Also globally, there could be encouragement of a higher coverage of private pension. “In some countries it covers only half the workforce,” Knox says. Knox says he hopes the Mercer index will be a document considered by policy makers around the globe. The Mercer report, now in its third year, is funded by the State Government of Victoria and one of the conditions of continued funding by the Victorian Government was that two additional countries were added each year. This year Poland and India were included, and next year Korea and Denmark are slated for inclusion. The index is calculated by combining values that are awarded for adequacy, sustainability and integrity, with about half of the index questions sourced from international groups such as the IMF and the OECD, while the other half are from Mercer.
“We try to break it down into simple questions to reduce subjectivity,” Knox says. With regard to investments, countries are scored on their allocation to growth assets. Knox says Mercer believes between 50 and 60 per cent of a countries’ pension assets should be in growth assets, as an indication of diversification. The ratings of countries’ pension systems are affected if they fall outside this range. Australia, for example, has more than 60 per cent allocated to growth assets and was rated down because of that. This year Mercer also included a “Gold Standard” as an indication on how to achieve the elusive A-rating. “We attempted to show [that] for a developed economy, which applies regulation and the introduction of appropriate policies, it is possible to reach the A-grade.”