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Meanwhile, Malaysia and Indonesia ranked 32nd and 41st respectively. Dive in for the Asia-wide rankings and analysis.
Retirement income systems around the world are under pressure unlike ever before. Several factors are emerging that will affect the long-term efficacy of these system — the changing demographic structure of most countries due to falling birth rates, the reemergence of inflation, and even the inclusion of gig workers and those in the informal labour market.
Planning for the long term is therefore more critical. With this, the Mercer CFA Institute Global Pension Index 2023 compares 47 retirement income systems with regard to adequacy, sustainability and integrity, covering:
- What benefits are future retirees likely to receive?
- Can the existing systems continue to deliver, notwithstanding the demographic and financial challenges?
- Are the private pension plans regulated in a manner that encourages long-term community confidence?
The index uses three sub-indices — adequacy, sustainability and integrity — to measure each retirement income system against more than 50 indicators.
The adequacy sub-index considers the base (or safety net) level of income provided by each system as well as the net replacement rate at income levels ranging from 50% to 150% of the average wage. The net replacement rates use the OECD economic assumptions and allow for country specific projections of mortality rates and the relevant retirement ages. This includes taxation support, preservation, and continued accrual.
The sustainability sub-index brings together several measures that affect the sustainability of current programsme. An important feature of sustainability is the level of funding in advance, which is particularly important where the ratio of workers to retirees is declining. Hence, this sub-index considers contribution rates, the level of pension assets and the coverage of the private pension system. In addition, real economic growth over the long term has a significant impact on the sustainability of pensions as it affects employment, saving rates and investment returns.
The integrity sub-index considers the integrity of the overall pension system but with a focus on funded schemes that are normally found in the private sector. This therefore considers the role of regulation and governance, the protection provided to plan members from a range of risks and the level of communication provided to individuals.
The following diagram highlights some of the topics covered in each sub-index.
With the context setting done for the survey methodology, let's analyse the findings from the report.
Overall, the Netherlands, Iceland, Denmark and Israel have been found to have the best pension systems globally, each receiving an A grade in 2023. No system in this year’s Index is an E-grade system, which would be represented by an index value below 35.
The top 10 ranked globally are as follows:
| System | Overall index value | Adequacy sub-index | Sustainability sub-index | Integrity sub-index |
| Netherlands | 85.0 | 85.6 | 82.4 | 87.7 |
| Iceland | 83.5 | 85.5 | 83.8 | 80.0 |
| Denmark | 81.3 | 82.5 | 82.5 | 77.8 |
| Israel | 80.8 | 77.0 | 82.7 | 84.4 |
| Australia | 77.3 | 70.7 | 78.4 | 86.1 |
| Finland | 76.6 | 77.4 | 65.6 | 90.9 |
| Singapore | 76.3 | 79.8 | 71.6 | 77.0 |
| Norway | 74.4 | 79.4 | 59.1 | 87.8 |
| Sweden | 74.0 | 72.1 | 75.6 | 75.0 |
| The UK | 73.0 | 77.3 | 62.7 | 80.6 |
To zoom into some highlights across Asia:
| System | Overall index value | Adequacy sub-index | Sustainability sub-index | Integrity sub-index |
| Singapore (ranked 7th) | 76.3 | 79.8 | 71.6 | 77.0 |
| Malaysia (ranked 32nd) | 56.0 | 44.3 | 56.1 | 74.60 |
| Indonesia (ranked 41st) | 51.8 | 41.6 | 50.6 | 69.8 |
| India (ranked 45th) | 45.9 | 41.9 | 43.0 | 56.5 |
| Thailand (ranked 43rd) | 46.4 | 45.4 | 42.2 | 53.9 |
| The Philippines (ranked 46th) | 45.2 | 41.8 | 63.2 | 25.7 |
| Hong Kong (ranked 21st) | 64.0 | 51.9 | 61.1 | 87.6 |
Singapore
Singapore’s retirement income system is based on the Central Provident Fund (CPF), which covers all employed Singaporean residents. Under the CPF, some benefits are available to be withdrawn at any time for specified housing and medical expenses, with other benefits preserved for retirement. A prescribed minimum amount is required to be drawn down at retirement age in the form of a lifetime income stream through CPF Life.
The Singaporean index value increased from 74.1 in 2022 to 76.3 in 2023, primarily due to the increased level of pension coverage published by the OECD.
Malaysia
Malaysia’s retirement income system is based on the Employee Provident Fund (EPF), which covers all private-sector employees and non-pensionable public sector employees. Under the EPF, some benefits are available to be withdrawn at any time (under predefined circumstances, including education, home loans and severe ill health), with other benefits preserved for retirement.
The Malaysian index value decreased from 63.1 in 2022 to 56.0 in 2023, primarily due to the significant reduction in the net replacement rates published by the OECD from the rates previously used.
Indonesia
Indonesia’s retirement income system comprises earnings-related civil-service pensions and DB/DC plans for private-sector workers. The Government Social Security Programme is a mandatory DC-based scheme funded through regular employer and employee contributions. The national statutory pension provides a DB-based payout with two components: severance pay and long–service pay.
The Indonesian index value increased from 49.2 in 2022 to 51.8 in 2023, primarily due to improved regulations relating to retirement incomes.
India
India’s retirement income system comprises an earnings-related employee pension scheme, a DC employee provident fund (EPFO) and supplementary employer-managed pension schemes that are largely DC in nature. Government schemes have been launched as part of the universal social security program aimed at benefiting the unorganized sector.
The Indian index value increased from 44.4 in 2022 to 45.9 in 2023, primarily due to an improvement in the adequacy sub-index.
Thailand
Thailand’s retirement income system comprises an old-age pension, a social security fund for private-sector employees in the formal sectors, voluntary employer-sponsored DC plans and individual savings products.
The Thai index value increased from 41.7 in 2022 to 46.4 in 2023, primarily due to an increase in the level of pension coverage as published by the OECD.
The Philippines
The Philippines’ retirement income system comprises a small basic pension and an earnings-related social security pension. Members can receive a lifetime pension if they have contributed for a minimum of 120 months. If this requirement is not met, the retiree will receive a lump sum upon retirement equal to the member and employer contributions plus interest.
The Philippine index value increased from 42.0 in 2022 to 45.2 in 2023, primarily due to the increased level of pension coverage published by the OECD.
Hong Kong
Hong Kong’s retirement income system consists of Mandatory Provident Funds (MPFs) in which employers, most employees and the self-employed are each required to make mandatory contributions of 5% of relevant income to the MPF scheme, subject to minimum and maximum relevant income levels. Scheme members who have reached age 65, or who have reached age 60 and have decided to retire early, can choose either to withdraw their MPF benefits as a lump sum or by installments, or to retain all their MPF benefits in their accounts for continuous investment.
The index value for Hong Kong SAR decreased from 64.7 in 2022 to 64.0 in 2023, primarily due to the updated OECD data.
Lead image / Mercer CFA Institute Global Pension Index 2023
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