Mercer has launched a pilot index of global pension systems covering 11 countries, in which China and Japan scored lowest, getting the equivalent of a 'D' grade. (This follows another recent indexing of sustainable investments in Asia.)

That means their systems suffer from major weaknesses or omissions that prevent them from coping fully with an unprecedented ageing population.

The good news is that no global system is failing, says Tim Jenkins, Asia-Pacific head of Mercer's retirement, risk and financing consulting business. Nor is any system getting an 'A' grade. No one country has all the answers, but among them there is a mix of policies that can be cherry-picked, meaning there are models available.

Mercer conducted the survey with the Melbourne Centre for Financial Studies (MCFS). The project was funded by the Australian state of Victoria. The partners intend to build the index with more countries over time. The index considered over 40 indicators deemed desirable in retirement income systems and then grouped into three sub-indices, covering adequacy, sustainability and integrity.

Combining these three sub-indices into an overall index value, the Netherlands came out on top, with a score of 76.1. Australia, Sweden and Canada also finished with scores in the low 70s. According to Mercer and MCFS, a score of 65-80 counts as a 'B'.

A 'C' grade required a score of 50-65, and this included Britain, the US, Chile and Singapore, the latter having benefited from the long-established, fully funded Central Provident Fund.

That leaves the remaining three countries -- China, Germany and Japan -- in the 'D' category (ranking 35-50).

China was selected for inclusion in the pilot because of its population size and major reform programmes, says Jenkins. However, the ranking only touched on the pension systems for urban workers and excluded the non-existent coverage for the rural majority.

He says the relatively low score suggests China can take a few important steps to improve its urban population's retirement prospects, including increasing the retirement age, providing robust tax incentives for employee contributions to supplemental plans (enterprise annuities), increasing coverage among mandatory schemes and improving member communication, which can be opaque.

Japan scored at the bottom because of its inability to take care of low-income earners, combined with the most acute problem of a greying society. Like China, it needs to do more to raise the retirement age, bolster tax breaks for retirement savings and raise the minimum benefits for lower-income individuals.

Where the two nations differ is in the details. China's system is actually not too bad in terms of adequacy, which would rate it as a 'C'. But its sustainability is poor and its integrity is terrible -- hence the need to improve member communication.

Japan's integrity scores well, but it falls down in the areas of adequacy -- too many people fall through the cracks -- and sustainability, given the cost of supporting so many retirees.