3%

Hungary

14.7%

Iceland

13.2%

Czech Republic

12.4%

Denmark

10.6%

Slovak Republic

7.6%

Estonia

3.3%

 

 

About the Mercer CFA Institute Global Pension Index

 

The Global Pension Index benchmarks retirement income systems around the world highlighting some shortcomings in each system and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits.

 

The Global Pension Index is a collaborative research project sponsored by CFA Institute, the global association of investment professionals, in collaboration with the Monash Centre for Financial Studies (MCFS), part of Monash Business School at Monash University, and Mercer, a global leader in redefining the world of work and reshaping retirement and investment outcomes.

 

This year, the Global Pension Index compares 43 retirement income systems across the globe and covers two-thirds (65 per cent) of the world’s population. The 2021 Global Pension Index includes four new systems – Iceland, Taiwan, UAE and Uruguay.

 

The Global Pension Index uses the weighted average of the sub-indices of adequacy, sustainability and integrity to measure each retirement system against more than 50 indicators.

 

For more information about the Mercer CFA Institute Global Pension Index, click here.

 

About Mercer

Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s approximately 25,000 employees are based in 43 countries and the firm operates in 130 countries. Mercer is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 78,000 colleagues and annual revenue of over $18 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.

 

About CFA Institute

CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organization is a champion of ethical behavior in investment markets and a respected source of knowledge in the global financial community. Our aim is to create an environment where investors’ interests come first, markets function at their best, and economies grow. There are more than 175,000 CFA® charterholders worldwide in more than 160 markets. CFA Institute has nine offices worldwide and there are 160 local societies. For more information, visit www.cfainstitute.org or follow us on Linkedin and Twitter at @CFAInstitute

 

About the Monash Centre for Financial Studies (MCFS)

A research centre based within Monash University's Monash Business School, Australia, the MCFS aims to bring academic rigour into researching issues of practical relevance to the financial industry. Additionally, through its engagement programs, it facilitates two-way exchange of knowledge between academics and practitioners. The Centre’s developing research agenda is broad but has a current concentration on issues relevant to the asset management industry, including retirement savings, sustainable finance and technological disruption. 

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