The Mercer CFA Institute Global Pension Index evaluates retirement income systems globally, providing a comprehensive analysis of how different countries manage their pension schemes.
The Netherlands has retained its leading position as the country with the finest pension system worldwide, thanks to its robust asset foundation and effective regulatory framework, as highlighted by the Mercer CFA Institute’s report.
This extensive study assessed 48 nations, which represent approximately 65% of the global population, analyzing over 50 indicators. These indicators include the adequacy of benefits, the readiness of a system for future demands, and overall trustworthiness.
Countries were rated from A to D and scored on a scale from 0 to 100. Once again, the Netherlands achieved an impressive ‘A’ grade, continuing its reign from the previous year.
Other nations boasting top-tier pension systems include Iceland, Denmark, and Israel. Notably, northern European countries generally received high marks, with Finland and Norway ranking alongside Australia and Singapore for their structured, beneficial systems.
Sweden, the UK, Switzerland, Belgium, Ireland, France, Germany, Portugal, and Croatia also received commendable scores, with Croatia notably improving since last year’s evaluation.
Conversely, South Africa, Turkey, the Philippines, Argentina, and India were ranked among the countries with the least effective pension systems, according to the Index.
Understanding the Rankings
When examining benefit levels, the Netherlands leads the rankings, followed by France and Uruguay. In terms of sustainability, Iceland ranks the highest, with Denmark and Israel also performing well.
Finland stands out as the nation with the most trusted pension system, closely followed by Norway and Hong Kong SAR. Among European nations, Poland ranks the lowest for benefits, while Austria, Italy, and Spain show weaknesses in sustainability. Interestingly, Turkey, with a score of 32.2 out of 100, is deemed more capable of long-term delivery than these three European counterparts.
Trust in pension systems is generally strong across Europe, with Finland scoring the highest and Poland the lowest in this regard.
Future Risks
The report reveals low scores for sustainability across many pension systems, raising concerns about the long-term security of retirees. Factors contributing to these concerns include an aging population, longer life expectancies, and declining birth rates.
Moreover, government debt levels in Europe have surged to 88.7% of GDP in the eurozone, making future public expenditure financing increasingly expensive. A high GDP-debt ratio is often perceived as risky, leading to higher bond prices and increased costs for debt refinancing.
“The pension industry must improve upon many current arrangements,” stated Dr. David Knox, the report’s lead author.
The report provides several recommendations, highlighting key areas identified by the World Economic Forum that significantly impact financial security in retirement. These include establishing a “safety net” pension for all, facilitating access to effective and well-managed retirement plans, and supporting initiatives aimed at increasing contribution rates.
Additionally, it’s essential for retirees to receive long-term protection from potential risks, with a focus on ensuring consistent income throughout their retirement. Recommendations also call for more flexible practices, such as enabling older employees to continue working while accessing a portion of their retirement savings.
Increasing the state pension age and promoting private savings are crucial steps to enhance the sustainability of future pension systems, according to the report.
Photo credit & article inspired by: Euronews
