For most of us, understanding one retirement income system is hassle enough for a lifetime. But a new report examined the systems of 44 countries, which collectively cover two-thirds of the world’s population.
The Mercer CFA Institute Global Pension Index identifies the best pension systems on Earth — both public and private. For each country, it considers factors related to adequacy of income, long-term sustainability of benefits, and the integrity and cost management of each program.
Sorry to say you won’t see the United States anywhere near the top of this list — it earned the middling rank of No. 20, with an overall grade of C+.
According to Mercer, a C+ grade represents “a system that has some good features, but also has major risks and/or shortcomings that should be addressed; without these improvements, its efficacy and/or long-term sustainability can be questioned.”
Following is a look at the best of the best — countries that Mercer gave overall scores of 70 or more (out of 100).
1. Iceland
Overall pension index score: 84.7 out of 100 possible points
Pension index grade: A
Iceland’s system tackles retirement from several angles — it includes a means-tested state pension and supplemental pension; work-based pensions that both employers and employees are required to participate in; and voluntary personal retirement savings.
The normal pension age in Iceland is 67, and employers are required to pay at least twice as much as employees do into the occupational pensions.
2. Netherlands
Overall pension index score: 84.6 out of 100 possible points
Pension index grade: A
The Dutch retirement plan includes a flat-rate public pension and what Mercer calls a “quasi-mandatory” occupational pension.
Unlike America’s Social Security benefits, the Dutch public pension cannot be delayed past full retirement age. But pensioners are allowed to continue working while collecting benefits, and some of the work pensions “allow a member to withdraw a pension and continue to work with the same employer,” according to the OECD (Organisation for Economic Cooperation and Development).
3. Denmark
Overall pension index score: 82 out of 100 possible points
Pension index grade: A
Denmark is the last country to make Mercer’s top grade, thanks to its offering of a public pension, means-tested supplementary benefits, and defined contribution work plans. About 85% of the workforce is covered by the latter type of plan, with self-employed workers having the option to create their own.
4. Israel
Overall pension index score: 79.8 out of 100 possible points
Pension index grade: B+
Israel requires employers and employees to contribute to private pensions while also offering a universal state pension and a means-tested supplemental pension.
The state pension is available to men at age 67 and to women at age 62.
5. Finland
Overall pension index score: 77.2 out of 100 possible points
Pension index grade: B+
The Finnish system includes a means-tested state pension “and a range of statutory earnings-related schemes,” according to Mercer. The OECD notes that workers on maternity or paternity leave are not required to make contributions; the state funds the difference.
6. Australia
Overall pension index score: 76.8 out of 100 possible points
Pension index grade: B+
Down Under, employers are required to pay into retirement plans to a certain degree, and they and their employees can make additional voluntary contributions. There’s also a means-tested public pension.
7. Norway
Overall pension index score: 75.3 out of 100 possible points
Pension index grade: B+
Norway has a social security system as well as mandatory work plans. People who’ve lived in Norway for at least five years between ages 16 and 66 are entitled to some benefits.
8. Sweden
Overall pension index score: 74.6 out of 100 possible points
Pension index grade: B
Sweden is in the middle of moving “from a pay-as-you-go system to a funded approach,” Mercer says. It is also gradually raising the minimum age for taking benefits from earnings-related national pensions to 64 by 2026.
9. Singapore
Overall pension index score: 74.1 out of 100 possible points
Pension index grade: B
Singapore’s system allows for some public benefits to be withdrawn by workers at any time for certain housing and medical expenses, but others are specifically for retirement.
10. United Kingdom
Overall pension index score: 73.7 out of 100 possible points
Pension index grade: B
The U.K. approach requires auto-enrollment in work pension schemes with minimum contributions of 8%, but employees are allowed to opt out. There is also a state pension that is currently available from age 66.
11. Switzerland
Overall pension index score: 72.3 out of 100 possible points
Pension index grade: B
Retirement funds here accumulate in public, work and voluntary personal plans and, like Swiss cheddar, are kept until nicely aged — 65 for men, 64 for women.
12. Uruguay
Overall pension index score: 71.5 out of 100 possible points
Pension index grade: B
Uruguay has a pay-as-you-go social security system and private pensions, both funded by mandatory contributions from employers and employees.
13. Canada
Overall pension index score: 70.6 out of 100 possible points
Pension index grade: B
Canadians enjoy a sweet-as-maple-syrup flat rate pension with a means-tested supplement, a separate pension based on lifetime earnings, and voluntary work-related and individual retirement saving plans. A reduced benefit is available from age 60, with the full retirement age sitting at 65 and — as in the U.S. — the option to claim larger benefits up through age 70.
14. Ireland
Overall pension index score: 70 out of 100 possible points
Pension index grade: B
These lucky folks receive a flat rate social security pension or a means-tested benefit if they didn’t make sufficient contributions in their working years. There are also optional work and personal pension plans.