This article takes a look at the 20 countries with the best retirement systems. If you wish to skip our detailed analysis of the challenges in global retirement and how to navigate them, you may go to 5 Countries with the Best Retirement Systems.

Demographic Shifts and the Old-Age Dependency Challenge in Global Retirement

The global retirement landscape is facing unprecedented challenges. One primary stressor challenging retirement systems across the world today is the profound demographic shift. Japan, for instance, is already grappling with a significant demographic imbalance. Per BBC reports, more than 1 in 10 people in Japan are 80 or older, comprising 29.1% of the population. Europe is closely following suit, with more than one-fifth (22.1%) of the population aged 65 or above. Moreover, the number of people aged 65 or older are expected to reach 1.6 billion in 2050, as reported by the World Economic Forum. Declining birth rates are further adding to the complexity of demographic alterations, with overall birth rates declining from an average of 5 births per woman in 1950 to a mere 2.3 births in 2021. These shifts have been having far-reaching consequences, especially for pay-as-you-go pension systems that are heavily reliant on the contributions made by the working population. Given the global demographic situation, the rising old-age dependency ratio across countries is only poised to intensify, further challenging the retirement funding systems of many countries across the globe.

“Retirement income systems around the world are under pressure like never before.”

-David Knox, Senior Partner at Mercer International Inc. (NASDAQ:MERC)

Besides the demographic situation, viability of retirement systems across the world is also at stake due to inflation. Known as the “wild card” in retirement planning, inflation has been known to threaten the financial security of individuals no matter how good their plans may be. 62% of retirees consider it as the number one threat to their investments, notes the GRI Index 2023. Even though inflation has been easing in many parts of the world, many individuals are still worried about the impact it has on their retirement plans. Despite being worried, a Bank of America Corporation (NYSE:BAC) report reveals that only 31% of employees are prioritizing retirement savings over their short-term financial needs today, compared to 45% in 2022.

On Navigating Global Retirement Challenges

To address these retirement system challenges, many countries have started taking stringent measures. For instance, the Netherlands has been adjusting its retirement age and stressing employer-paid defined contribution plans over defined benefit pensions. In effect since July 2023, the reform addresses challenges posed by low interest rates, an aging population, and evolving employment patterns, and seeks to align the pension system with the dynamic needs of both employers and employees. However, some countries, like France, are facing backlash and protests for similar measures such as changing the retirement age. In addition, Italy has approved a “Pact for the Third Age”, highlighting health and social reforms for seniors. While other countries are actively reforming their pension systems, the USA has received a C+ for its retirement structure in a ranking out of 47 countries, conducted by Mercer International Inc. (NASDAQ:MERC). The grade signifies that the United States of America has a retirement system with “good features”. However, it also possesses some major risks that need to be addressed to ensure its sustainability.

It is no secret that the Social Security system of the US is uncertain, as highlighted in their 2023 Annual Report. According to the report, the system will be able to pay funds in full only until the year 2033. Therefore, retirees in the USA must not solely rely on these funds for their retirement years. Instead, they should actively focus on building their retirement savings. You may explore our articles on topics such as ‘I am 50 and have no retirement savings,’ ‘Best places to retire on social security,’ and ‘Places to retire on $1,000 a month‘ to kick-start your journey towards a comfortable yet affordable retirement.

For those looking to keep their retirement income safe, some of the safest places to put your retirement funds are savings options with guaranteed growth. Low-risk investments are a good option as well. Individuals can keep their money in a savings account that is insured by the Federal Deposit Insurance Corporation (FDIC), stash money in a fixed annuity, explore US treasury securities, or even take advantage of employer-sponsored plans. Embarking on savings today and prioritizing maximum contributions towards retirement is a recipe for earning an A-grade in your retirement plan.

