Aging Populations Weighing On Global Retirement Systems

Marsh and the CFA Institute released on Tuesday the 18th annual Marsh CFA Institute Global Pension Index, comparing the quality of 55 retirement systems around the world, responsible for 66% of the world’s population. 

The index ranked global retirement systems on three weighted factors—adequacy (40%), sustainability (35%) and integrity (25%). Based on these factors, each country’s retirement system is given a score and a corresponding grade ranging from A to E —with A (80 or more) the best. 

Only six of the 55 countries surveyed by Marsh and the CFA institute earned an A score—the Netherlands (85.8), Denmark (84.1), Iceland (84.0), Singapore (82.0), Israel (81.9) and Australia (80.6), the last of which improved its rating from last year’s B+. 

Source: Marsh, CFA Institute

The U.S. rated a C+ with an index score of 61.6, ranking 33rd and placing in a group including Kazakhstan, Spain, Malaysia, Panama, the Dominican Republic, China and Colombia.  

The release noted that while the U.S. pension system provides a strong net replacement rate across a range of income earners and has a strong level of pension assets as a percentage of GDP, several factors that could potentially improve the country’s score include: 

• Raising the minimum pension for low-income pensioners; 

• Increasing the coverage of employees in occupational pension schemes; 

• Introducing a minimum level for mandatory contributions into a retirement savings fund; 

• Introducing a requirement that part of the retirement benefit be taken as an income stream; and 

• Enhancing the governance requirements for the private pension system. 

Demographics Weigh On Pensions Globally 

The report noted that while pension systems are improving across the board, falling fertility rates, aging populations and increasing life expectancies are putting pressure on retirement systems. 

The report concluded that countries need to address three policy responses to confront these demographic realities: the funding of future retirement obligations, the flexibility of pension product design, and the framework of milestones leading up to retirement age. 

“Pension systems are under real strain,” said Christine Mahoney, global defined benefit and defined contribution leader of Marsh People and Investments, in a statement. “Governments that clarify their pension objectives, strengthen funding, and build flexibility into retirement design will be far better positioned to deliver dignified, secure retirements for the generations ahead.” 

“Retirement systems differ across markets, but all face the same long-term challenge: delivering reliable income as demographics shift and markets change,” said Mona Naqvi, managing director of the CFA Institute Research and Policy Center, in a statement. “No single policy or investment decision can achieve that. It takes sound system design and governance, alongside careful oversight of investments by those with a fiduciary duty to savers and retirees. The test is whether those decisions work together to serve people throughout retirement and remain sound for the generations that follow.”