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Melbourne Mercer: Netherlands beats Denmark as world’s top system

The Netherlands pipped Denmark to the top spot in Melbourne Mercer’s tenth annual benchmarking of pension systems from across the world.

Finland displaced Australia for third place, while Sweden came in fifth.

Scoring 80.3 and 80.2, respectively, the Netherlands and Denmark were the only two countries that obtained an A-grade of their pension systems in this year’s Melbourne Mercer Global Pension Index.

Published by the Australian Centre for Financial Studies in collaboration with Mercer, the index measured 34 pension systems against more than 40 indicators to gauge their adequacy, sustainability and integrity.

Germany came in first class for adequacy, Denmark first for sustainability, and Finland first for integrity.

According to a statement, this year’s index revealed growing tension between adequacy and sustainability, particularly in Europe.

Denmark, the Netherlands and Sweden scored A or B grades for both criteria, while Austria, Italy and Spain were graded B for adequacy but obtained the lowest grade – E – for sustainability.

David Knox, senior partner at Mercer Australia and author of the study, said that the natural starting place to having a world class pension system was ensuring the right balance between adequacy and sustainability.

“It’s a challenge that policymakers are grappling with,” he said.

Coverage and the proportion of the adult population participating in a pensions system was “an emerging dimension to the debate about what constitutes a world class system,” however.

UK languishes, Spain debuts with a ‘C’  

The UK’s overall score improved marginally on last year, mainly as a result of the increase in the level of auto-enrolment contributions, but did not move from the 15th place it fell to in the 2017 overall ranking.

According to a statement, the score for the country’s pension system continued to be weighed down by factors such as relatively low levels of provision offered to the poorest people and the self-employed, and the introduction of pension freedoms.

France joined the UK in the C+ ranks this year, having been scored C in last year’s index.

Its index value increased from 59.6 in 2017 to 60.7 in 2018 primarily due to increased coverage in private pension plans and increased participation in the labour force at older ages. The state pension age (62) and the level of funded contributions were among factors holding back the country’s overall score, however.

Italy was once again the lowest scoring European country, with Austria also still scoring a C grade, indicating “a system that has some good features, but also has major risks and/or shortcomings that should be addressed”.

Spain made its debut in the index with a C, and 54.4 points. It was among four new systems analysed in the report, alongside Hong Kong, Peru and Saudi Arabia.

According to the index report, Spain’s overall index value could be increased by:

  • increasing coverage of employees in occupational pension schemes through automatic membership or enrolment, thereby increasing the level of contributions and assets;
  • increasing the labour force participation rate at older ages as life expectancies rise; and
  • raising the level of household saving.

Full rankings

Melbourne Mercer Global Pension Index 2018
 Country2018 score2018 grade2017 score (ranking)2016 score (ranking)
1Netherlands80.3A78.8 (2)80.1 (2)
2Denmark80.2A78.9 (1)80.5 (1)
3Finland74.5B72.3 (5)72.9 (4)
4Australia72.6B77.1 (3)77.9 (3)
5Sweden72.5B72.0 (6)71.4 (5)
6Norway71.5B74.7 (4)n/a
7Singapore70.4B69.4 (7)67.0 (7)
8Chile69.3B67.3 (10)66.4 (=8)
9New Zealand68.5B67.4 (9)n/a
10Canada68.0B66.8 (11)66.4 (=8)
11Switzerland67.6B67.6 (8)68.6 (6)
=12Ireland66.8B65.8 (12)62.0 (10)
=12Germany66.8B63.5 (13)59.0 (12)
14Colombia62.6C+61.7 (14)n/a
15UK62.5C+61.4 (15)60.1 (11)
16Peru62.4C+n/an/a
17France60.7C+59.6 (16)56.4 (=13)
18Saudi Arabia58.9Cn/an/a
19US58.8C57.8 (17)56.4 (=13)
20Malaysia58.5C57.7 (18)55.7 (15)
21Brazil56.5C54.8 (20)55.1 (16)
22Hong Kong56.0Cn/an/a
23Spain54.4Cn/an/a
24Poland54.3C55.1 (19)54.4 (17)
25Austria54.0C53.1 (21)51.7 (18)
26Indonesia53.1C49.9 (23)48.3 (21)
27Italy52.8C50.8 (22)49.5 (19)
28South Africa52.7C48.9 (24)48.6 (20)
29Japan48.2D43.5 (29)43.2 (26)
30Korea47.3D47.1 (25)46.0 (22)
31China46.2D46.5 (26)45.2 (23)
32Mexico45.3D45.1 (27)44.3 (24)
33India44.6D44.9 (28)43.4 (25)
34Argentina39.2D38.8 (30)37.7 (27)

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