The Netherlands has topped a global ranking of pension systems covering almost two-thirds of the world’s population, with the UK languishing in fifteenth place.
Denmark and Israel complete the top three positions in the annual Mercer CFA Institute Global Pension Index, which assesses 39 retirement income systems for adequacy, sustainability, and integrity.
The UK’s index value increased marginally from 64.4 to 64.9 over the last year due to a number of small changes in the sustainability sub-index, but it still lags far behind the Netherlands' score of 82.6.
Thailand has the lowest index value on 40.8, followed by Argentina and the Philippines on 42.5 and 43 respectively.
Mercer warned that COVID-19 is exacerbating retirement insecurity brought on by increasing life expectancies and rising pressure on public resources worldwide.
“The economic recession caused by the global health crisis has led to reduced pension contributions, lower investment returns and higher government debt in most countries,” said Dr David Knox, senior partner at Mercer.
“Inevitably, this will impact future pensions, meaning some people will have to work longer while others will have to settle for a lower standard of living in retirement.
“It is critical that governments reflect on the strengths and weaknesses of their systems to ensure better long-term outcomes for retirees.”
For each sub-index, the highest scores were the Netherlands for adequacy (81.5), Denmark for sustainability (82.6) and Finland for integrity (93.5).
The lowest scores were Mexico for adequacy (36.5), Italy for sustainability (18.8) and the Philippines for integrity (34.8).
After measuring the likelihood that systems will be able to provide benefits into the future, Mercer found that the sustainability sub-index continues to highlight weaknesses in many systems.
The average sustainability score dropped by 1.2 in 2020 due to the negative economic growth experienced in most economies due to COVID-19, with the pandemic also increasing gender inequality in pension provision.
“Even before COVID-19, many public and private pension systems around the world were under increasing pressure to maintain benefits,” said Margaret Franklin, CEO of the CFA Institute.
“We have learned a lot about the effectiveness of pension systems over the years, and while there is no single pension system model that will work for every country, the Global Pension Index provides comparative information to differentiate what is possible and practical in each market.”
Image credit: iStock
Author: Chris Seekings