THE Philippine retirement system ranked the 4th lowest in the 2019 Melbourne Mercer Global Pension Index (MMGPI).
In a statement, Mercer said the Philippines ranked 33rd out of 37 economies with an overall index score of 43.7 on the back of inadequate pension support.
The Philippines debut performance in the 11-year-old MMGPI, Mercer said, highlighted the need to increase its support, especially for poor aging individuals.
“Based on its results and ranking in its first inclusion in the index, the Philippines can consider increasing the minimum level of support for the poorest aged individuals and widening coverage of employees,” said Harold Tan, wealth leader, Mercer Philippines.
“It can also look into setting aside funds in the public system for the future and introducing options for retirement plan proceeds to be preserved for retirement purposes,” Tan said.
The index measures each country’s retirement system through three subindices— sustainability, adequacy and integrity.
The Philippines ranked the lowest in terms of integrity where it had a subindex score of 34.7 and third lowest in terms of adequacy with its 39 sub-index value. The country was, however, in the top 15 for sustainability, with a subindex of 55.5.
Integrity considers three broad areas of the pension system—regulation and governance; protection and communication for members; and operating costs.
Adequacy considers the benefits provided to the poor and a range of income earners. This includes design features and characteristics that enhance the efficacy of the overall retirement income system.
Sustainability includes factors such as the economic importance of the private pension system and level of funding.
This also takes into consideration the length of expected retirement, labor force participation rate of the older population, the current level of government debt and the level of real economic growth.
“By benchmarking global retirement income systems, the Melbourne Mercer Global Pension Index can help both the public and private sectors in the Philippines understand how they can improve the country’s retirement system and generate better outcomes for retirees,” Tan said.
Globally, the Netherlands had the highest index value (81), and has consistently held first or second position for 10 out of the past 11 MMGPI reports. Thailand had the lowest index value (39.4). For each subindex, the highest scores were Ireland for adequacy (81.5), Denmark for sustainability (82) and Finland for integrity (92.3).
The lowest scores were Thailand for adequacy (35.8), Italy for sustainability (19) and Philippines for integrity (34.7).
While the pension systems of different countries each have a unique set of circumstances, the report makes clear there are common improvements which can be made to the challenges all regions are facing.
“Systems around the world are facing unprecedented life expectancy and rising pressure on public resources to support the health and welfare of older citizens. It’s imperative that policy- makers reflect on the strengths and weaknesses of their systems to ensure stronger long-term outcomes for the retirees of the future,” said Mercer’s Dr. David Knox, the author of the study.
The Index uses the weighted average of the subindices of sustainability, adequacy and integrity to measure each retirement system against more than 40 indicators.
The 2019 Index calculates the net replacement rate, that is, the level of retirement income provided to replace the previous level of employment earnings, using a range of income levels based on the Organisation for Economic Co-operation and Development data to represent a broader group of retirees.
The MMGPI, supported by the Victorian Government of Australia, is a collaborative research project between the Monash Centre for Financial Studies (MCFS)—a research center based within Monash Business School at Monash University in Melbourne—and professional services firm, Mercer.
Image credits: Nonoy Lacza