These Are the Best Countries for Pensions and Retirement. Are You in One?
The quality of pension systems available to workers varies greatly across the globe. The Mercer CFA Institute Global Pension Index compares countries’ pension systems by three key factors: adequacy, sustainability, and integrity (meaning: regulation). According to the index, the Netherlands has the best system, while the U.S. ranks among the bottom half of countries.
Four countries received an A grade: the Netherlands, Iceland, Denmark, and Israel. Learn what makes these countries’ retirement income systems stand out and what even the top-ranking countries can do to improve.
Key Takeaways
- The Netherlands, Iceland, Denmark, and Israel have the best pension systems, according to the report.
- The U.S. ranks among the bottom half of countries, receiving a C+ grade.
- Pension systems worldwide share common challenges such as increasing the average retirement age due to rising life expectancy, encouraging more savings, and limiting access to funds before retirement.
How the Index Works
The index is sponsored by the CFA Institute and is published in collaboration with the Monash Centre for Financial Studies (MCFS) and global consultant Mercer. It ranks retirement income systems across the globe on more than 50 indicators covering a wide variety of pension policies and practices. Mercer then compares the systems by adequacy, sustainability, and integrity. The report also suggests ways that each system can be improved to provide more adequate retirement benefits.
Pensions are a unique and valuable type of retirement plan in which an employer makes contributions to a pool of funds and invests it on the employee’s behalf, with the earnings on said investments generating income for the worker upon retirement. In the U.S., more and more employers in the private sector have switched from traditional pension plans to 401(k)s.
Here, we analyze the results of the latest index, released in October 2024, which ranks the pension systems of 48 pension systems:
The Top 4 Pension Systems
The index value for each country is represented by a value between zero and 100, with higher values signifying more favorable pension systems. The top four countries with the highest overall index grade were:
1. Netherlands
With an index value of 84.8, the Netherlands received the highest score for 2024, down from 85 in 2023 due to recent reforms.
Its retirement income system uses a flat-rate public pension and a semi-mandatory occupational pension linked to earnings and industrial agreements. Most of the Netherlands’ employees are members of these occupational plans, which are industry-wide defined-benefit plans. Earnings are based on a lifetime average.
The index found that the Netherlands’ overall index value could be improved by:
- Reducing the level of household debt
- Introducing a carer’s pension credit for those caring for young children
- Providing greater protection of member’s accrued benefits
2. Iceland
Iceland ranked second with an overall index value of 83.4 in 2024. Its rating decreased slightly from 84.8 in 2023 as a result of the decrease in the net pension replacement rates.
Iceland’s retirement income system is composed of a basic state pension with a supplement and private occupational pensions with compulsory employee and employer contributions, as well as voluntary personal pensions.
The index found that Iceland’s overall index value could be improved by:
- Reducing household debt and government debt as a percentage of GDP
- Reducing government debt as a percentage of GDP
- Introducing ways to protect the pension interests of both parties during a divorce
Worldwide, pension systems are under more pressure than ever before because of rising life expectancy, increased government debt, uncertain economic conditions, inflation risk, and a shift toward defined-contribution plans.
3. Denmark
Denmark came in third with an overall score of 81.6, up slightly from 81.3 the previous year due to minor program changes.
Denmark has a public basic pension scheme, a supplementary pension benefit tied to income, a fully funded defined-contribution plan, and mandatory occupational schemes.
The index noted that Denmark’s score could be improved by:
- Introducing measures to protect the interests of both spouses in a divorce
- Requiring pensions to provide an annual report to all members
- Requiring pensions to show retirement income projections on annual statements
4. Israel
With an index value of 80.2, Israel also received an A grade for 2024. Its score fell slightly from 2023 as a result of a reduction in net pension replacement rates.
Israel’s retirement income system is comprised of a universal state pension and private pensions with compulsory employee and employer contributions.
The index noted that Israel’s score could be improved by:
- Reducing the government debt as a percentage of GDP
- Boosting protection for members of private pension plans in the event of mismanagement or fraud
- Introducing a carer’s pension credit for those caring for young children
How the U.S. Scored
The U.S. had a score of 60.4 in 2024, down several points from 63.0 in 2023. It ranks 29th out of 48 pension systems, putting it in the bottom half of all systems worldwide. The U.S. retirement income system includes Social Security and has voluntary private pensions, which can be occupational or personal.
