Singapore has been ranked number one amongst Asian countries for a third consecutive year in the annual Melbourne Mercer Global Pension Index (MMGPI).

However, a drop in the index value of Australia’s retirement savings system has seen it slip to third in the overall global standings.

The MMGPI measures 25 retirement income systems against more than 40 indicators under the headings of adequacy, sustainability and integrity. The index, now in its seventh year, looks at both the publicly funded and private components of a system, as well as personal assets and savings outside the pension system.

The report, published on Monday by the Australian Centre for Financial Studies in conjunction with consulting firm Mercer, showed the huge gap between countries whose pension systems are mature and robust, like Denmark and the Netherlands, and those like India and China, which are poorly developed and still fundamentally unsound.

"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" were cited as the primary reasons for its 'A' grade.

By comparison Asia's top-ranked Singapore got a C+ rating, along with Germany and Ireland, whilst China, India, Indonesia, Japan, and Korea all got a ‘D’ rating, with the report suggesting that "without improvements (their) efficacy and sustainability is in doubt".

The enormous disparity in the sustainability of different retirement systems is reinforced by data showing the value of pension assets held in Denmark is 168.9% of GDP, compared with just 1.8% of GDP in Indonesia, Mercer said.

The MMGPI report said that Singapore’s pension index value could be improved by reducing the existing market barriers to new tax-approved group corporate pension plans. Singapore should also open the Central Provident Fund to non-residents, who comprise more than one third of the labour force.

In previous years, Australia has ranked second in the MMGPI global rankings but this year it slipped to third.

"Australia’s overall score in the index remained strong, however we are slower than many countries in improving the sustainability of our system, specifically in terms of increasing [the] workforce participation of older workers and reducing government debt," David Knox, author of the report and senior partner at Mercer Australia, said.

In the case of the 16 countries featured in the 2011 report, the Mercer report notes that labour participation rates for those aged 55-65 have since increased on average by more than four percentage points to 62.2%.

But the scope for significant increases across the world remains, which would improve the sustainability of many pension systems, Knox said.

"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. 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," he said.

The Mercer report also looks at asset allocation and its effect on the growth of pension assets over a period that includes some of the global financial crisis. Notably, the exposure of pension funds to growth assets, including equities and real estate, ranges from just 10% in India, Korea, and Singapore to 70% in Australia and South Africa.

"Reviewing the evidence since the index began in 2009," the report said, "we observe that those countries with higher growth exposures tend to have a higher level of assets when expressed as a percentage of GDP. 

"It is not clear whether this outcome is caused by the stronger focus on growth assets with their higher long-term returns, the existence of mature pension arrangements and/or stronger capital markets, or some other factor such as the design of the state pension," the report said. "It is likely to be a combination of factors that vary between countries."