Methodology

To analyze which countries have the best retirement systems, we have used the Natixis Global Retirement Index 2023 and the Mercer CFA Institute Global Pension Index 2023 by Mercer International Inc. (NASDAQ:MERC). The Global Retirement Index (GRI) is a multi-dimensional index developed by Natixis Investment Managers and CoreData Research to examine the factors driving retirement security. Retirement security is pivotal for the effectiveness of retirement systems as it directly influences the well-being and financial stability of retirees. Meanwhile, The MCGPI benchmarks retirement income systems around the world. A C+ grade is awarded to a retirement system whose index value is between 60-65, B is awarded to systems with an index value between 65-75, B+ to 75-80, and A to systems whose index value is more than 80.

Adopting a consensus methodology, we identified countries that consistently ranked high in both indices and calculated their average rankings based on their rankings on these indices. The resulting list is organized in descending order, with countries ranked based on their average rankings. These averaged rankings provide an aggregated representation of performance across various factors (health, material well-being, quality of life, finances; as well as adequacy, sustainability, and integrity of retirement systems) crucial for assessing the quality of its retirement system.

Here are the top countries with the best retirement systems:

20. Japan

Average Ranking: 27

Natixis Global Retirement Index Rank: 24^th 

Mercer CFA Institute Global Pension Index Rank: 30^th

Japan’s retirement system comprises a flat-rate basic pension scheme and an earnings-related plan, alongside voluntary private pension plan options. Scoring an index value of 56.3, Mercer ranks the retirement system as a “C”, having some good aspects in the system, as well as major risks that need to be resolved. A combination of a public pension system, voluntary private plans, and a cultural emphasis on financial discipline, will help improve the country’s retirement system. Meanwhile, the GRI Index has revealed that the country has slipped by two places to 24^th, owing to its poor performance in the Finances sub-index. Japan has the largest number of adults over the age of 65, making up almost 30% of the population. Since there are more elderly people and fewer working people to support them, it’s hampering the retirement security of its pension system.

19. Austria

Average Ranking: 25.5

Natixis Global Retirement Index Rank: 11^th

Mercer CFA Institute Global Pension Index Rank: 40^th

Austria ranks 40^th in the Mercer Index, scoring an index value of 52.5 in 2023. Its retirement income system comprises a Defined Benefit (DB) public pension scheme which is complemented by an income-tested top-up designed for low-income pensioners, along with voluntary private pension plans. Similar to Japan, its retirement system is ranked a “C”.  Nevertheless, Austria is one country with the best retirement system because it is claimed that their pensions are some of the most “generous” in the world. With regard to the GRI Index, Austria has an improved position, jumping from 71% in 2022 to 75% in 2023. The country has improved in its Material Well-being sub-index from 69% to 72%, marked by a downward trend in unemployment of working-age people and those above 50. The score improvement can also be attributed to a slight gain in the quality of life index, thanks to improvements in air quality, and biodiversity.

18. France

Average Ranking: 24

Natixis Global Retirement Index Rank: 23^rd  

Mercer CFA Institute Global Pension Index Rank: 25^th

According to the Mercer Index, France has an overall index value of 61.7 in 2023, dropping from 62 in 2022. Its retirement system rank is C+, implying that the system has some good features but also major risks/shortcomings that need to be addressed. The retirement system of the country comprises of earnings-related public pension with a minimum pension and a supplementary retirement pension scheme for private-sector workers (known as AGIRC-ARRCO) and also includes occupational plans. The country boasts one of the lowest qualifying ages for a state pension in European countries and spends heavily on its retirement system. Some improvements that the country’s retirement system needs are increasing labor force participation at older ages and increasing regulatory requirements for the private pension system. Meanwhile, France jumped up one spot to 23^rd in the GRI Index rank due to a strong performance in its health sub-index.