How All Countries Ranked
The following chart shows the 48 pension systems included in the index and how their pension systems scored and ranked in 2024:
| Pension System Grade by Country | |
|---|---|
| Grade | Country |
| A | Netherlands |
| A | Iceland |
| A | Denmark |
| A | Israel |
| B+ | Singapore |
| B+ | Australia |
| B+ | Finland |
| B+ | Norway |
| B | Chile |
| B | Sweden |
| B | U.K. |
| B | Switzerland |
| B | Uruguay |
| B | New Zealand |
| B | Belgium |
| B | Mexico |
| B | Canada |
| B | Ireland |
| B | France |
| B | Germany |
| B | Croatia |
| B | Portugal |
| C+ | UAE |
| C+ | Kazakhstan |
| C+ | Hong Kong SAR |
| C+ | Spain |
| C+ | Colombia |
| C+ | Saudi Arabia |
| C+ | U.S. |
| C | Poland |
| C | China (Mainland) |
| C | Malaysia |
| C | Brazil |
| C | Botswana |
| C | Italy |
| C | Japan |
| C | Peru |
| C | Vietnam |
| C | Taiwan |
| C | Austria |
| C | South Korea |
| C | Indonesia |
| C | Thailand |
| D | South Africa |
| D | Turkey |
| D | Philippines |
| D | Argentina |
| D | India |
Source: Mercer CFA Institute Global Pension Index 2024
Index Scoring Explained
The Mercer CFA Institute Global Pension Index is calculated using the weighted average of three sub-indices. The adequacy sub-index was weighted 40%, the sustainability sub-index was weighted 35%, and the integrity sub-index was weighted 25%.
The average overall score was 63.4. The average sub-index scores for all 48 pension systems were 74.1 for integrity, 64.7 for adequacy, and 54.3 for sustainability, suggesting that sustainability is a bigger issue, on average, than adequacy and integrity.
This is what each sub-index takes into consideration:
Adequacy Sub-Index
The adequacy sub-index looks at how a country’s pension system benefits a range of income earners. It looks at the base level of income that each system provides, as well as the net replacement rate at various income levels. Additionally, the adequacy measure considers non-pension factors, including the country’s household savings rate, level of household debt, and the rate of homeownership.
Sustainability Sub-Index
The sustainability index considers factors that can affect whether a country’s retirement fund system will survive long-term. Indicators include the economic importance and level of coverage of private pension plans, the country’s economic growth and government debt, the length of retirement now and in the future, and the labor force participation rate among older individuals.
Integrity Sub-Index
The integrity sub-index examines the communication, costs, governance, regulation, and protection of pension plans within each country. It also considers the quality of the country’s private sector pensions because, without them, the government becomes the only pension provider, which isn’t ideal. Countries with more robust private pension systems generally received better scores.
How Is a Pension Paid Out?
There are typically two ways a pension can be paid out. The first is a lump-sum payment, which distributes the assets in the account all at once. The other option is an annuity, which pays out the funds in periodic payments over time.
What’s Better, a Pension or a 401(k)?
It’s common to prefer a pension over a 401(k) because the pension provides retirement income in a preset, guaranteed way. This is because a pension is a defined-benefit plan, whereas a 401(k) is a defined-contribution plan. Additionally, a pension is primarily funded by employer contributions, while a 401(k) relies primarily on the employee’s contributions.
Do Pensions Get Taxed?
Yes, funds that you receive from your pension are taxed as regular income in your income tax bracket. This is the case regardless of the payout method: a lump-sum payment or periodic payments.
The Bottom Line
The Mercer CFA Institute Global Pension Index includes recommendations to improve each country’s retirement income systems, acknowledging that no universal solution exists because each system has evolved from unique economic, social, cultural, political, and historical circumstances.
The report’s authors note the importance of ensuring that each country’s older populations are treated with dignity, including helping them to maintain a similar lifestyle after they leave the workforce. While each system is unique, they face some similar challenges, including ensuring the affordability of public pensions, promoting private pensions, and improving system sustainability.