Canada’s retirement system has maintained its B rating on the Melbourne Mercer Global Pension Index, as its overall score rose slightly from 66.4 in 2016 to 66.8 in 2017.
However, Canada’s sustainability score dropped due to the recent move to maintain old-age eligibility at age 65. “Canada’s recent change to maintain the eligibility for old-age security at age 65, rather than gradually increase this eligibility to age 67, resulted in a slight decline in its sustainability score,” said Scott Clausen, partner in Mercer Canada’s wealth business, in a release.
“One of the top recommendations for all countries is to increase the eligibility age for state pension plans to reflect increasing life expectancy — something that is already occurring in many developed countries around the world.”
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Another contributor to the drop in Canada’s sustainability score is a new indicator that measures the level of real economic growth in a country. Weakening the impact of factors like significant pension assets and high mandatory contributions, the new indicator hurt the ratings of Canada, Denmark and the Netherlands. But it pushed up the scores of China, India and Ireland, where high real economic growth is expected to continue over the next three years, according to Mercer.
While the index measures a number of different factors, Jacques Goulet, president of health and wealth at Mercer, emphasized the importance of the sustainability aspect. “Increasing life expectancies and low investment returns are having significant long-term impacts on the ability of many systems around the world to deliver adequate retirement benefits both now and into the future,” he said. “These pressures have alerted policy-makers to the growing importance of intergenerational equity issues.”
Austria, France, Italy and Japan, noted Goulet, are developed economies with pension systems that don’t represent a sustainable model, both now and in the future.
Read: How does Canada’s public pension system measure up globally?
For Canada, the coming enhancement to the Canada Pension Plan doesn’t yet play into Canada’s rating as the increases in contributions will only start building up in 2019. But Clausen noted the enhancement “is expected to help increase Canada’s overall score in the coming years.
“As we found in our recent white paper . . . bold action is needed from both governments and employers to close Canada’s retirement savings gap, presently estimated at nearly $3 trillion. The enhancement of the Canada Pension Plan is a good first step, and we hope Quebec will soon announce a similar enhancement to the Quebec Pension Plan.”
No country received an A grade this year, although Denmark held the highest overall score for the sixth consecutive year at 78.9. The Netherlands and Australia followed with 78.8 and 77.1, respectively.
The index is an important tool for policy-makers, said David Knox, a senior partner at Mercer. “We know there is no perfect system that can be applied universally, but there are many common features that can be shared for better outcomes.”
Read: Sounding Board: Expansion of QPP necessary for future of Canada’s retirement system