Nordic countries top Mercer CFA Institute Global Pension Index

Iceland, the Netherlands and Denmark topped the Mercer CFA Institute Global Pension index overall for the second consecutive year, each earning an A grade for their sustainable and well-governed pension systems.

Iceland had the highest overall index value (84.7), closely followed by the Netherlands (84.6) and Denmark (82.0), rating highly for adequacy, sustainability and integrity. Adequacy looks at the system as a whole and measures the level of benefits from both the public pension and private superannuation. Sustainability measures whether the pension system will continue providing these benefits for decades to come and integrity examines how well governed the system is.

David Knox, senior partner at Mercer and lead author of the study said the top ranked countries benefitted from a generous minimum pension as well as a high proportion of people having a private pension. The percentage of the working population with private pension accounts in Iceland is 83 per cent, 88 per cent in the Netherlands and 92 per cent in Denmark according to data from the OECD.

“These countries have a generous minimum age pension as a percentage of the average wage. Most of the working population, which is defined as those between 15 and 65, have a private pension account,” he said.

The sustainability of these pension systems is anchored in a deep pool of savings, currently more than 200 per cent of GDP.

“All these countries in the top three are putting money aside for the future. They have done it for so many years, almost everybody is in the system and that’s why they are at the top,” said Knox.

By comparison, asset accumulation in the UK is 125 per cent of GDP while Australia is 140 per cent of GDP, OECD data shows.

The Mercer CFA Institute Global Pension Index is a comprehensive study of global pension systems, accounting for almost two-thirds or around 65 per cent of the world’s population. It benchmarks 44 retirement income systems around the world, highlighting strengths and shortcomings in each system, and suggesting possible areas of reform to provide more adequate and sustainable retirement benefits.

The research also revealed the gender gap in retirement income among top ranked countries has reduced due to government contribution to the primary care giver – often the mother – in the first year of a child’s life.

“Northern European countries recognise that women take time out of the workforce for caring responsibilities after a baby is born and… what they are doing is for the long-term benefit of the economy and they should get some credit for it in their retirement benefit,” said Knox.