Mercer and the CFA Institute released this Wednesday the fourteenth annual edition of the Mercer CFA Institute Global Pension Index (MCGPI). Once again, the Iceland’s pension system tops the list, while the Netherlands and Denmark retain second and third place, respectively. As more employers have moved away from using defined benefit plans, the study also investigates the challenges and opportunities posed by this global shift to defined contribution plans, in which individuals bear greater financial responsibility.
The MCGPI is a comprehensive study of pension systems globally, covering 65% of the world’s population. It compares pension systems around the world, highlighting some of their shortcomings and suggesting possible areas of reform that would make it possible to offer more adequate and sustainable retirement benefits.
Globally, Iceland had the highest overall index value (84.7), closely followed by the Netherlands (84.6) and Denmark (82.0). Thailand ranked last (41.7).
The index uses the weighted average of the adequacy, sustainability and integrity sub-indices. For each sub-index, Iceland achieved the highest value for adequacy (85.8) and sustainability (83.8), while Finland topped the list for completeness (93.3). The systems with the lowest subscript values were India for adequacy (37.6), Austria for sustainability (22.7), and the Philippines for completeness (30).
Uruguay highlighted in Latin America
Within Latin America, Uruguay and Chile achieved the highest scores, with 71.5 and 68.3 overall, respectively. Both systems scored well on integrity (79.8 for Uruguay, 78.9 for Chile), and while Uruguay led in adequacy (84.5 vs. 60), Chile had a higher sustainability score (70.3 vs. 50.6). Among other countries in the region, sustainability scores were particularly questioned. For its part, Argentina obtained a general score of 43.3 and occupies position 42, while Uruguay occupies position 12 and Chile 16.
Mexico was the country with the most notable improvement compared to 2021 thanks to its pension reform that increased results for people and improved pension regulation.
“While each country faces its own mix of challenges, there are a number of issues present throughout the region,” mentions Tracy Teel, Interim Wealth Leader for Latin America. “In general, the systems need to increase the coverage of people, which will also increase contribution rates and assets. At the other end of the spectrum, it is also important to ensure that assets remain available for use in retirement, which can be improved by tightening the minimum age requirements for pension benefits,” she said.
“IndeedUruguay’s pension system is one of the most favorable in Latin America. As an aspect to highlight, we can mention that it has been a system subject to constant revisions and reforms in some of its components in the last 30 years. However, despite the efforts and modifications, its general structure has not been modified. Consequently, the Uruguayan pension system has not been oblivious to the impact on sustainability given by demographic change and increased longevity., where the decreasing active population will have to finance the growing passive population, for a longer time. And it is an issue that today finds its priority within the political agenda”, said Dolores Liendo, leader of Wealth for Argentina, Uruguay and Paraguay.
The current government of Lacalle Pou has a draft reform ready that contemplates structural changes in its design, “which we can summarize in the extension of the retirement age, expansion of the number of years of contribution and reduction of the replacement rate,” he said. reading.
The MCGPI compares pension systems around the world, highlighting some of their shortcomings and suggesting possible areas of reform that would make it possible to offer more adequate and sustainable retirement benefits.
This year, the Global Pension Index compares 44 pension systems around the world and covers 65% of the world’s population. The 2022 index includes a new pension system: that of Portugal.
The Global Pension Index uses the weighted average of the adequacy, sustainability, and integrity sub-indices to measure each retirement system against more than 50 indicators.