Netherlands Ranks 1st Among 47 Global Pension Systems

The Netherlands has the top-rated pension fund system across 47 systems worldwide, as ranked by Mercer and the CFA Institute in the Global Pension Index 2023.  

The Netherlands, Iceland, Denmark and Israel all had A-rated pension systems, meaning they provided robust retirement income and good benefits, as well as being sustainable with a high level of integrity. The U.S. rated a C+, according to the report. 

The report found that retirement systems around the world are under pressure like never before, although index values are, on average, higher than they were last year. Inflation has damaged citizens’ confidence in pension funds to deliver adequate benefits over the long term. The demographic structures of countries were also a concern of the report, as lower birth rates will put a pressure on pension systems that used a “pay-as-you-go” arrangement in which younger generations of taxpayers fund the pensions of previous generations.  

“The average age of populations around the world continues to rise in many markets, mainly more mature markets,” said Margaret Franklin, CEO and president of the CFA Institute, in a press release. “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 globalization. These are just a few of the increasingly complex challenges that pension funds face that impact retirees in significant ways.” 

Another trend noted in the report is that plans continue moving from defined benefit to defined contribution arrangements in which individuals carry all investment risks. 

Commenting on the U.S. perspective, Katie Hockenmaier, U.S. defined contribution research director at and a partner in Mercer, said: 

“Retirement savings coverage and institutional quality retirement vehicles remain out of reach for many Americans, creating a significant adequacy gap that needs to be addressed. Mercer’s Global Pension Index ranks the USA 24th in adequacy, highlighting the urgent need for action. While [the] SECURE 2.0 [Act of 2022] is a step in the right direction by addressing access, particularly for part-time workers, employers can take this further by thoughtfully structuring matching and vesting requirements to help increase contribution and engagement with retirement plans.” 

The report also discussed the impact of artificial intelligence on the pension industry. Mercer and the CFA Institute found that AI could improve efficiency, reduce cost and enhance the member experience of pension plans by: 

• Removing repetitive tasks through automation; 
• Modeling member behavior relating to contributions, withdrawals and changing economic conditions; and 
• Improving fraud detection.  

“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,” said Dr. David Knox, a senior partner in Mercer and the lead author of the study, in the press release. “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.” 

Hockenmaier spoke further about the role of AI in the pension industry.  

“Amidst the ongoing efforts to improve retirement security in the U.S., we see promising opportunities for progress. The implementation of SECURE 2.0 and the advancements in generative AI are expected to play a significant role in driving this progress. By combining regulatory initiatives with technological innovations that expand access to financial planning, we anticipate improvements in areas such as retirement plan leakage, access and coverage.”  

Pension funds in the index were measured by three variables: adequacy, sustainability and integrity. Adequacy, which makes up 40% of the index weight, measures the benefits provided by a pension, as well as its system design. Sustainability, weighted at 35%, measures the likelihood of a pension plan continuing to provide benefits into the future. Integrity, weighted at 15%, measures legislative requirements that influence the governance of a plan, which affects the confidence a country’s citizens have of their pensions.  

The pension systems were ranked with grades from A to E, with A representing the healthiest pension systems with index values of 80 or higher. E represents a poor system that may be in early stages of development or nonexistent and represents an index value of less than 35. Other index grades include B+, B, C+. C and D. No country had an E rating.  

Source: Mercer, CFA Institute 

The Netherlands had the highest index value at 85.0. Argentina was the lowest at 42.3. Portugal had the highest adequacy score at 86.7. Iceland had the highest sustainability score at 83.8. Finland had the highest integrity score at 90.9. The average scores of all systems for adequacy, sustainability and integrity were 64.8, 54.2 and 71.9, respectively. The overall index value average was 62.9. 

The country with the lowest adequacy score was Botswana, at 39.0. Austrian pensions had the lowest sustainability score at 22.6. Philippine plans had an integrity score of 25.7, the lowest of all countries.  

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Tags: Argentina, CFA Institute, David Knox, Denmark, Iceland, Israel, Katie Hockenmaier, Margaret Franklin, MCGPI, Mercer, Mercer CFA Institute Global Pension Index, Pension, ranking, retirement systems, The Netherlands