Dutch pension system second best in the world
According to the Melbourne Mercer Global Pension Index (MMGPI) 2017, the Dutch pension system has yet again ranked second in the world. However, this year, the Netherlands has lost its A-grade status.
The Melbourne Mercer Global Pension Index
This year sees the ninth publication of the Index, which reviews 30 countries as opposed to the 27 it assessed in 2016. This year, Colombia, New Zealand and Norway were added.
To evaluate pension systems from around the world, the MMGPI used three categories, adequacy, sustainability and integrity, with more than 40 indicators. In this case, the indicators were questions specifically geared toward rating pension systems.
Adequacy, sustainability and integrity were weighted 40 percent, 35 percent and 25 percent respectively. For each category, countries could score between zero and 100; these scores were then summed up according to weighting.
The overall score received by a country was also connected to a grade. Scores above 80 points corresponded with an A-grade, 75 – 80 points meant a B+ was awarded and those with 65 – 75 point were given a B-grade. Scores of under 35 points were equivalent to an E-grade and scores between 35 and 50 were worth a D-grade. To receive a C-grade, countries had to score 50 – 60 point and to get a C+ 60 – 65 points were needed.
An A-grade system entails a sustainable system with a high level of integrity. Such a system is robust and has good benefits for retirees.
The Netherlands received an overall score of 78,8 or B+. This is slightly lower than the score of 80,1 last year, and means that the Netherlands no longer has A-grade status. The lower score this year can be primarily attributed to the addition of the economic growth indicator in the sustainability category.
Denmark beat the Netherlands to first place, but also lost its A-grade status.
The adequacy of a pension system refers to the adequacy of the base level of income, plus the net replacement rate for earners with a middle-income. In the category of adequacy, the design of the system, benefits and tax support as well as savings, home ownership and growth assets are important.
A couple of questions that are asked in this category refer to the level of home ownership in a country and the net household saving rate. Each question is rated from zero to ten. Household savings and home ownership can add to financial security in retirement, even though they do not fall under pension savings.
In this category, the Netherlands takes second place with a score of 78,0. France takes the top spot here with 80,4 points.
In this category, factors, which affect the sustainability of pension systems, are addressed. These factors include, amongst others, the coverage of private sector pension systems, the state pension age and demography, the level of governmental debt in a country and economic growth. In addition to these factors, contribution rates and the level of pension assets are also considered.
In this section, answers to questions regarding the proportion of the working-age population on private pension plans and the labour force participation rate for those above 65 years old, amongst others, are evaluated.
The Netherlands placed second, with 73,5 points, as opposed to 77 in the previous year. This is the largest drop in the Netherlands’ scores.
The integrity category of the MMGPI looks at the regulation and governance of the pension system, as well as its costs and protection and communication for members. This category considers the requirements set out in legislation as opposed to only evaluating certain plans.
The Worldwide Governance Indicators from the World Bank are also used in this category to provide more insights into governance per country.
The Netherlands took third place with 87,5 points, below Norway and Finland, second and first place respectively.
Top scoring countries
At the top of the Index, we can find Denmark, the Netherlands and Australia all scoring a B+. The countries, which come after Australia in the top 10, all score a B-grade.
- The Netherlands
- New Zealand