17. United States of America

Average Ranking: 21

Natixis Global Retirement Index Rank: 20^th

Mercer CFA Institute Global Pension Index Rank: 22^nd

The United States of America ranks 22^nd out of 47 countries in the Mercer Global Pension Index Rank with an index value of 63. Its retirement system has been graded as a “C+,” indicating that the system has some plus points but also comes with its fair share of flaws. Some improvements that the system needs include raising the minimum pension for low-income pensioners, reducing pre-retirement leakage, and improving the vesting of benefits for all plan members. Meanwhile, the USA has slipped two places in the GRI index to the 20^th spot, owing to a deteriorating performance in the health, quality of life, material well-being, and old-age dependency sub-indices. Life expectancy in the country has also taken a hit, inflation and government debt have worsened, and happiness scores also decreased slightly; adversely impacting retirement security.

16. Belgium

Average Ranking: 27.5

Natixis Global Retirement Index Rank: 19^th

Mercer CFA Institute Global Pension Index Rank: 16^th

Belgium is one of the countries with the best retirement systems, with a “B” ranking allotted to it by the Mercer Index. The retirement income system of the country includes public, occupational, and private pension schemes. A “B” ranking signifies that the retirement system of the country has a sound structure, but there are some areas of improvement. In Belgium’s case, the improvements that can be made include increasing labor force participation at older ages, and greater flexibility in terms of pension design, to name a few. The Natixis GRI rank has seen Belgium jump up by one spot to 19^th rank, performing well in almost all sub-indices except Health.

15. Singapore

Average Ranking: 16.5

Natixis Global Retirement Index Rank: 26^th

Mercer CFA Institute Global Pension Index Rank: 7^th

Singapore’s retirement system is ranked a “B+”, coming at 7^th with an index value of 76.3 in the Mercer Index. The improvement in the system can be attributed to its increased level of pension coverage, making it one of the best retirement systems in Asia. The foundation of Singapore’s retirement income system lies in the Central Provident Fund (CPF), a scheme that includes all employed residents of Singapore. Within the CPF framework, certain benefits are accessible for withdrawal at any time, such as for designated housing and medical expenses, while other benefits are set aside to ensure financial security during retirement. Moreover, Singapore ranks 26^th in the Natixis GRI Index. The country has experienced a drop in the finance sub-index due to a decrease in old-age dependency, bank nonperforming loans, inflation, and interest rates.

14. Germany

Average Ranking: 14

Natixis Global Retirement Index Rank: 9^th

Mercer CFA Institute Global Pension Index Rank: 19^th

Germany’s retirement income structure comprises an earnings-related pay-as-you-go system, relying on the accumulation of pension points throughout an individual’s career. Additionally, there is a means-tested safety net designed to support low-income pensioners, and many prominent employers offer supplementary pension plans as part of the overall system. Mercer CFA Global Pension Index Rank classified its retirement system as a “B”, signifying some areas of improvement such as increasing the level of funded contributions in private pension plans, increasing coverage of employees, and increasing minimum pension for low-income pensioners. The GRI Index notes the country moving up two spots to the 9^th rank, showing improvements in inflation, interest rates, and overall economy. It has also been spending heavily on health expenditure, thereby improving retirement security.

13. United Kingdom

Average Ranking: 13

Natixis Global Retirement Index Rank: 16^th

Mercer CFA Institute Global Pension Index Rank: 10^th

The United Kingdom retirement system comprises three main pension types, namely: state pension, workplace pensions, and personal pensions. Mercer Index ranks the UK at 10^th position, with an index value of 63. Some improvements needed in its retirement system include raising the minimum pension for low-income pensioners, reducing pre-retirement leakage, and improving the vesting of benefits for plan members. Meanwhile, the GRI index notes the country climbing up three spots to 16^th rank, primarily due to a strong performance of the Finances in Retirement sub-index.

