While tough to evaluate with apples-to-apples comparisons, Mercer and CFA Institute again released their annual Global Pension Index, which compares 47 retirement income systems, covering 64% of the world’s population.
It found that the Netherlands’ regained the top spot, with Iceland and Denmark taking second and third places. Israel and Australia rounded out the top five.
“The average age of populations around the world continues to rise in many markets, mainly more mature markets,” said Margaret Franklin, CFA, President and CEO of the CFA Institute. “Inflation and rising interest rates have created a new market dynamic that poses significant challenges to pension plans. We also see continued fracturing as it relates to globalization. These are just a few of the increasingly complex challenges that pension funds face that impact retirees in significant ways.
The Netherlands had the highest overall index value (85), while Argentina had the lowest index value (42.3), joined by other poor performers Thailand, Turkey, India, and the Philippines. As for the U.S., it didn't even crack the top 20, coming in at #22 with an overall index value of 63 (or a C+).
“Although the Netherlands is currently undertaking significant pension reform, the system is well-positioned to provide excellent benefits amid the move from a collective benefit structure to a more individual defined contribution approach,” the report argued.
Falling birth rates have pressured several economies and pension systems over the longer term, negatively affecting the sustainability scores of countries like Italy and Spain. The authors said several Asian systems, however, including China, Korea, Singapore, and Japan, have undertaken reform to improve their scores in the last five years.
The report also examined the potential for artificial intelligence (AI) to improve pension and social security systems and provide people with a better quality of life in retirement.
But it’s not without risks, including “modeling challenges and ethical concerns as well as the need for optimal data privacy and cybersecurity.”
In developing these systems, the report claims that AI models must have strong governance and clear accountability to reduce biases and unjustified responses. Safeguards are critical for pension plans to retain their members’ long-term trust.
“The ongoing expansion of AI within the operations and decisions of investment managers could lead to more efficient and better-informed decision-making processes, which could potentially lead to higher real investment returns to pension plan members,” Dr. David Knox, Senior Partner at Mercer and lead author of the study added. “AI also has the potential to improve member engagement and help individuals make long-term decisions about their financial decisions. Both advances should improve retirement outcomes.”
