Dutch come out on top: Mercer index

The Netherlands’ $1.5 trillion pension industry has been named the best in the world for a second year running, boosted by an increase in the net household saving rate, according to the annual global study, the Melbourne Mercer Global Pension Index.

The Netherlands and Denmark, which came in second, both held onto their A grade after achieving overall scores of 81 and 80.3, respectively. Countries with the top grade are considered to have a “first class and robust retirement income system that delivers good benefits, is sustainable and has a high level of integrity.”

“Systems around the world are facing unprecedented life expectancy and rising pressure on public resources to support the health and welfare of older citizens,” said David Knox, author of the report and a senior partner at Mercer. “It’s imperative that policy makers reflect on the strengths and weaknesses of their systems to ensure stronger long-term outcomes for the retirees of the future.”

The Dutch retirement income system is made up of a flat-rate public pension and a quasi-mandatory earnings-related occupational pension linked to industrial agreements, according to Mercer. Most employees belong to the occupational defined benefit pension schemes with earnings measures based on lifetime average earnings.

The Netherlands has consistently held the first or second place for 10 out of the last 11 reports. Denmark had the highest score for sustainability at 82 in 2019, but scored 82.2 for integrity compared to The Netherland’s 88.9. The Danish pension system is made up of a public basic pension scheme, a means-tested supplementary pension benefit, a fully-funded defined contribution scheme and mandatory occupational schemes.

Australia was ranked third with a B+ grade and an overall score of 75.3, followed by Finland’s B grade and a score of 73.6, lower than last year. Thailand had the lowest value of all 37 retirement systems included in the 2019 report with a D grade and a score of just 39.4.

The US, the world’s largest pension system with some $24.7 billion in assets, was given a C+ grade, meaning it has some “major risks” that should be addressed.

The Melbourne Mercer Global Pension index compares 37 retirement systems that cover almost two thirds of the world’s population. It uses the weighted average of the sub-indices of adequacy, sustainability and integrity to measure each system against more than 40 indicators. This year the index also included the Philippines, Thailand and Turkey for the first time.

The average index value among all the retirement income systems included in the report was 59.3. Mercer said sustainability continued to highlight the weakness of many countries.