Holland is at the top when it comes to comparing pension systems around the world, according to a recent global pension report by the Mercer CFA Institute.
The ranking is the result of an analysis of over 50 indicators and a comparison of 47 pension systems, covering 64% of the world’s population.
The most relevant measurements were the level of available pensions in the private and public sectors, the sustainability of the system to last for decades, and the quality of its management.
Iceland took second place, down from last year’s first place, and Denmark is third in the 2023 index.
Most European countries included in the report scored well. According to the report, only a few improvements are needed in Finland, Norway, Sweden, the UK, Switzerland, Ireland, Belgium, Portugal, and Germany.
On the other hand, France, Spain, Italy, Poland, Austria, Croatia, and the USA have significant risks and/or shortcomings to be addressed, the report said.
At the bottom of the rankings are India, the Philippines, and Argentina. Together with Turkey and Thailand, they share the worst position, rating D, which suggests that without any improvements, there are serious doubts about the effectiveness and sustainability of the pension systems in these countries. Risks in the system
The report points out that ‘pension income systems around the world are under more pressure than ever’ due to persistent inflation, rising interest rates, and geopolitical uncertainty, which inevitably affects investment returns.
„The average age of the population worldwide continues to rise in many markets, mainly in mature markets,“ said Margaret Franklin, president and CEO of the CFA Institute.
„Inflation and rising interest rates have created a new market dynamics that pose significant challenges to pension plans. We also see continued disruption regarding globalization,“ she added. „These are just some of the increasingly complex challenges facing pension funds that significantly impact pensioners.“
The report quotes the latest OECD Pension Outlook from 2022, which recommends policymakers around the world to undergo necessary reforms despite the current financial and economic uncertainty, to avoid jeopardizing the well-being of current and future pensioners.
The report also recommends strengthening asset-backed pensions (as opposed to pay-as-you-go), which could contribute to diversifying sources for financing retirement, making pension systems more resilient. The impact of artificial intelligence on pension systems
Artificial intelligence (AI) should improve pension performance by reducing costs and highlighting emerging risks, the report says.
Additional use of AI could involve building tailored portfolios and identifying market anomalies, although AI is unlikely to be able to accurately predict market movements, so uncertainty will remain, the report states.
„The continued expansion of AI within investment manager operations and decision-making processes could lead to more efficient and better-informed decision-making processes, potentially resulting in higher actual investment returns for pension plan members,“ said David Noakes, a senior partner at Mercer, according to a Reuters article.
The annual survey also highlighted the risks of AI models generating false information when used in a new context, as well as cyber attacks on pension user data, as reported by Investitor.me.
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