According to the Melbourne Mercer Global Pension Index (MMGPI), the Netherlands has the best pension system in the world; this is the second year in a row that the Low Country has come out on top!
This year marks the 11th edition of the Melbourne Mercer Global Pension Index, in which 37 retirement income systems, representing more than 63 percent of the world’s population, are measured against more than 40 indicators.
The indicators in the study inform the three sub-indices: adequacy, sustainability and integrity. The scores on these indices contribute to the final aggregate score, however, they are not equally weighted. Adequacy is worth 40 percent of the final score, whilst sustainability contributes 35 percent and integrity adds another 25 percent.
Adequacy represents the benefits which are currently being afforded, as well as some important design features. Some indicators for this index include growth assets, tax support, system design and benefits, amongst others. When it comes to sustainability, the focus is on the future and the likelihood that the current system will be able to provide benefits in the future. As such, this index is informed by factors like pension coverage, economic growth, government debt and demography along with a few other factors.
Lastly, integrity looks at factors which influence overall governance and operation of the system. Indicators in this index are regulation, governance communication, protection and operating costs. These factors can influence the confidence of citizens in their own pension system.
Each aggregate score for a country’s pension system is also related to a grade, ranging from A to E, with the addition of B+ and C+. To achieve an A grade, a country must score higher than 80 out of 100. An E grade equates to a score lower than 35 points.
This year, the Netherlands has yet again taken the top spot and the title of the best pension system in the world. This time around, its score was 81,0/100 as opposed to last year’s 80,3. Similar to 2018, Denmark also finds itself in second place, the only other country in the A category. In the 2019 MMGPI, Denmark does marginally better than last year, with a score of 80,3/100 instead of 80,2.
The Netherlands does well on all categories, with its highest score being for integrity (88,9). Denmark scores better than the Netherlands when it comes to sustainability, with 82/100 compared to the Netherlands’ 78,3. According to Mercer, the Netherlands could increase its score if households save more money and decrease their debts. Additionally, the sustainability of the Dutch pension system could be improved by stimulating labour participation at a higher age, in line with the increasing life expectancy.
As with the 2018 index, no countries fall into the E grade category. The lowest-scoring country is Thailand, with 39,4/100 overall and a particularly low score for adequacy (35,8).
This year, the following countries have the top 10 pension systems in the world:
For more information, see the full MMGPI report.