The Netherlands has the world's best pension system, according to a Mercer report ranking retirement systems in 14 nations with major pension systems.
The annual Melbourne Mercer Global Pension Index placed the Netherlands on top for the second year running with a score of 78.3 out of 100.
The system in the Netherlands, which the report called “sound,” scored top marks in adequacy, which considers factors such as the minimum pension level and how much an average earner would receive as a percentage of his salary upon retirement. The Dutch system also was first in integrity, which considers how much regulatory protection is available to an average pension fund participant.
Sweden, which is third overall, scored top marks in sustainability, which considers factors such as state pension age and labor-force participation. Sweden's total score is 74.5.
The U.S., which scored 57.3, placed 10th. “The American index value fell … due to the effects of the global financial crisis, namely a decline in asset values in 2008 and a rise in government debt,” according to an analysis of the ranking by Mercer.
Overall, the U.S. score could be improved through several measures such as raising the minimum pension for low-income pensioners and increasing retirement income by adjusting the level of mandatory contributions, according to the Mercer analysis.
While all nations suffered from the financial crisis, the U.S., U.K. and Canada generally suffered more because their pension systems had a relative higher dependency on equity performance. Canada, which scored 69.9, ranked fifth followed by the U.K. with a score of 63.7.
Increased life expectancy is another factor that hurt pension systems worldwide. “As the gap between pension age and life expectancy widens, pressure on public pension systems will increase,” David Knox, senior partner in Mercer's retirement, risk and finance division, said in an analysis of the annual ranking. “This highlights the need for governments to continue to review their state pension or retirement age and focus on increasing the adequacy of the private system.”
The Melbourne Mercer Global Pension Index is produced by Mercer for the Australian Centre for Financial Studies, a non-profit research consortium of several academic institutions. The index is based on a total of about 40 indicators that measure adequacy, sustainability and integrity.