Every year millions of people around the world retire.
For some, this turning point in life means a long-awaited vacation with the opportunity to travel and realize their old dreams. And for others, it is the beginning of hardship and an attempt to survive on a meager pension.
Responsibility for the scenario of life in retirement lies with the individual and the pension system of his country. And here with the last point there is a very big disagreement.
In this blog we will talk about which countries have effectively invested in reliable state pension programs in 2021, and which ones have lagged behind.
How was the evaluation conducted?
Because the pension system is unique to the economic and historical context of each country, it is difficult to make direct comparisons. However, there are some elements that pension experts consider to be generally positive and that lead to better financial support for older people.
As in previous rankings, Mercer and the CFA Institute divided these elements into three categories:
- Adequacy: the basic level of citizens' income was assessed, as well as the design of the region's private pension system.
- Stability: the state retirement age, the level of advance funding from the government and the level of public debt were assessed.
- Integrity: The rules and methods of management established to protect the participants of the pension plan were evaluated.
These three categories were used to rank the pension systems of 43 countries, representing more than 65% of the world's population. This year's iteration of the index, in particular, included four new countries - Iceland, Taiwan, the UAE and Uruguay.
The first three places with the best pension systems in the world were taken by Iceland, the Netherlands and Denmark.
Here are the top 10 countries in the pension index:
Moreover, Iceland - a newcomer to the ranking - received very high results in all three categories.
This country offers a state pension in two components: mandatory contributions from both employees and employers, as well as additional contributions to state-approved pension products.
Iceland's pension system also has a high contribution rate, which is why the state pension is also naturally high.
The country also has a relatively low gender gap in pensions, ie the difference between the average pension for women and men is relatively small, especially compared to other OECD countries.
At the opposite end of the spectrum - the Philippines, Argentina and Thailand, with the lowest results in the ranking.
Thailand has particularly low scores in the adequacy category - 35.2. To improve its ranking, Thailand needs to raise minimum benefits for the poorest demographics and include more workers in occupational pension schemes.
Conclusions and recommendations
According to this pension index, most countries around the world seem to be steadily improving their pension systems. From 2020 to 2021, the average score of the general index increased by 1.0.
The average index of 60.7 shows that the systems of most countries have generally positive characteristics, but there are also significant shortcomings that could be addressed with the following recommendations:
It is possible to increase the adequacy ratio by covering and attracting more employees to private pension systems.
You can increase the stability rate by adjusting the retirement age. After all, with increasing life expectancy, an increasing number of elderly people are able and willing to continue working.
Integrity can be improved through policies that reduce the gender gap in pensions and disparities between minorities.
Experts say that countries that will adopt at least one of these recommendations have the opportunity to significantly improve the living standards of the next generation of retirees.