The World's Best and Worst Pension Systems in 2024
The U.S. retirement system received a C+ grade again this year, but its score dropped for a second year in a row in a new ranking of global retirement systems.
The U.S. system, which is funded mostly by individual retirement accounts (IRA), 401(k)s and Social Security, came in 29th out of 48 countries, according to the Mercer CFA Institute Global Pension Index, released Monday. Its overall score dipped to 60.4 out of 100, down from 63.0 last year and 63.9 in 2022. It was also below the overall average of 63.6.
U.S, scores declined in every subcategory – adequacy, sustainability and integrity – that make up the overall score. But the largest drag was from adequacy, which includes benefits provided by the current pension systems, and design features that can potentially improve the likelihood that adequate retirement benefits are provided.
The U.S. adequacy score was 63.9, down from 66.7 last year and below the 64.9 average of all countries examined, putting it at number 30 out of the 48 countries examined.
The U.S. provides a benefit of 15.6% of the average worker’s earnings for the lowest-income workers at retirement, according to the Organisation for Economic Co-operation and Development (OECD) data. “the better systems have a figure of at least 25% of the average wage,” said Dr. David Knox, lead author of the Mercer CFA Global Pension Index, Actuary and Senior Partner at Mercer.
Why are retirement systems under stress?
As fewer people enter the workforce following decades of declining birth rates, the imbalance between the retired and working age population continues to grow, Knox said.
“This trend, coupled with increasing longevity and a prolonged cost of living crisis, will directly impact the future success of the U.S.’s retirement savings system,” he said.
What steps can the US take to shore up its retirement system?
Better access to retirement plans and financial education are imperative, said Graham Pearce, Mercer’s Global Defined Benefit Segment Leader.
In the U.S., only 52% of the working age population have a retirement account, Knox said. “In the better systems, that figure is more than 80%,” he said. That means almost every employee, “whether temporary or full time, is putting money aside for their retirement, whether it be through an employee or employer contribution, or both,” he said.
The report also noted many U.S. gig and contract workers have been left out of traditional retirement plans.
The U.S. also needs to boost financial education, starting in schools, and “provide universal access to good quality sound advice and guidance,” Pearce said. “At the moment, good quality independent financial advice is out of the reach of most plan participants.”
What country has the best retirement system?
The top three countries, according to the research, are the same as last year:
No. 1 Netherlands (score of 84.8/100)
No. 2 Iceland (83.4)
No. 3 Denmark (81.6)
What country has the worst retirement system?
The bottom three countries, according to the report, are:
No. 1 India (44.0/100)
No. 2 Argentina (45.5)
No. 3 Philippines (45.8)
Doloresz Katanich of European News also reports on which European country takes the crown in global survey on pensions:
The Mercer CFA Institute Global Pension Index assesses retirement income systems around the world.
The Netherlands has held onto the top spot as the country with the best pension system in the world, due to its strong asset base and very sound regulation, according to the Mercer CFA Institute.
The report compared 48 countries across the world, home to 65% of the global population. It looked at more than 50 indicators, examining the level of benefits, how prepared a system is to deliver in the future and how much it can be trusted.
Based on this assessment, the index graded countries from A to D (and from 0 to 100), with the Netherlands scoring 'A' once again after winning the top spot last year.
Other countries in this category featuring a first-class pension system are Iceland, Denmark and Israel.
For the overall pension system, northern European countries were generally graded high, with Finland and Norway taking the top spots in the survey - as high as Australia and Singapore. This means that their systems feature a sound structure and have a number of good features.
Sweden, the UK, Switzerland, as well as Belgium, Ireland, France, Germany, Portugal and Croatia, also earned good grades, with the latter improving significantly since last year's report.
Meanwhile, some of the world's worst pension systems are to be found in South Africa, Turkey, the Philippines, Argentina and India, according to the Index.
Behind the grades
When these countries are analysed for the highest level of benefits, while the Netherlands still tops the ranking, France comes second and Uruguay is listed third. When the sustainability of the pension system is examined, Iceland ranks highest, followed by Denmark and Israel.
Finland is the place where the pension system can be trusted the most, with Norway and Hong Kong SAR following its lead.
In an analysis of the worst-performing European countries - Poland came bottom of the list in terms of the level of benefits.
The sustainability of the pension system appears to be the weakest in Austria, Italy and Spain. Interestingly, based on the scoring, Turkey's system (given 32.2 out of 100) is more certain to deliver in the long-term than these three European countries.
The system is highly trusted across Europe, with Finland scoring the highest, and Poland the lowest in this category.
Risks for the future
Some of the lowest scores across the report were awarded to the sustainability of systems. This suggests that the long-term prospects of pensioners are at risk, taking into consideration the ageing population coupled with increasing life expectancies and falling fertility rates.
Meanwhile, government debt in Europe is at a high level, up to 88.7% of GDP in the eurozone, predicting financing future public expenditures to be expensive. (A country with a high GDP-debt ratio is seen as risky. Its bonds are consequently priced higher costing more to refinance the debt from the market.)