12. New Zealand

Average Ranking: 12.5

Natixis Global Retirement Index Rank: 8^th

Mercer CFA Institute Global Pension Index Rank: 17^th

New Zealand ranks as one of the countries with the best retirement systems, largely because its system is highly effective in preventing elderly poverty. The retirement income system comprises a universal public pension, the KiwiSaver DC retirement scheme, and alternative occupational schemes. The NZ Super is paid from age 65, and individuals don’t have to stop working to receive it. Mercer Pension Index ranks it 17^th with an index value of 68.3, while the Natixis GRI Index notes an improvement in all sub-indices, ranking it at 8^th position.

11. Canada

Average Ranking: 12

Natixis Global Retirement Index Rank: 12^th

Mercer CFA Institute Global Pension Index Rank: 12^th

Canada is known to have one of the best pension systems in the world owing to its diversification of income sources. The retirement income system comprises good basic national benefits (OAS), means-tested income supplement (GIS), and public pension plans (CPP and QPP), all adjusted for inflation. Noteworthy enhancements encompass reducing government debt as a percentage of GDP and implementing a universal minimum access age for pension products. According to the GRI Index, the country stands in 12^th position with improvements in quality of life, material well-being, and finances in retirement sub-indices.

10. Sweden

Average Ranking: 11.5

Natixis Global Retirement Index Rank: 14^th

Mercer CFA Institute Global Pension Index Rank: 9^th

Another country that has one of the best retirement systems is Sweden, owing to its strong economic foundation and multi-pillar pension system. This system comprises a national public pension from the state, an occupational pension from employer, and any savings or assets that you may have; providing retirees with a combination of benefits. According to Mercer, essential improvements entail raising the state pension age and reintroducing tax incentives for individual contributions, among other measures.

9. Israel

Average Ranking: 10.5

Natixis Global Retirement Index Rank: 17^th

Mercer CFA Institute Global Pension Index Rank: 4^th

Israel’s pension system ranks 4th in the world as per the Mercer Index, with an index value of 80.8. The system includes a universal state pension with an income-tested supplement and private pensions with compulsory employer and employee contributions. The GRI index notes the country slipping by one spot to 17th rank, with a slip in the health sub-index.

8. Finland

Average Ranking: 9.5

Natixis Global Retirement Index Rank: 13^th

Mercer CFA Institute Global Pension Index Rank: 6^th

Finland’s retirement system is deemed to be one of the most transparent and reliable in the world. Its system consists of a basic state pension, which is income-tested, and a range of statutory earnings-related schemes. Mercer ranks it at the 6^th spot with an index value of 76.6. Meanwhile, the country has either held its place or improved in all four sub-indices (health, material well-being, finances in retirement, and quality of life) measured in the GRI index.

7. Ireland

Average Ranking: 8.5

Natixis Global Retirement Index Rank: 4^th

Mercer CFA Institute Global Pension Index Rank: 13^th

Ireland’s retirement system has received a B grade from Mercer, ranking it at 13^th position with an index value of 70.2. Ireland is a European country with one of the best retirement systems. Their pension system comprises a pay-as-you-go program and is based on both public and private pension programs. The GRI Index ranks it at 4^th position, experiencing gains in material well-being and finances in retirement sub-indices.

6. Denmark

Average Ranking: 6.5

Natixis Global Retirement Index Rank: 10^th

Mercer CFA Institute Global Pension Index Rank: 3^rd

Owing to its comprehensive welfare programs and emphasis on equality, Denmark is deemed to have one of the best social security systems in the world. Their retirement income system is close to the one recommended by the World Bank. It consists of a public basic pension scheme and a means-tested supplementary pension benefit. It also comprises a fully funded DC (Defined contributions) scheme providing lifelong pensions and a mandatory occupational DC scheme. Mercer Index ranks it at the 3^rd spot with an index value of 81.3. Meanwhile, the Natixis Retirement Index ranks it at 10^th place, staying in the top 10 countries in their index. Improvement in interest rates and governance has improved its Finance sub-index, and there have been improvements in Quality of Life as well.

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Disclosure: none. 20 Countries with Best Retirement Systems is originally published on Insider Monkey.