Mercer CFA Institute Global Pension Index 2024 Highlights Need for Retirement System Improvements Given Falling Birth Rates and Increasing Longevity

Rhea-AI Summary

The 16th annual Mercer CFA Institute Global Pension Index (MCGPI) has been released, highlighting the need for retirement system improvements globally. The Netherlands retained its top spot as the world's leading retirement income system, followed by Iceland and Denmark. The report emphasizes the challenges posed by falling birth rates and increasing longevity.

Key findings include:

• The shift from defined benefit (DB) to defined contribution (DC) plans introduces new financial planning challenges for future retirees
• DC plans offer increased flexibility and personalization, which is important as people live longer and retirement concepts evolve
• Significant reforms are needed to meet retirees' financial needs and changing work expectations
• The Netherlands scored highest overall (84.8), as well as in adequacy (86.3)
• Iceland led in sustainability (84.3), while Finland topped the integrity sub-index (90.8)

The report calls for collaboration between governments, policymakers, the pension industry, and employers to ensure dignified and financially stable retirements for aging populations.

Positive

• The Netherlands maintained its top position in the Global Pension Index with a score of 84.8
• Several countries, including China, Mexico, India, and France, have undertaken pension reforms recently
• DC plans offer increased flexibility and personalization for retirees and gig economy workers

Negative

• Increasing longevity, high interest rates, and rising care costs are pressuring government budgets for pension programs
• Overall scores were slightly lower this year due to economic pressures
• The shift to DC plans is introducing complex financial planning challenges for future retirees

Insights

Financial Analyst

The Mercer CFA Institute Global Pension Index provides valuable insights into global retirement systems, highlighting the need for improvements amid demographic challenges. The Netherlands' top ranking with a score of 84.8 showcases a well-balanced system transitioning from defined benefit to defined contribution plans. This shift reflects a broader trend in retirement systems worldwide, presenting both opportunities and challenges for plan sponsors and participants. The report emphasizes the importance of aligning private and public retirement arrangements, increasing employee coverage and encouraging labor force participation at older ages. These factors are important for investors to consider when evaluating the long-term stability of markets and economies. The varying scores across countries indicate potential areas for policy reforms and investment opportunities in retirement-focused industries.

Pension Policy Expert

The 2024 Mercer CFA Institute Global Pension Index reveals critical insights for policymakers and investors. The ongoing shift from defined benefit to defined contribution plans presents significant challenges, particularly in financial planning for individuals. This trend may lead to increased demand for financial advisory services and education. The report highlights the need for substantial reforms to meet retirees' evolving financial needs and work expectations. Countries with lower scores, especially in sustainability and adequacy sub-indices, may face increased pressure on government budgets and potential market instability. Investors should monitor pension reform efforts in countries like China, Mexico, India and France, as these could impact economic stability and investment opportunities. The emphasis on flexibility and personalization in retirement planning also suggests potential growth in tailored financial products and services for retirees.

• The Netherlands retains top spot as world’s leading retirement income system

NEW YORK--(BUSINESS WIRE)-- Mercer, a business of Marsh McLennan (NYSE: MMC) and a global leader in helping clients realize their investment objectives, shape the future of work and enhance health and retirement outcomes for their people, and CFA Institute today released the 16th annual Mercer CFA Institute Global Pension Index (MCGPI).

The Netherlands’ retirement income system has retained the top spot on the list, with Iceland and Denmark remaining in second and third places, respectively.

“In a world where fertility rates are falling and life expectancy is rising, retirement income systems are center stage,” commented Pat Tomlinson, Mercer’s President and CEO. “Ensuring strong alignment in private and public retirement income arrangements, increasing employee coverage and encouraging higher labor force participation for those who wish to work at older ages are just a few ways to improve long-term outcomes for retirees.”

Helping DC plan members get the best retirement outcomes

Retirement systems around the world are increasingly moving away from defined benefit (DB) plans and shifting to defined contribution (DC) arrangements. The report explores the opportunities and challenges associated with DC plans for both pension plans and individuals.

