Which countries have the best retirement systems? The Netherlands, Iceland and Denmark are the top three, according to the 2024 Mercer CFA Institute Global Pension Index. The top three were unchanged from last year’s report.

The 16th annual survey benchmarked and compared the retirement systems of 46 countries, with a secondary purpose of highlighting shortcomings in each system and suggesting areas of reform.

Among the characteristics present in the top-rated plans, the researchers identified:

• A public pension for the aged poor of at least 25% of the
  average wage;
• A net replacement rate (including both public and private pensions)
  of at least 65% for a median-income earner with a full career;
• Private pension coverage of at least 80% of the working-age
  population;
• Pension contributions that are being invested for the future of at
  least 12% of wages;
• Pension assets of at least 100% of GDP;
• A well-governed and well-regulated private pension system.

Each country was scored according to three metrics:

• Adequacy (40% weight): system design, government support, home ownership, savings, growth assets and benefits;

• Sustainability (35% weight): government debt, public expenditure, demography, economic growth and pension coverage; and

• Integrity (25% weight): regulation, communication, protection, governance and operating costs.

The Netherlands had the highest overall score (84.8) and the highest adequacy score (86.3). Iceland, No. 2 on the list, had a total score of 83.4 and the highest sustainability score of 84.3. Denmark, ranked third, had a total score of 81.6. Finland, with a score of 75.9, had the highest integrity score at 90.8.

The United States ranked 29th out of 46 with a total score of 60.4, an adequacy score of 63.9, a sustainability score of 58.4 and an integrity score of 57.5.

According to the report, increasing longevity, higher interest rates and the rising costs of care are putting pressure on governments to support pension systems. As a result, several countries have slightly lower scores than in previous years.

“In a world where fertility rates are falling and life expectancy is rising, retirement income systems are center stage,” said Pat Tomlinson, president and CEO of Mercer, in a statement. “Ensuring strong alignment in private and public retirement income arrangements, increasing employee coverage and encouraging higher labor force participation for those who wish to work at older ages are just a few ways to improve long-term outcomes for retirees.”

Rankings

The rankings were based on total index value. Grade A systems had an index value of greater than 80, B+ systems had an index value ranging from 75 through 80, B systems from 65 through 75, C+ systems from 60 through 65, C systems from 50 through 60 and D systems from 35 through 50. E systems were those with an index value less than 35, although no countries scored so low.

Of the countries considered, only the Netherlands, Iceland, Denmark and Israel had a grade of A, which Mercer and the CFA Institute described as first-class and robust retirement systems that deliver good benefits, are sustainable and have a high level of integrity.

Singapore (78.7), Australia (76.7), Finland (75.9) and Norway (75.2) earned B+ scores. Chile (74.9), Sweden (74.3), the U.K. (71.6), Switzerland (71.5), New Zealand (68.7), Mexico (68.5), France (68) and Germany (67.3) were among the countries that received scores of B. B+ and B countries have retirement systems that have a sound structure and “many good features” but have room for areas of improvement that differentiate them from an A-grade system

The UAE (64.8), Kazakhstan (64), Hong Kong (63.9), Colombia (63), Saudia Arabia (60.5) the U.S. (60.4) and Spain (63.3) had C+ grades. Poland (56.8), China (56.5), Malaysia (56.3), Brazil (55.8) and Japan (54.9) were among the countries with a C grade. C+ and C countries were described as countries in which the retirement systems have some good features, but also some major risks or shortcomings that need to be addressed.

South Africa (49.6), Turkey (48.3), Argentina (45.5), the Philippines (45.8) and India (44) received D grades as countries with systems that have some desirable features, but also major weaknesses and omissions that need to be addressed.

From DB to DC

The global pension landscape is changing, as more and more countries and plans shift to defined contribution plans from defined benefit plans, noted Margaret Franklin, president and CEO of the CFA Institute, in the report.

The Netherlands, for example, is in the process of transferring its entire retirement system from defined benefit plans to defined contribution plans by 2028 as part of the Netherlands’ Future Pension Act.

“The ongoing shift to defined contribution pension plans introduces many financial planning challenges, which are falling squarely on the shoulders of tomorrow’s retirees,” Franklin wrote in the report. “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. The Index serves as an important reminder of the gaps that remain in providing long-term financial security and advice for individuals.”

Regarding defined contribution plans specifically, the report found that “the focus must be on the provision of regular income during the retirement years,” and that “retirees need some long-term protection from future risks.”

As people live longer and as birthrates decline, numerous countries and plans are shifting toward defined contribution plans which put the burden of risk on retirees. Franklin wrote that pension funds must evolve to provide a range of options and support to help individuals achieve the best possible retirement outcomes.

In addition, David Knox, an Australia-based senior partner in Mercer and the report’s lead author, wrote “significant retirement income system reforms are needed to meet the financial needs of retirees and their evolving work expectations. There is no single solution to getting retirement systems onto more solid ground. Now is the time for governments, policymakers, the pension industry and employers to work together to ensure that older populations are treated with dignity and can maintain a lifestyle similar to what they experienced through their working years.”

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