Denmark has retained its place as the world’s best pension system, according to Melbourne Mercer’s annual survey – but it has dropped out of the top grade.
Melbourne Mercer’s Global Pension Index ranks countries’ pension systems by three sets of criteria relating to adequacy, sustainability and integrity.
In the three categories, Denmark ranked best for sustainability, Finland led the way on integrity, while France was best for adequacy.
The report into the survey’s findings said that “the sustainability of some current systems is under threat” due to the multiple effects of ageing populations.
#1 – Denmark
In the 2017 Mercer report, the Danish system as a whole was given the best score – 78.9 – meaning it was in the second-highest available grade, B+. This was down from 80.5 and the top A grade the year before.
Jan Hansen, deputy director of the Danish insurance and pension association Forsikring & Pension (F&P), said: “The report highlights the weaknesses of the Danish pension system, namely low savings, low employment among the elderly and poor incentives to save [for] retirement in the years just before the state pension age.”
It was not worth many Danes on normal incomes saving up for a pension in the run up to pensionable age, the association said. This was because any private savings they built up in these years were offset against state benefits such as the pension supplement and housing benefit.
“The problems are connected, so if politicians made it attractive to save up for a pension, there would also be a rise in employment and savings among older people,” Hansen said.
However, politicians were showing that they were indeed paying attention to this, he added.
Before the summer holiday season, the Danish government put forward a pensions proposal in conjunction with the Danish Peoples’ Party (Dansk Folkeparti), which could solve the problems for the over-60s by giving them the opportunity to save up without having those savings offset against benefits.
In August the government launched a tax plan that included an extra tax deduction for pension contributions, Hansen said, adding: “If this turns out well, the Danish pension system could regain its top marks.”
#2 – Netherlands
The Netherlands remained in second place in Mercer’s pension index, slightly behind Denmark on a score of 78.8.
However, the Dutch pensions system also saw its rating drop compared to last year’s survey, chiefly due to the inclusion for the first time of real economic growth data in the Melbourne Mercer Index’s calculations.
The Netherlands could improve its score by bringing in a minimum access age to clarify that benefits are preserved for retirement purposes. Labour force participation at older ages should be increased with rising life expectancy, Mercer added.
The survey also suggested improving the protection of accrued pension rights against fraud, mismanagement or employer insolvency. In Mercer’s opinion, the level of household saving in the Netherlands still needed to be raised.
Bart Brenninkmeijer, business development leader at Mercer Marsh Benefits in the Netherlands, said the country could learn much from Denmark, as – contrary to the Dutch pensions system – the Danish system was “very much defined contribution”.
“The Danish system scores high on participant confidence, despite having much less pensions capital,” he told IPE’s Dutch sister publication Pensioen Pro. “The question is how can we increase confidence, and how can we prepare people for a new system with more choice options?”
#8 – Switzerland
The Melbourne Mercer report called on Switzerland to increase the statutory retirement age over time in line with its ageing population.
In the referendum on the reform package “Altersvorsorge 2020” in mid-September, the adjustment of the retirement age of women to that of men was one of the most contested points, and was rejected by many female voters.
Currently, various Swiss stakeholders are seeking a new reform compromise, but no results are expected to surface by the end of the year.
Switzerland’s score decline slightly year-on-year, from 68.6 to 67.6.
Sustainability was also the researchers major concern for Switzerland. Among their recommendations for improvement, the researchers highlighted the idea of ending any incentives for taking out money from pension funds before retirement or as a lump-sum payment.
Traditionally, mainly given its mandatory occupational pension system, the country has been in the top ranks of the index. However, between 2016 and 2017 it lost two places.
#13 – Germany
Germany was among the countries to have benefited the most from two new questions included for the ranking this year, relating to economic growth and the inclusion of voluntary occupational pension systems.
Stable economic growth and outlook boosted the country’s rating for sustainability, while its adequacy ranking also increased. This boosted Germany’s total score from 59.0 in 2016 to 63.5 this year.
The researchers pointed out the new occupational pension plans that will be set up under the new “Betriebsrentenstärkungsgesetz” law have not yet been included in the ranking.
But they noted that “legislation introducing defined ambition plans is likely to increase the index value over time due to several improvements”.
#15 – UK
The UK improved its score year-on-year but still fell three places in the overall ranking as three new entrants – Norway, Colombia and New Zealand – all had better scores.
The improvement year-on-year (from 60.1 to 61.4) stemmed largely from the addition of voluntary occupational pension plans to Mercer’s methodology.
The ongoing implementation of auto-enrolment into defined contribution schemes should improve the score further in the coming years, as would an acceleration of the increase in the state pension age, as recommended by a recent government-commissioned review.
In addition, the report said the UK could further improve its rating by “restoring the requirement to take part of retirement savings as an income stream”. This requirement was removed in 2015 by the then-chancellor George Osborne as part of so-called “pension freedoms”.
#21 – Austria
While the Austrian sustainability ranking profited from the inclusion of the economic stability factor, it could not benefit from the new sub-index on voluntary occupational pension schemes as this pillar is covering less than 30% of the working population – which is the threshold required by the researchers.
Additionally, Austria has the second-lowest sustainability ranking in the index, rivalled only by Italy.
Full rankings
| Country | 2017 score | 2017 grade | 2016 score (ranking) | |
|---|---|---|---|---|
| 1 | Denmark | 78.9 | B+ | 80.5 (1) |
| 2 | Netherlands | 78.8 | B+ | 80.1 (2) |
| 3 | Australia | 77.1 | B+ | 77.9 (3) |
| 4 | Norway | 74.7 | B | n/a |
| 5 | Finland | 72.3 | B | 72.9 (4) |
| 6 | Sweden | 72.0 | B | 71.4 (5) |
| 7 | Singapore | 69.4 | B | 67.0 (7) |
| 8 | Switzerland | 67.6 | B | 68.6 (6) |
| 9 | New Zealand | 67.4 | B | n/a |
| 10 | Chile | 67.3 | B | 66.4 (=8) |
| 11 | Canada | 66.8 | B | 66.4 (=8) |
| 12 | Ireland | 65.8 | B | 62.0 (10) |
| 13 | Germany | 63.5 | C+ | 59.0 (12) |
| 14 | Colombia | 61.7 | C+ | n/a |
| 15 | UK | 61.4 | C+ | 60.1 (11) |
| 16 | France | 59.6 | C | 56.4 (=13) |
| 17 | US | 57.8 | C | 56.4 (=13) |
| 18 | Malaysia | 57.7 | C | 55.7 (15) |
| 19 | Poland | 55.1 | C | 54.4 (17) |
| 20 | Brazil | 54.8 | C | 55.1 (16) |
| 21 | Austria | 53.1 | C | 51.7 (18) |
| 22 | Italy | 50.8 | C | 49.5 (19) |
| 23 | Indonesia | 49.9 | D | 48.3 (21) |
| 24 | South Africa | 48.9 | D | 48.6 (20) |
| 25 | Korea | 47.1 | D | 46.0 (22) |
| 26 | China | 46.5 | D | 45.2 (23) |
| 27 | Mexico | 45.1 | D | 44.3 (24) |
| 28 | India | 44.9 | D | 43.4 (25) |
| 29 | Japan | 43.5 | D | 43.2 (26) |
| 30 | Argentina | 38.8 | D | 37.7 (27) |
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