“The ongoing shift to defined contribution pension plans introduces many financial planning challenges, which are falling squarely on the shoulders of tomorrow’s retirees,” said Margaret Franklin, CFA and CFA Institute’s President and CEO. “DC plans require individuals to make complex financial planning decisions that may significantly impact their financial circumstances, and yet many individuals are not well prepared to manage the required decisions. The Index serves as an important reminder of the gaps that remain in providing long-term financial security and advice for individuals. The need for credentialed and ethical financial advisors once again stands out, and that’s why we have launched new initiatives in the private wealth space to meet this gap.”

Despite these challenges, as people live longer, the increased flexibility and personalization offered by DC programs will be critical. The concept of retirement is shifting, and many individuals are transitioning gradually to retirement or rejoining the workforce in a different capacity after their initial retirement. DC plans also offer important benefits to gig and contract workers, who have often been left out of traditional DB schemes.

“Significant retirement income system reforms are needed to meet the financial needs of retirees and their evolving work expectations,” commented Dr. David Knox, lead author of the report and a Senior Partner at Mercer. “There is no single solution to getting retirement systems onto more solid ground. Now is the time for governments, policymakers, the pension industry and employers to work together to ensure that older populations are treated with dignity and can maintain a lifestyle similar to what they experienced through their working years.”

By the numbers

The Netherlands had the highest overall Index value (84.8), closely followed by Iceland (83.4) and Denmark (81.6). The Netherlands’ pension system has continued to be the best system, as it moves from a DB structure to a more individual DC approach. The system also features strong regulations and offers participants guidance regarding their pensions.

The Index uses the weighted average of the sub-indices of adequacy, sustainability and integrity. For each sub-index, the systems with the highest values were the Netherlands for adequacy (86.3), Iceland for sustainability (84.3) and Finland for integrity (90.8).

Increasing longevity, high interest rates and rising costs of care have put increased pressure on government budgets to support pension programs, causing scores to be slightly lower this year overall. Several systems, including China, Mexico, India and France, have undertaken pension reforms in recent years. The most recent pension reforms in China, announced in September, are not reflected in its Index score.

2024 Mercer CFA Institute Global Pension Index

System	Overall Grade	Total	Adequacy	Sustainability	Integrity
Netherlands	A	84.8	86.3	81.7	86.8
Iceland	A	83.4	82.0	84.3	84.4
Denmark	A	81.6	84.0	82.6	76.3
Israel	A	80.2	75.7	82.6	84.1
Singapore	B+	78.7	79.8	74.3	83.0
Australia	B+	76.7	68.4	79.5	86.1
Finland	B+	75.9	77.0	64.2	90.8
Norway	B+	75.2	77.2	63.6	88.3
Chile	B	74.9	71.2	70.9	86.5
Sweden	B	74.3	75.2	73.7	73.6
UK	B	71.6	75.7	61.5	79.3
Switzerland	B	71.5	66.0	71.4	80.4
Uruguay	B	68.9	84.0	46.6	76.1
New Zealand	B	68.7	64.8	64.9	80.2
Belgium	B	68.6	81.8	40.1	87.4
Mexico	B	68.5	73.8	63.4	67.1
Canada	B	68.4	67.0	63.8	77.1
Ireland	B	68.1	73.6	52.8	80.5
France	B	68.0	84.8	43.4	75.7
Germany	B	67.3	81.1	45.8	75.3
Croatia	B	67.2	66.8	57.4	81.7
Portugal	B	66.9	83.4	34.6	85.7
UAE	C+	64.8	77.1	43.3	75.3
Kazakhstan	C+	64.0	45.8	73.1	80.4
Hong Kong SAR	C+	63.9	51.5	61.1	87.5
Spain	C+	63.3	82.9	30.7	77.6
Colombia	C+	63.0	63.9	57.4	69.5
Saudi Arabia	C+	60.5	61.1	58.0	62.9
USA	C+	60.4	63.9	58.4	57.5
Poland	C	56.8	59.2	45.2	69.4
China	C	56.5	65.2	37.8	69.1
Malaysia	C	56.3	44.5	54.6	77.4
Brazil	C	55.8	70.4	31.0	67.3
Botswana	C	55.4	39.7	52.0	85.2
Italy	C	55.4	68.2	25.1	77.2
Japan	C	54.9	57.1	47.1	62.1
Peru	C	54.7	55.3	46.9	64.7
Vietnam	C	54.5	56.8	41.3	69.3
Taiwan	C	53.7	46.2	51.9	68.2
Austria	C	53.4	67.2	22.0	75.2
South Korea	C	52.2	40.5	52.4	70.5
Indonesia	C	50.2	38.1	50.4	69.3
Thailand	C	50.0	50.2	43.8	58.2
South Africa	D	49.6	34.7	48.0	75.7
Türkiye	D	48.3	48.3	32.2	70.8
Philippines	D	45.8	41.7	63.4	27.7
Argentina	D	45.5	61.5	29.4	42.3
India	D	44.0	34.2	44.9	58.4

