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​Netherlands, Denmark first class in Melbourne Mercer pensions index

The Dutch pension system has retained its crown as the world’s best in the latest annual Melbourne Mercer Global Pension Index (MMGPI), even improving the already high score it was assigned last year.

Denmark came second in the 2019 assessment from the consultancy’s Melbourne branch, with both countries maintaining their 2018 positions of first and second, respectively. 

The countries were the only two to have pension systems make Mercer’s A category, for which qualification requires a “first class and robust retirement income system that delivers good benefits, is sustainable and has a high level of integrity”.

The Netherlands scored 81.0 in this year’s edition of the index, up from 80.3 in 2018, with Denmark improving too but by a narrower 0.1 of a point, rising to 80.3 from 80.2.

Commenting on the results, the Dutch Pension Fund Federation said a strong point for the Netherlands was the country’s combination of state pension and supplementary pension, with the state pension age also shifting with increasing life expectancy.

“According to the study, the Netherlands could score even higher by reducing household debt and increasing labour market participation among the elderly as life expectancy rises,” the association said.

Publication of the 2019 Melbourne Mercer ranking comes as Dutch pension stakeholders negotiate the details of a new system due to come into effect in 2022 and underfunded pension funds face the prospect of having to make pension cuts. 

Meanwhile in Denmark, Karina Ransby, deputy director of lobby group Insurance & Pension Denmark (IPD), said: “It is really nice that Denmark’s pension system again this year gets the A grade together with the Netherlands as the only two countries.”

The association had expected Denmark to reach the top again this year, she said, but noted that the Netherlands had once again taken the very top position.

There had been major improvements in the Danish pension system in recent years, she said.

“When the latest changes have been allowed to unfold, we expect it to be reflected more in Mercer’s annual assessment of Denmark”

Karina Ransby, deputy director of Insurance & Pension Denmark

“When the latest changes have been allowed to unfold, we expect it to be reflected more in Mercer’s annual assessment of Denmark,” said Ransby.

European pension systems appearing in the Global Pensions Index’s next categories (B+ and B) are Finland, Sweden, Norway, Ireland Switzerland and Germany. A system making this grade is judged to have “a sound structure, with many good features, but has some areas for improvement that differentiates it from an A-grade system”. 

UK still in C grade territory

The UK improved its score to 64.4 in 2019 from 62.5, but this was 0.6 of a point shy of pulling it out of the C+ and C categories. The description for countries falling within this bracket is: “A system that has some good features, but also has major risks and/or shortcomings that should be addressed. Without these improvements, its efficacy and/or long-term sustainability can be questioned.”

Benoit Hudon, head of wealth, Mercer UK, said: “The UK retirement system’s strong score for integrity needs to be matched by improving adequacy, in other words what people actually receive in retirement.”

He said a lack of understanding of what they will receive and of what they will actually need in retirement has led to a gap in retirement savings for many UK employees.

“This begs the question as to whether employers should play a greater role, both in educating and supporting their workforce,” Hudon said.

Internationally, Mercer said its research showed that a strong correlation existed between the levels of pension assets and net household debt, with growth in household debt in developed and growth economies paired with the growth in assets held by pension funds.

It said the report was the first international study of its kind to document the tendency for spending to increase with rising wealth in relation to pension assets.

“The MMGPI’s data suggests as pension assets increase, individuals feel wealthier and therefore are likely to borrow more,” the firm said.

The Melbourne Mercer index is supported by Australia’s Victoria government and is a collaborative project between the Monash Centre for Financial Studies – part of Monash University in Melbourne – and Mercer. It can be found here.

Full rankings

 
 Country 2019 score and grade 2018 score
1Netherlands81A80.3
2Denmark80.3A80.2
3Australia75.3B+72.6
4Finland73.6B74.5
5Sweden72.3B72.5
6Norway71.2B71.5
7Singapore70.8B70.4
8New Zealand70.1B68.5
9Canada69.2B68
10Chile68.7B69.3
11Ireland67.3B66.8
12Switzerland66.7B67.6
13Germany66.1B66.8
14UK64.4C+62.5
15Hong Kong61.9C+56
16US60.6C+58.8
16Malaysia60.6C+58.5
18France60.2C+60.7
19Peru58.5C62.4
20Colombia58.4C62.6
21Poland57.4C54.3
22Saudi Arabia57.1C58.9
23Brazil55.9C56.5
24Spain54.7C54.4
25Austria53.9C54
26South Africa52.6C52.7
27Italy52.2C52.8
27Indonesia52.2C53.1
29Korea49.8D47.3
30China48.7D46.2
31Japan48.3D48.2
32India45.8D44.6
33Mexico45.3D45.3
34Philippines43.7Dn/a
35Turkey42.2Dn/a
36Argentina39.5D39.2
37Thailand39.4Dn/a

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