The 2024 Mercer CFA Institute Global Pension Index (MCGPI) reveals the ongoing need for retirement system improvements globally, driven by declining birth rates and increasing longevity.

The 16th annual report, released by Mercer, a business of Marsh McLennan, and the CFA Institute, highlights how pension systems are adapting. The Netherlands remains the top-performing retirement income system worldwide, with Iceland in second place and Denmark in third.

Pat Tomlinson, Mercer’s president and CEO, emphasized the growing importance of retirement income systems as people live longer and fertility rates decline.

He stated, “Ensuring strong alignment in private and public retirement income arrangements, increasing employee coverage and encouraging higher labour force participation for those who wish to work at older ages are just a few ways to improve long-term outcomes for retirees.”

The report notes a global shift from defined benefit (DB) plans to defined contribution (DC) plans, which presents challenges for both pension systems and individuals.

According to Margaret Franklin, CFA and president and CEO of CFA Institute, “DC plans require individuals to make complex financial planning decisions that may significantly impact their financial circumstances, and yet many individuals are not well prepared to manage the required decisions.”

She added that the Index “serves as an important reminder of the gaps that remain in providing long-term financial security and advice for individuals.”

Franklin further highlighted the need for credentialed, ethical financial advisors to address these challenges, citing new initiatives in the private wealth space aimed at bridging this gap.

The shift to DC plans offers flexibility and personalisation, especially as the concept of retirement evolves. Many people are now transitioning gradually into retirement or returning to the workforce in a new capacity.

The benefits of DC plans extend to gig and contract workers, who are often excluded from traditional DB schemes.

David Knox, the report’s lead author and senior partner at Mercer, stressed that reforms to retirement income systems are necessary to meet retirees’ financial needs and adjust to their changing work expectations.

He noted, “There is no single solution to getting retirement systems onto more solid ground,” calling for collaboration among governments, policymakers, the pension industry, and employers to secure dignity and lifestyle continuity for retirees.

The 2024 Index revealed that the Netherlands had the highest overall score of 84.8, followed by Iceland with 83.4 and Denmark with 81.6. The Index scores are based on sub-indices for adequacy, sustainability, and integrity.

The Netherlands scored the highest for adequacy (86.3), Iceland led in sustainability (84.3), and Finland topped the integrity category (90.8).

Despite recent reforms in countries like China, Mexico, India, and France, increasing longevity, high interest rates, and rising healthcare costs have placed significant pressure on government budgets, causing slight reductions in scores this year.

Pension reforms in China, announced in September, were not yet reflected in its 2024 score.

The MCGPI, co-sponsored by CFA Institute, Mercer, and supported by the Monash Centre for Financial Studies (MCFS), compares 48 global retirement systems, representing 65 percent of the world’s population.