Iceland’s pension system has retained its position as the best pension system in the world, with an overall score of 84.7, according to the Mercer CFA Institute Global Pension Index.

European pension systems made up the majority of the top 10, with Netherlands ranking second with a score of 84.6 and Denmark in third with 82, both retaining their spots from last year’s index.

The index ranks counties based on their retirement income systems' adequacy, sustainability and integrity.

Iceland received the highest score for adequacy and sustainability, at 85.8 and 83.8 respectively.

Finland, which ranked fifth overall with a score of 77.2, scored highest for integrity (93.3) but was let down by its comparatively low score for sustainability (65.3).

Other European countries in the top 10 included Norway at seven with a score of 75.3, ranking highly for integrity (90.3) but low on sustainability (60.4) and Sweden at number eight with 74.6, with its score for all three criteria in the 70s.

The UK dropped one place to 10th with an overall score of 73.7, scoring 63.9 for sustainability, 76.5 for adequacy and 83 for integrity.

Austria was found to have the lowest score for sustainability of all the 44 systems assessed by the index at 22.7, and was the lowest ranked of all the European systems included in the index at 32nd.

“Since the inception of the Mercer CFA Institute Global Pension Index, the investment management and pension industry at large have faced extraordinary challenges,” commented CFA Institute president and CEO, Marg Franklin.

“New financial products and strategies will be required to deliver adequate returns for beneficiaries. This past year, we’ve gone from a ‘lower for longer’ interest-rate environment to significant rates of inflation, quadrupling of interest rates in some global markets and a rise in the cost of living for many, all of which have a significant impact on the fixed income of retirees.”

The index noted that the global shift from defined benefit (DB) to defined contribution (DC) pension schemes had increased uncertainty for retirees.

“Households will have to consider what the right balance is between receiving a steady income, access to some capital and protection from future risks, given the many uncertainties faced by retirees,” said Mercer senior partner and lead author of the study, Dr. David Knox.

“It is critical that we understand whether or not the retirement income systems around the world will be able to meet the needs and expectations of their communities for decades to come,” he continued.

“There is no single or perfect answer – the best system is the one that helps individuals maintain their previous lifestyles into retirement. Governments, employers, policymakers, and the pension industry should use the full array of products and policies available so individuals can retire with dignity, confidence, and financial security.”

Also commenting on the study, Denmark’s Forsikring & Pension deputy director, Karina Ransby, said: “It is a great location that we can be proud of in the industry. We have a solidly founded pension system that ensures that the vast majority of Danes pay into a pension for their old age. But in order to future-proof our system, it is important that we continue to develop it.

“There are several of the Pensions Commission's recommendations that we hope the politicians will address after an election - for example to ensure savings in annuity products with increased pension deductions.

“In addition, we should ensure more flexibility in our pension schemes, so that we can work towards a smoother transition to retirement. It doesn't have to be an abrupt transition to the third age that we see today.”

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