"The pension industry must do better than many of the current arrangements," said lead author of the report Dr David Knox.
The report includes recommendations and refers to the key areas named by the World Economic Forum that have the biggest impact on financial security in retirement, including providing a "safety net" pension for all, making it easier for people to access cost-effective and well-managed retirement plans and support initiatives to increase contribution rates.
The report adds that retirees need some long-term protection from future risks and that the focus must be on the provision of regular income during the retirement years.
Further recommendations include flexibility and practices such as encouraging older employees to keep working while having access to part of their retirement savings.
Increasing the state pension age and encouraging private savings are also important steps to secure future pension systems, according to the report.
The Mercer CFA Institute Global Pension Index was released yesterday and you can find the report here:
The Mercer CFA Institute Global Pension Index benchmarks 48 retirement income systems around the world, highlighting challenges and opportunities within each. Vietnam was added to the mix this year. We used updated data from the OECD and other international agencies and added some new questions to the integrity sub-index.
The index is made up of three sub-indices, namely adequacy, sustainability and integrity, to measure each retirement income system against more than 50 indicators. This year’s A-grade pension systems are the Netherlands, Iceland, Denmark and Israel.
Each year we include a feature chapter that looks at a topical issue within the pension space. This year we explore how we can help defined contribution members get the best retirement outcomes. Download the report below to discover more about the analysis and your pension system.
Again, take the time to read the entire report here, it's well written.
Not surprisingly, the Netherlands came in top spot again, followed by Iceland and Denmark.
All three countries have excellent pension systems that cover their population very adequately.
What about Canada? As shown below, the Canadian index value decreased from 70.2 in 2023 to 68.4 in 2024, primarily due to decreases in the base pension (when expressed as a percentage of the average wage) and net pension replacement rates, following an increase in the average wage published by the OECD:
The report states the overall index value for the Canadian system could be increased by:
- Increasing the coverage of employees in occupational pension schemes, mainly in the private sector, through the development of an attractive product for those without an employer-sponsored scheme
- Introducing a minimum access age for all pension products
- Increasing the level of household savings and reducing the level of household debt
- Reducing government debt as a percentage of GDP
Lack of covet remains a huge issue in Canada.
On this topic, I was happy to learn GM, Unifor recently signed an agreement that includes transition to CAAT DBplus pension plan, benefits gains:
The union representing more than 1,300 employees at General Motors’ assembly plant in Ingersoll, Ont. has ratified a two-year collective agreement that includes pension and benefits gains.
On Aug. 3, 2025, employees hired on or after Sept. 17, 2013, and currently participating in the defined contribution pension plan will be enrolled in the Colleges of Applied Arts and Technology’s DBplus pension plan. Once transferred into the CAAT DBplus pension plan, members and the employer will continue to make the mandatory four per cent and seven per cent contributions, to a maximum of 2,080 hours.
For employees hired before Sept. 17, 2013, who are enrolled in the defined benefit pension plan, the monthly basic benefit and transition payment will increase by an additional $5.60 for production associates and $6.60 for maintenance associates, effective Dec. 1, 2024. A new joint and survivor option will be added effective Oct. 1, 2025.
In terms of benefits gains, vision coverage will increase from $110 to $120 for eye exams and coverage for digital retinal imaging, visual field diagnostic and optical coherence tomography exams is added at $120 per exam to a combined maximum of $200 for all exams every 24 months.
The per-visit maximum for psychologists will increase from $75 to $100 and the annual maximum will increase from $700 to $1,000. Psychotherapy has been added as an eligible benefit expense as well. The per-visit maximum for physiotherapists will increase from $50 to $100, the annual maximum will increase from $200 to $400 and the requirement for a doctor’s referral is removed.
The agreement also compresses three years of wage gains into the two-year agreement, providing 15 per cent in negotiated wage increases for production workers and 20.25 per cent for skilled trades. Workers will receive an immediate 10 per cent pay increase with a two per cent increase in September 2025 and an additional three per cent increase in July 2026.
We need more deals like this to cover more Canadians across the private and public sector (like physicians, for example, and other healthcare workers that aren't covered).
Anyways, the Canadian pension system isn't terrible, the three pillars that include CPP, OAS and GIS kick in to help all seniors but a lot more needs to be done.
Enhanced CPP will help future generations retire more comfortably but we need a better system to address the current inadequacies and there are plenty.
Lastly, I want to emphasize that the Mercer CFA Global Pension Index only rates a country's retirement system, not the public pension funds within each country.
Canada has some of the best pension plans/ funds in the world, fully funded and extremely well-managed but they are not enough to make sure our pension system covers everyone adequately.
Therein lies the problem and irony, we have amazing pension funds but we can't cover everyone properly.
Below, a 2020 clip on the launch of the Mercer CFA Global Pension Index. Take the time to listen to the presentation to appreciate the work that goes behind this index.
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