The global pension crisis – how to close the retirement savings gap



20 July 2021

The latest OECD Pensions Outlook[i] highlights that the pandemic has compounded the challenges facing retirement savings, with economic growth, interest rates and returns all likely to remain low long into the future. This will put many people at risk of not being able to save enough for retirement.

Employees globally have experienced financial challenges due to the pandemic, from declining income to job insecurity, which in some cases is making saving for retirement less of a priority than before. 

According to the World Economic Forum[ii], there are now more people over the age of 65 than under the age of five. This means fewer young people will be able to support the growing number of retirees, and people may need to retire later.

However, they warn that longer retirements cannot always bridge the retirement savings gap. Amongst nations with large populations or sizable retirement savings markets, the gap was $70 trillion in 2015 and is forecast to reach $400 trillion by 2050.

With ageing populations putting increasing pressure on global pension and retirement plans, employees, employers, and governments all need to take more responsibility to prioritise pensions and savings as we move beyond the pandemic.

The global pension picture

Financial concerns about retirement are a global issue, but pension systems vary enormously. According to the latest Mercer CFA Institute Global Pension Index[iii] the Netherlands and Denmark have the best pension systems in the world, and Argentina and Thailand the worst. The UK’s pension system fell one place to rank 15th.

In Asia[iv], Singapore has the top retirement income system, followed by Hong Kong and Malaysia, with South Korea also recognised for improving in this latest index.

But a recent study by St James's Place Wealth Management Asia[v] showed that over half (54%) of people in Hong Kong and Singapore are not on track to have enough saved for the lifestyle they want in retirement. Over half (53%) have had to draw down on or reduce contributions to their retirement savings since the start of Covid-19, with 17% having to do so in a significant way.

In China, where the usual pension age for men is 60 there have been stark warnings since 2019 that the country’s main state pension fund will run out of money by 2035. China’s state pension system is financially unsustainable and highlights a major challenge for the government[vi].

In the Middle East region, the United Arab Emirates (UAE) is one of the top countries where private savings are not required to supplement an individual’s pension after retirement, according to the 2021 UBS International Pension Gap Index[vii].

The UAE offers most nationals a pension income almost equivalent to working income, depending on contribution time. However, UBS warn that despite UAE boasting one of the best positioned pension schemes globally, even this system is not exempt from demographic shifts, putting pressure on it in the coming decades.

In Dubai, the Dubai International Financial Centre, DIFC, recently launched an Employee Workplace Savings, DEWS, scheme, which will offer end-of-employment benefits, as part of a funded and professionally managed contribution pension plan. This is good news for expats.

According to a recent survey, 45% of expatriate employees in the UAE either had no means of maintaining a decent standard of living in their retirement or were planning to work beyond retirement age to derive sufficient income, while 61% of expats said they had no long-term savings.[viii]

Looking at Jordan - where total spending on pensions is already high by international standards and the fact it is still a young country[ix] - older people face increasing challenges to meet their income needs[x]. Even with recent reforms, the system still faces risks from financial unsustainability and the increased longevity of retirees[xi].

In Kuwait, the pension system design is ahead of the fragmented schemes of many other Arab countries – yet the generosity of the system has created sustainability issues and forces the government to regularly inject new capital. The pension age is low – 50 for women and 55 for men, so this will become more pressing as the population ages[xii].

Finally, Australia’s pension system often hailed as one of the best in the world, is still facing challenges, with Covid-19 having hit pension’s savings hard, and there are real concerns that retirees will increasingly be living in pension poverty

The country has a three-pillar pension system, which includes a means-tested, tax-financed Age Pension that provides basic benefits and individually funded pensions accounts provided by Superannuation funds.

A study by the Australian National University[xiii] survey in early 2021 found more than 70% of adults think the current age pension of $944.30 per fortnight for a single person with no children is not enough.

It also reported that 56% of Australians who are not yet retired are worried they won't have enough savings to live comfortably when they stop working. This is a large increase since in 2015, when only 39.6% thought they would not have enough money.

The study also showed how many Australians have had to tap into their savings during the last 12 months due to the Covid-19 pandemic, with 13.3% accessing superannuation early and almost 18%% drawing on retirement savings.

Prioritising pensions

It is clear more needs to be done to close the gap between expectation and the reality of retirement income in light of ageing populations around the world and the major impact Covid-19 has had on pension funds and savings.

Whilst employers and governments are doing a huge amount to improve investment returns and the management of pensions, individuals need to take personal responsibility too.

Employers can help employees to do this and encourage them to save more by improving engagement with clear, lively communications with a compelling message.

Prioritising pensions and savings is essential to prevent employees sleep walking into retirement poverty and a reliance on state benefits, which in many countries will be inadequate for the retirement most people aspire to.


Adam J Riley - Director of Global Sales

Adam is a Senior Global Benefits and Legal Sector expert with over 20 years’ experience. He specialises in UK domestic employers, cross-border transactions and working with multinational organisations.


Adam J Riley - Howden