Netherlands' pension system best, Mercer says

21-Oct-2010    For the second year in a row, with a score of 78.3 out of 100, the Netherlands' pension system is placed on top in the annual Melbourne Mercer Global Pension Index.
The index value of the Netherlands rose from 76.1 in 2009 to 78.3 in 2010, amongst others through the governmental agreement to raise to official pension age from 65 to 67. Although the Mercer report (which can be found at the bottom of this page) called the Netherlands pension system "sound", its top position is still not sufficient for a grade-A classification (score of 80 or up). Director for Mercer Retirement Benelux, Mr. Willem Brugman: "Although we are of course very proud with this ranking, we have to strive for the grade-A status by reaching a score of 80 or higher." 
The pension system in the Netherlands, scored top marks in adequacy, which considers factors such as the minimum pension level and how much an average earner would receive as a percentage of his salary upon retirement. The Dutch system also came out first in integrity, which considers how much regulatory protection is available to an average pension fund participant.
Although pension organizations and executors in the Netherlands are currently heavily criticized for the way they managed the pension funds during and after the global financial crisis, according to the Mercer report this is a good sign. At least there is an active dialogue and people are thinking about solutions. Other countries close their eyes for long term problems.  
According to the report, the pension system of the Netherlands can still be improved by:
  • introducing a minimum access age so that it is clear that benefits are preserved for retirement purposes;
  • raising the level of household saving;
  • increasing the labour force participation rate amongst older workers; and
  • providing greater protection of members’ accrued benefits in the case of fraud, mismanagement or employer insolvency.
The Netherlands’ retirement income system comprises a flat-rate public pension and a quasi-mandatory earnings-related occupational pension linked to industrial agreements. Most employees belong to these occupational schemes which are industry-wide defined benefit plans with the earnings measure based on lifetime average earnings. 
The Melbourne Mercer Global Pension Index compares pension systems in 14 countries. The second place is taken by Switzerland. Sweden, which ranked third overall, scored top marks in sustainability, which considers factors such as state pension age and labor-force participation. Sweden's total score is 74.5.
The United States system, which scored 57.3, was ranked tenth. “The American index value fell … due to the effects of the global financial crisis, namely a decline in asset values in 2008 and a rise in government debt,” according to an analysis of the ranking by Mercer. Overall, the United States' system could be improved by raising the minimum pension for low-income pensioners and increasing retirement income by adjusting the level of mandatory contributions, according to the Mercer analysis.
Besides the effects of the global financial crisis, increased life expectancy forms another factor that hurt pension systems worldwide. “As the gap between pension age and life expectancy widens, pressure on public pension systems will increase,” David Knox, senior partner in Mercer's retirement, risk and finance division, said in an analysis of the annual ranking. “This highlights the need for governments to continue to review their state pension or retirement age and focus on increasing the adequacy of the private system.”

The Melbourne Mercer Global Pension Index is produced by Mercer for the Australian Centre for Financial Studies, a non-profit research consortium of several academic institutions. The index is based on a total of about 40 indicators that measure adequacy, sustainability and integrity.
P&D Network © 2009. All rights reserved.