By
Godfrey Benjamin
April 26th, 2024
The report also delved into the influence of artificial intelligence (AI) on the pension sector.
Retirement planning has become an increasingly pressing issue as economic uncertainties and an aging population continue to shape global discussions. According to a recent study released by the Mercer CFA Institute Global Pension Index, the Netherlands has again reclaimed its spot as the best country to retire due to its sustainable retirement income system.
Global Pension Index: The Netherlands Beats the US as the Best Country to Retire
In the previous year, the Netherlands surrendered its top position to Iceland, securing second place in the Mercer CFA Institute Global Pension Index 2022, with an overall grade of A and a score of 84.6. However, according to the 2023 report, the country has overtaken Iceland to reclaim its spot with an overall index value of 85.0, closely followed by Iceland and Denmark, with overall grades of 83.5 and 81.3, respectively.
These countries share the same attributes of having a first-class and robust retirement income system that provides good benefits for retirees with high sustainability and integrity.
While the Netherlands scored an impressive overall index value of 85.0, the United States rated a C+, ranking the country as 22 on the list. Several other nations attained moderate scores, prompting the need for stricter regulations to ensure the long-term stability of pension funds. Notably, the United Kingdom took the 10th position, earning a “B” in the chart. This indicates a well-established system with room for enhancements alongside Canada, New Zealand, and Germany.
On the other hand, popular retirement locations such as Mexico, Indonesia, and South Africa received a “C” grade, falling behind the United States, followed by countries like Thailand, Turkey, India, the Philippines, and Argentina, with a lower “D” rating.
Global Retirement System
The report emphasized the need for comprehensive retirement income frameworks, especially amid economic uncertainties such as inflation and fluctuating interest rates.
The study scrutinized factors ranging from government support and economic growth to regulatory measures as the basis for the ranking, which involved 47 retirement systems globally.
The study found that retirement systems globally confront unprecedented challenges, although average index values demonstrated improvement compared to the previous year. It also highlighted that inflation has eroded people’s confidence in pension funds to provide adequate benefits over the long term.
Furthermore, the study expressed concerns about the demographic structure of various countries, as declining birth rates are projected to strain pension systems reliant on a “pay-as-you-go” model, where current taxpayers support the pensions of earlier generations.
“Inflation and rising interest rates have created a new market dynamic that poses significant challenges to pension plans. We also see continued fracturing as it relates to globalization. These are just a few of the increasingly complex challenges that pension funds face that impact retirees in significant ways,” said Margaret Franklin, CEO and president of the CFA Institute.
Potential Impact of AI on Pensions
The report also delved into the influence of artificial intelligence (AI) on the pension sector. Mercer and the CFA Institute emphasized that AI has the potential to enhance efficiency, cut costs, and enrich the overall member experience in pension plans by automating repetitive tasks, analyzing member behavior concerning contributions and withdrawals, changing economic conditions, and enhancing fraud detection.
Dr. David Knox, a senior partner at Mercer and the study’s primary author, also believes that AI can improve member engagement and help individuals make long-term financial decisions. Both advances should improve retirement outcomes.
“The ongoing expansion of AI within the operations and decisions of investment managers could lead to more efficient and better-informed decision-making processes, which could potentially lead to higher real investment returns for pension plan members,” said Dr. Knox.