The Netherlands has regained the top spot of the Mercer CFA Institute Global Pension Index, ranking highest of the pension systems assessed with a score of 85.

It knocked Iceland off the top of the leaderboard in the 2023 index, which moved down to second with a score of 83.5.

The index gives countries’ pension systems scores on adequacy, sustainability and integrity, with each systems’ ‘total’ score being a weighted average of the three measures.

The Netherlands scored 87.7 for integrity, 85.6 for adequacy, and 82.4 for sustainability, while Iceland scored 80, 85.5, and 83.8 for each category respectively.

This year’s index marks the first time the Netherlands has been ranked as having the best pension system since 2020, with Iceland holding top spot in 2021 and 2022.

Denmark and Israel were the other countries to receive an ‘A’ grade, with scores of 81.3 and 80.8 respectively, while Australia made the top five with a score of 77.3.

Finland (76.6) and Norway (74.4) were in sixth and eighth respectively, with both countries scoring highly on integrity but low on sustainability.

Sweden and the UK also made the top 10, in ninth and 10th, with scores of 74 and 73 respectively.

The UK remained in the same position as in 2022, scoring 77.3 for adequacy, 62.7 for sustainability, and 80.6 for integrity, resulting in an overall score of 73.

European nations dominated the top 30, with more than half (16) of the top 30 pension systems being in Europe.

For each sub-index, the highest values were Portugal for adequacy (86.7), Iceland for sustainability (83.8), and Finland for integrity (90.9).

The systems with the lowest values across the sub-indices were South Korea for adequacy (39.0), Austria for sustainability (22.6), and the Philippines for integrity (25.7).

Mercer and the CFA noted that falling birth rates had put pressure on several economies and pension systems over the longer terms, affecting the sustainability scores for countries such as Italy (23.7) and Spain (28.5).

Argentina had the lowest overall score of the countries assessed with 42.3, while Austria scored lowest of the European nations assessed with 52.5.

“The average age of populations around the world continues to rise in many markets, mainly more mature markets,” said CFA Institute president and CEO, Margaret Franklin.

“Inflation and rising interest rates have created a new market dynamic that poses significant challenges to pension plans. We also see continued fracturing as it relates to globalisation. These are just a few of the increasingly complex challenges that pension funds face that impact retirees in significant ways.

“More and more often, individuals will have an increasingly important role to play as it relates to their own retirement. As investment professionals, we need to help them prepare for that.

“Each year, this index serves as a critical reminder that there is a long way to go in many jurisdictions to make pension plans function at their best and for the long-term financial security of beneficiaries.”

For the first time in its 15-year history, the index included a chapter on the potential of artificial intelligence (AI) to improve retirement outcomes.

“The ongoing expansion of AI within the operations and decisions of investment managers could lead to more efficient and better-informed decision-making processes, which could potentially lead to higher real investment returns to pension plan members,” commented Mercer senior partner and lead author of the study, Dr. David Knox.

“AI also has the potential to improve member-engagement and help individuals make long-term decisions about their financial decisions. Both advances should improve retirement outcomes.

“AI by itself is not the complete answer. There will always be a need for human oversight. Despite these risks, AI has the opportunity to deliver a higher standard of living in retirement — a worthwhile objective for all pension systems.”

The index includes 47 pension systems, covering 64 per cent of the world’s population.

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