Mercer CFA Institute Global Pension Index 2024 highlights need for retirement system improvements given falling birth rates and increasing longevity

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

NEW YORK, October 15, 2024 — 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

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