When it comes to the world's retirement systems, each is not necessarily created equal.
Pension systems around the world, including social security systems and private sector arrangements, are now under more pressure than ever as more people enter retirement, according to a new report. While some systems are structured to withstand the pressure, others cannot.
"The major causes of this demographic shift are declining birth rates and increasing longevity," stated the report, which was issued by Mercer, the global consulting firm, in partnership with the Australian Centre for Financial Studies.
The 2018 Melbourne Mercer Global Pension Index compared 34 retirement income systems worldwide, measured against 40 indicators.
One nation that did not finish in the top 10 of the ranking was the U.S., which placed 19th with a grade of "C," which the report defined as "a system that has some good features, but also has major risks and/or shortcomings that should be addressed."
Each nation's pension system was graded on "adequacy," including benefits provided; "sustainability," which includes the system's total assets and the percentage of people covered; and "integrity," which includes how well the systems are regulated and administered. The U.S., for example, scored C grades in all three categories.
The following nations, in ascending order, were ranked by the report as having the world's best retirement systems:
10. Canada
Canada’s retirement income system is based on a universal flat-rate pension, supported by a means-tested income supplement. Canada earned an overall grade of B, including a B+ for system integrity and a B for adequacy.
9. New Zealand
New Zealand’s retirement income system is based on a flat-rate public pension and a voluntary workplace savings plan. New Zealand earned an overall grade of B, including an A for its retirement system's integrity and a B for adequacy.
8. Chile
Chile’s retirement income system consists of means-tested social assistance; a mandatory privately managed defined-contribution system; and a framework for employer-sponsored supplementary plans. Chile earned an overall grade of B, including a B+ for system integrity and a B for sustainability.
7. Singapore
Singapore’s retirement income system is based on the Central Provident Fund (CPF), which covers all Singapore residents. Singapore earned an overall grade of B, including an A for system integrity and a B for sustainability.
6. Norway
Norway’s retirement income system is based on an earnings-related social security pension and mandatory occupational pension plans. Norway earned an overall grade of B, including an A for system integrity and a B for adequacy.
5. Sweden
Sweden’s national retirement income system was reformed in 1999 and is now in transition from a pay-as-you-go system to a funded approach. Sweden earned an overall grade of B, including an A for system integrity and a B for sustainability and adequacy.
4. Australia
Australia’s retirement income system is comprised of a means-tested age pension; a mandatory employer contribution; and involuntary contributions paid into private sector plans. Australia earned an overall grade of B, including an A for system integrity.
3. Finland
Finland’s retirement income system is a basic state pension, as well as a range of statutory earnings-related plans. Finland earned an overall grade of B, including a B+ for adequacy and A for system integrity.
2. Denmark
Denmark’s retirement income system is comprised of a basic public pension plan; a means-tested supplementary pension benefits; a fully funded defined contribution plan; and mandatory occupational plans. Denmark earned an overall grade of A, including an A for sustainability and an A for system integrity.
1. Netherlands
The Netherlands retirement income system is comprised of a flat-rate public pension and a quasi-mandatory earnings-related occupational pension linked to industrial agreements. The Netherlands earned an overall grade of A, including a B+ for adequacy and sustainability, and an A for system integrity.
The full report can be viewed here.
