Ranked: Countries with the Best and Worst Pension Plans

The global population is aging—by 2050, one in six people will be over the age of 65.

As our aging population nears retirement and gets closer to cashing in their pensions, countries need to ensure their pension systems can withstand the extra strain.

This graphic uses data from the Melbourne Mercer Global Pension Index (MMGPI) to showcase which countries are best equipped to support their older citizens, and which ones aren’t.

The Breakdown

Each country’s pension system has been shaped by its own economic and historical context. This makes it difficult to draw precise comparisons between countries—yet there are certain universal elements that typically lead to adequate and stable support for older citizens.

MMGPI organized these universal elements into three sub-indexes:

• Adequacy: The base-level of income, as well as the design of a region’s private pension system.
• Sustainability: The state pension age, the level of advanced funding from government, and the level of government debt.
• Integrity: Regulations and governance put in place to protect plan members.

These three measures were used to rank the pension system of 37 different countries, representing over 63% of the world’s population.

Here’s how each country ranked:

The Importance of Sustainability

While all three sub-indexes are important to consider when ranking a country’s pension system, sustainability is particularly significant in the modern context. This is because our global population is increasingly skewing older, meaning an influx of people will soon be cashing in their retirement funds. As a consequence, countries need to ensure their pension systems are sustainable over the long-term.

There are several factors that affect a pension system’s sustainability, including a region’s private pension system, the state pension age, and the balance between workers and retirees.

The country with the most sustainable pension system is Denmark. Not only does the country have a strong basic pension plan—it also has a mandatory occupational scheme, which means employers are obligated by law to provide pension plans for their employees.

Adequacy versus Sustainability

Several countries scored high on adequacy but ranked low when it came to sustainability. Here’s a comparison of both measures, and how each country scored:

Ireland took first place for adequacy, but scored relatively low on the sustainability front at 27th place. This can be partly explained by Ireland’s low level of occupational coverage. The country also has a rapidly aging population, which skews the ratio of workers to retirees. By 2050, Ireland’s worker to retiree ratio is estimated to go from 5:1 to 2:1.

Similar to Ireland, Spain ranks high in adequacy but places extremely low in sustainability.

There are several possible explanations for this—while occupational pension schemes exist, they are optional and participation is low. Spain also has a low fertility rate, which means their worker-to-retiree ratio is expected to decrease.

Steps Towards a Better System

All countries have room for improvement—even the highest-ranking ones. Some general recommendations from MMGPI on how to build a better pension system include:

• Increasing the age of retirement: Helps maintain a more balanced worker-to-retiree ratio.
• Enforcing mandatory occupational schemes: Makes employers obligated to provide pension plans for their employees.
• Limiting access to benefits: Prevents people from dipping into their savings preemptively, thus preserving funds until retirement.
• Establishing strong pension assets to fund future liabilities: Ideally, these assets are more than 100% of a country’s GDP.

Pension systems across the globe are under an increasing amount of pressure. It’s time for countries to take a hard look at their pension systems to make sure they’re ready to support their aging population.



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How COVID-19 Impacted Black-White Financial Inequality

COVID-19 has disrupted everything from economic markets to personal finances, but not everyone feels its effects equally. When compared with White Americans, Black Americans’ financial situations have been disproportionately affected by the pandemic.

In this infographic from McKinsey & Co., we outline the financial vulnerabilities of Black Americans, their increased usage of financial services since the onset of the pandemic, and their lower satisfaction levels with those services.

Financial Vulnerabilities of Black Americans

Compared to White Americans, more Black Americans say their job and income have been negatively impacted by COVID-19.

Looking forward, Black Americans also report greater job security concerns and have less savings to protect themselves financially. In the event of a job loss, 57% of Black Americans report their savings would last four months or less, compared with 44% of White Americans.

With less of a cash buffer on hand, Black consumers are also more likely to have missed a recent bill payment.

This includes being unable to pay for basic items such as utilities, telephone and internet, and mortgage payments.

How do they begin to manage these challenges?

Use of Financial Services

Black Americans increased their use of financial services more than White Americans.

Banking activities in the past two weeks, per March-June 2020 surveys

For example, Black Americans were about twice as likely to request account service, open an account, or receive advice on digital tools. In addition, Black families were more likely to leverage a fintech platform and have been more active in opening fintech accounts since the start of the COVID-19 crisis.

However, as Black Americans seek out more financial help, some are not happy with the service they receive.

Satisfaction with Financial Services

Overall, Black families are less satisfied than White families across all types of financial activities. These differences were most pronounced for digital tool advice, where 38% of Black Americans were dissatisfied or very dissatisfied, compared with just 12% of White Americans.

Even though Black people were less satisfied with banking services, they were more likely to say that bank performance was above their expectations. This may suggest that expectations are lower for Black families than they are for White families.

Black Americans were also much less likely to trust their financial advisor.

From March-June 2020, the percentage of Black people distrusting their advisors rose from 12% to 32%. Over the same time period, White people’s distrust of financial advisors remained stable at 10%.

A notable exception: White and Black Americans were both satisfied with fintech providers. Only 5% of White Americans and 8% of Black Americans expressed some level of dissatisfaction with fintech companies.

Time to Examine the Financial System?

COVID-19 has perpetuated Black-White financial inequality. Data shows that Black families are more likely to be financially vulnerable, and increase their use of financial services during the COVID-19 crisis. However, they are less likely to feel satisfied with these services.

Financial institutions can urgently review their remote and in-person customer service procedures to ensure the needs of all families are being met.