About the Mercer CFA Institute Global Pension Index (MCGPI)

The MCGPI benchmarks retirement income systems around the world and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits. This year, it compares 48 retirement income systems across the globe, including a new entrant, Vietnam, and covers 65% of the world’s population.

The Global Pension Index is a collaborative research project co-sponsored by CFA Institute and Mercer and is supported by the Monash Centre for Financial Studies (MCFS). Find more information about the Mercer CFA Institute Global Pension Index here.

About Mercer

Mercer, a business of Marsh McLennan (NYSE: MMC), is a global leader in helping clients realize their investment objectives, shape the future of work and enhance health and retirement outcomes for their people. Marsh McLennan is a global leader in risk, strategy and people, advising clients in 130 countries across four businesses: Marsh, Guy Carpenter, Mercer and Oliver Wyman. With annual revenue of $23 billion and more than 85,000 colleagues, Marsh McLennan helps build the confidence to thrive through the power of perspective. For more information, visit mercer.com, or follow on LinkedIn and X.

About CFA Institute

As the global association of investment professionals, CFA Institute sets the standard for professional excellence and credentials. We champion ethical behavior in investment markets and serve as the leading source of learning and research for the investment industry. We believe in fostering an environment where investors’ interests come first, markets function at their best, and economies grow. With more than 200,000 charterholders worldwide across 160 markets, CFA Institute has 10 offices and 160 local societies. Find us at www.cfainstitute.org or follow us on LinkedIn and X at @CFAInstitute.

About the Monash Centre for Financial Studies (MCFS)

A research centre based within Monash University's Monash Business School, Australia, the MCFS aims to bring academic rigour into researching issues of practical relevance to the financial industry. Additionally, through its engagement programs, it facilitates two-way exchange of knowledge between academics and practitioners. The Centre’s developing research agenda is broad but has a current concentration on issues relevant to the asset management industry, including retirement savings, sustainable finance and technological disruption.

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Mercer

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Source: Mercer

FAQ

What is the top-ranked retirement income system according to the 2024 Mercer CFA Institute Global Pension Index?

The Netherlands retained the top spot as the world's leading retirement income system in the 2024 Mercer CFA Institute Global Pension Index.

How did Marsh McLennan (MMC) perform in the 2024 Global Pension Index?

The report does not provide specific information about Marsh McLennan's (MMC) performance. The index evaluates national pension systems, not individual companies.

What are the main challenges facing retirement systems according to the 2024 Mercer CFA Institute Global Pension Index?

The main challenges include falling birth rates, increasing longevity, the shift from defined benefit to defined contribution plans, and the need for significant reforms to meet retirees' financial needs and changing work expectations.

Which countries scored highest in the sub-indices of the 2024 Mercer CFA Institute Global Pension Index?

The Netherlands scored highest in adequacy (86.3), Iceland in sustainability (84.3), and Finland in integrity (90.8).