Sri Lanka has the third worst pension system among 70 nations, in terms of sustainability and adequacy, according to the latest Allianz Group Pension Index (API).
The index, covering 70 countries, is based on three sub-indices: demographic change and public financial situation (financial leeway), sustainability and adequacy (providing a sufficient standard of living in old age).
Sri Lanka was ranked 32nd in the demographic change and the public financial situation sub-index, however, was ranked poorly at 69th and 64th in sustainability and adequacy sub-indices.
The first sub-index looks at demographic change and public finances, where Sri Lanka was ranked at a moderate position. In this sub-index, developed countries such as Portugal and Italy performed poorly, given their older populations and high debt levels, while emerging economics performed better, due to their young populations and low public deficits and debts.
Sri Lanka’s pension system was ranked second worst in the second sub-index, which delved into sustainability, in terms of how the pension system reacts to demographic change.This was mainly due to lack of reforms into the country’s pension system, along with the demographic change.
For example, Indonesia and Bulgaria earn high marks because they’ve boosted their retirement ages and have disincentivised early retirement.
However, Saudi Arabia, Sri Lanka and Malaysia, fared poorly, mainly because their respective retirement ages remained at 60.
“At the bottom of the scale are Saudi Arabia, Sri Lanka and Malaysia, where the retirement ages are 60 and below and neither early retirement deductions nor other demographic factors are in place, which is last but not least owed to the fact that old-age dependency ratios and thus the reform pressure in these countries are still relatively low,” the researchers pointed out.
Among the 70 countries, Sri Lanka had the fourth lowest legal retirement age after the UAE, Thailand and Nigeria.
The authors of the report noted that the controversial nature of such reforms was the main reason for the delay.
“Despite these improvements in life expectancy, changes to the statutory retirement age are highly controversial. In many countries, there is a persistent reluctance to raise the pension age, in line with gains in life expectancy, although the number of years in good health has increased, too,” they said.
The third sub-index of the API rates the adequacy of the pension system, questioning whether the pension systems provide an adequate standard of living in old age and Sri Lanka was ranked 64th in this sub-index.
Sri Lanka also had a low pension coverage ratio of the population aged 65 and older, which is little over 20 percent, while the pension coverage ratio for population aged 15-64 remained below 20 percent.
Further, the gross benefit ratio of the pension also remained at 40 percent of the average income.
The researchers noted that the COVID-19 crisis could offer a way forward for pension reform.
“In just a few years, baby boomers will start to retire en masse, putting pension reform back on the agenda with a vengeance. In this context, the drastic measures taken to recover from the COVID-19 confinement shock could embolden policymakers to finally take more courageous steps when it comes to pension reform as well,” they added.