The rise of defined contribution (DC) pensions is shifting greater financial responsibility to individuals. This report rates global pension systems, recommending reforms to improve outcomes and participant trust in an era of aging populations.
Join CFA Institute and Bloomberg experts Marko Papic, Nathan Dean and Alex Roever as they share strategic insights on managing portfolios in the post-election period
Report Overview
Providing financial security in retirement is increasingly difficult as global populations age and pension systems evolve. For the first time, people aged 65 and older outnumber children under five. By 2080 they will outnumber people under 18. Many countries are shifting from traditional defined benefit (DB) pension plans—where employers assume the risk—to defined contribution (DC) plans, which place financial responsibility on individuals. These shifts are creating economic, social, and financial strains that require changes in pension systems worldwide to ensure their efficacy.
Retirees face risks such as inflation, investment losses, and outliving savings, but many lack the financial literacy to manage these risks. Policymakers, governments, and the pension industry must collaborate to help older populations maintain a dignified standard of living. Pension reforms are a critical component in achieving that goal.
The primary objective of the Mercer CFA Institute Global Pension Index 2024 is to benchmark retirement income systems worldwide using more than 50 indicators.
Comparing pension systems globally is valuable for policymakers but not simple. Systems vary based on unique cultural, economic, and historical contexts. With the inclusion of Vietnam this year, the report now includes 48 retirement income systems, representing 65% of the world’s population. It compares those systems across three key factors: adequacy (current benefits), sustainability (future viability), and integrity (regulation).
The research highlights significant diversity between systems around the world, with index scores ranging from 44.0 to 84.8. The Netherlands, Iceland, Denmark, and Israel rank highest, with the Netherlands leading, despite undergoing reforms. These nations offer strong benefits, sound regulation, and solid asset bases. India ranks lowest.
Although each system reflects a unique history, there have emerged some common themes for improvement because many systems face similar problems in the decades ahead. The report outlines a range of reforms that can be implemented to improve retirement income systems’ long-term outcomes. They include:
- Expanding pension coverage to nonstandard workers and the self-employed through compulsory or automatic enrollment.
- Raising pension and retirement ages to match longer life expectancy, reducing public pension costs.
- Encouraging workforce participation at older ages to increase savings and reduce retirement length.
- Promoting greater private saving to reduce dependence on public pensions.
- Closing gender and minority pension gaps.
- Limiting pre-retirement withdrawals to preserve savings.
- Improving pension plan governance and transparency to boost the confidence of plan members participants.
In summary, pension systems are under strain, and the shift from DB to DC plans presents challenges for retirees. This report calls for reforms to ensure pension systems remain adequate, sustainable, and trustworthy to support financial security for aging populations.
CFA Institute is proud to sponsor the Mercer CFA Institute Global Pension Index in partnership with Mercer and the Monash Centre for Financial Studies. CFA Institute aims to lead the global investment profession by promoting the highest standards of ethics and education for the benefit of society, with pension systems playing a crucial role in that mission.