19 October 2015

Indonesia, Jakarta

  • Denmark ranked #1 for fourth year running

  • Recently implemented BPJS Pension not yet having meaningful impact

  • Sustainability of pension systems under the microscope in seven-year review


Indonesia’s 2015 Melbourne Mercer Global Pension Index (MMGPI) grade remains a “D” while its index score rose modestly from 45.3 in 2014 to 48.2 in 2015.

“The lack of harmonization across Indonesia’s three mandatory pension schemes and private sector pension market remains a serious constraint on the quality of Indonesia’s pension system and its ability to provide adequate financial coverage to retirees,” said Andri Priyanto, Head of Retirement Business Development for Mercer.

“It is premature to examine the impact of the new BPJS pension plan on Indonesia’s global pension index score” said Mr. Priyanto. “The D-grade classification is not uncommon in the early stages of a new retirement system,” he added.

The increase in Indonesia’s 2015 Index score is partly attributed to a higher household savings rate and, perversely, a slight drop in life expectancy, which reduces financial pressure on the pension system through a reduction in duration of pension payments.

Denmark and The Netherlands achieved an A grade. They are the only countries in the history of the index to have done so.

Now in its seventh year, the MMGPI measured 25 retirement income systems against more than 40 indicators under the sub-indices of adequacy, sustainability and integrity. The MMGPI is the world’s most comprehensive comparison of pension systems. It covers close to 60% of the world’s population and suggests how governments can provide adequate and sustainable benefits that protect their citizens against longevity risk, the risk of their aging population outliving their savings, potentially one of the biggest economic and social risks facing many retirees today.

Denmark held onto the top position for the fourth consecutive year in 2015 with an overall score of 81.7. Denmark’s well-funded pension system with its good coverage, high level of assets and contributions, the provision of adequate benefits and a private pension system with developed regulations are the primary reasons for its top spot.

Indonesia’s integrity sub-index score increased from 68.3 in 2014 to 70.8 this year.

“The increase in Indonesia’s integrity sub-index score demonstrates the steps the government is taking to improve the administration of the mandatory pension schemes,” said Mr. Paul Surprenant, President Director for Mercer.

Author of the report and Senior Partner at Mercer, Dr David Knox, said, “Implementing the right reform to improve pension systems and provide financial security in retirement has never been more critical for both individuals and societies.”

“The MMGPI is an important reference for policy makers around the world to learn from the most adequate and sustainable systems. 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,” added Dr Knox.

Amy Auster, Executive Director of the Australian Centre for Financial Studies said the Index continued to be used by policy makers and researchers to assess the merits of their pension systems.

“The Index is used internationally both to highlight the relative strengths of pension systems and to identify opportunities and options for improvement. Looking back at the results from the past seven years we can see several countries that have adopted recommendations from our annual reports to strengthen their pension systems.

It is encouraging to see that the insight provided by the Index encourages and supports policymakers and industry practitioners to take a long-term view and work toward the betterment of their pension systems.”

“This is not always easy in the face of demographic pressures and changing market conditions, but we see clear evidence that policy-makers are continuing to enhance their pension systems in order to adequately serve future generations,” said Ms Auster.

Seven years of the MMGPI: How sustainable are the world’s pension systems?

The 2015 MMGPI looked beyond the annual rankings to observe changes over the last seven years and assess which pension systems will continue to deliver and which ones are at risk.
“Our seven-year snapshot highlights the importance of measures such as adjusting the state pension age, increasing workforce participation amongst our ageing population, or funding additional contributions for future retirement income,” said Dr Knox.

We’re spending longer in retirement

All of the 11 countries that have been part of the MMGPI since it began in 2009 have experienced an increase in the expected length of retirement from 2009 to 2015, with the average length rising from 16.6 years to 18.4 years.

Five countries – Australia, Germany, Japan, Singapore and the UK – have increased their pension age to offset the increase in life expectancies, but these are not enough to halt the increasing length of retirement.

The Index also looks at the average expected length of retirement in 20 years, and by this measure, three countries have witnessed a reduction. For Canada and the Netherlands this is due to a projected increase in the state pension age from 65 to 67 during the 20 years, while for the USA, life expectancy has reduced slightly. The other eight countries showed an increase.

Increasing workforce participation of older workers: good for the economy & individuals

For the 16 countries that have been part of the MMGPI since the 2011 report, the average labour force participation rate for 55-64 year olds has increased from 57.9% to 62.2% between 2011 and 2015, or just over 1% per year.

However, averages can be misleading. The labour force participation rate at older ages actually went backwards in the USA. In Brazil, India and China, it increased by less than 4%.

“Extending the years that individuals spend in the workforce is one of the most positive ways of developing sustainable retirement systems when life expectancies are increasing,” Dr Knox said.

“While there is a natural limit to the participation rate at older ages, with most countries still below 70%, the scope for significant increases across the world remains, which would improve the sustainability of many pension systems,” Dr Knox added.

Preventing financial strain on the next generation

The sustainability of a pension fund cannot be assessed without reviewing the level of funds set aside today to pay future retirement benefits so that the expected pension are not a financial strain on the next generation.

There is an enormous variety in the level of pension assets held ranging from 1.8% of GDP in Indonesia and 6.0% of GDP in Austria to 160.6% of GDP in the Netherlands and 168.9% of GDP in Denmark.

“The diversity in pension assets held as a percentage of GDP recognizes that some countries have very limited private pension arrangements whereas others have well-developed and mature pension systems. However, it is an important warning for all countries to prepare, prepare, prepare,” said Dr Knox.

How can Indonesia’s retirement savings system improve?

The MMGPI identified room for improvement in all countries’ retirement income systems. Suggested measures to improve Indonesia’s ranking include:

  • Rationalizing the disparate mandatory pension programs and bringing them under one regulatory body;

  • Eliminating disincentives for employers to provide supplemental, private sector pension plans to their employees;

  • Increasing the pension age in line with increases in life expectancy;

  • Improving the regulatory framework to incentivize growth in private pension coverage; and

  • Mandating minimum levels of information be provided to all pension scheme participants.


As the BPJS Pension system matures, it is expected to improve support for the poor and provide a minimum level of financial protection to retirees.

“The implementation of BPJS Pension certainly helps improve Indonesia’s pension system. However, there is still a lot of room for improvement, particularly in rationalizing the three mandatory public schemes and harmonizing them with the rapidly growing private sector pension market. Only a well-integrated public-private pension system will deliver the retirement financial protection that Indonesians need,” said Mr. Priyanto.

The MMGPI Index assesses pension coverage provided by formal retirement schemes.

“The Index, however, does not capture Indonesia’s strong culture of family and local community support for those in need. The Index only measures quantifiable statistics. It is not meant, or able, to capture cultural differences,” Mr. Surprenant explained.

The Index looks objectively at both the publicly-funded and private components of a system, as well as personal assets and savings outside the pension system. It is published by the Australian Centre for Financial Studies (ACFS) in conjunction with Mercer and is funded by the Victorian State Government.

About the Australian Centre for Financial Studies

The Australian Centre for Financial Studies (ACFS) is a not-for-profit consortium of Monash University, RMIT University and Finsia (Financial Services Institute of Australasia) which was established in 2005 with seed funding from the Victorian Government.

The mission of the ACFS is to build links between academics, practitioners and government in the finance community to enhance research, practice, education and the reputation of Australia's financial institutions and universities, and of Australia as a financial centre. ACFS conducts leading edge finance research, commentary and thought leadership. More information can be found at and on the Index

About Mercer

Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in more than 40 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit Follow Mercer on Twitter @Mercer.