The Mercer CFA Institute Global Pension Index offers a comparative study of pension systems worldwide, evaluated according to adequacy, sustainability, and integrity. This index provides an objective and informative assessment of how retirement income systems fare in providing sufficient and secure retirement benefits.
The top accolade in the most recent index goes to the Netherlands, with its system securing an impressive score of 84.8. This success is attributed to its dual structure of a flat-rate public pension coupled with a semi-mandatory occupational pension. Despite the high score, the index also suggests areas of potential improvement for the Netherlands' pension system.
Close on its heels is Iceland, which achieved a noteworthy score of 83.4 in the Index. The Nordic nation operates a blend of basic state pension, supplemented by compulsory private occupational pensions.
Placing third on the list is Denmark, scoring 81.6 on the index because of its public basic pension scheme, a supplementary pension benefit tied to income, a fully funded defined-contribution plan, and mandatory occupational schemes.
In fourth place is Israel, scoring 80.2 on the index. Its unique mix of a universal state pension and compulsory private pensions has helped it achieve this. Despite a high-ranking, Israel - like other top-flight countries - also has room for system enhancement.
The United States, however, features in the lower half of the ranking, standing 29th out of 48 pension systems globally, with a score of 60.4, a decline from the previous year.
One of the prime factors responsible for this gap might be the shift of US employers towards 401(k)s from traditional pension plans. This transition suggests a trend towards defined-contribution plans which, unlike defined-benefit plans like most pensions, mainly rely on the employee's contributions.
In this Index, each sub-index - adequacy, sustainability, and integrity - holds weight. The adequacy measure considers the base level of income a pension system provides, while the sustainability index looks at long-term survival chances of a nation's retirement fund system. The integrity sub-index inspects the conduct of pension plans within each country, including the quality of private sector pensions.
While each country's retirement income system is unique, they share common challenges. With a rising elderly population, it's paramount to ensure the affordability of public pensions, promote private pensions, and enhance system sustainability.