BrazilNetherlands and Denmark have best pension systems in the world
The Dutch and Danish pension systems have retained their crown as the globe’s best pension systems.
The annual ‘Global Pension Index’ of consulting firm Mercer in collaboration with the CFA Institute is the world’s most cited benchmark that rates the quality of pension systems. In the benchmark, the systems of nearly fourty countries (representing around two thirds of the world’s population) are assessed on adequacy, integrity and sustainability.
The Netherlands on top
It was back in 2018 when the Netherlands displaced Denmark as the global leader, and since then the Benelux country of 17 million people has maintained its edge. So what makes the Dutch system so good then? Marc Heemskerk is a pension expert in Mercer’s Dutch team and knows all about the national system.
To start off, “the system is sustainable,” in part because the country has amassed to the tune of €1,500 billion worth of pension assets. Second, pensionado’s can count on a relatively high pension income once they retire – “on average, between 75% to 80% of their last earned income.” In other countries, this percentage can be significantly lower.
The role of the Dutch government is notable, said Heemskerk. In the Netherlands, building a pension is compulsory for employees (and facilitated by employers), which explains the sheer size of the domestic sector. And, the state-provided pension is available to every Dutch citizen and is relatively high, meaning that elderly have more to spend than elsewhere.
According to José Meijer, interim chair of the Federation of Dutch Pension Funds (Pensioenfederatie), the Netherlands also owes its top spot for its focus on continuous improvement. “That determines how we talk about pensions,” she said. This has culminated into one of the largest reforms ever in the Dutch sector (known as the Pensioenakkoord), which will introduce a suite of sweeping measures to the system once it goes into effect (currently planned for 1 January 2022).
While reforming the best pension system in the world might seem counter intuitive, admitted Heemskerk, “it is a necessary step to remain at the forefront and build confidence in the pension system.”
Denmark
Meanwhile, the Danish pensions sector expressed satisfaction with its score, even though it had hoped for more. Karina Ransby, deputy director of the industry association Insurance & Pension Denmark (IPD): “We had hoped to regain first place, as we have moved forward in several of the parameters on which the measurement is based, but the Netherlands also improved in several areas.”
She remains however proud of the Danish score, stating that the national pension system is “world-class and we are constantly working to make it even better.”
Best of the rest
In the year’s surprise result, Israel knocked Australia down from third to fourth. Israel is a new joiner in the Mercer and CFA Institute benchmark, and managed to score highly in both the adequacy and integrity pillars. The top five is rounded off by Finland, which ranks ahead of its fellow Scandinavian counterparts Norway and Sweden.
