The quality of pension systems available to workers varies widely across the globe. The Mercer CFA Institute Global Pension Index compares countries’ pension systems according to three key factors: adequacy, sustainability and integrity (meaning: regulation). According to the index, the Netherlands has the best system, while the US ranks among the bottom half of countries.

Four countries received an A grade: the Netherlands, Iceland, Denmark and Israel. Find out what makes these countries’ retirement income systems stand out, and what even the top countries can do to improve.

How the index works

The index is sponsored by CFA Institute and published in collaboration with the Monash Center for Financial Studies (MCFS) and global consultancy Mercer. It ranks pension income systems around the world on more than 50 indicators covering a wide variety of pension policies and practices. Mercer then compares the systems based on suitability, sustainability and integrity. The report also suggests ways each system can be improved to provide more adequate retirement benefits.

Pensions are a unique and valuable type of retirement plan where an employer makes contributions to a pool of funds and invests it on behalf of the employee, with the earnings on said investments generating income for the worker in retirement. In the US, more and more private sector employers have switched from traditional pension plans to 401(k)s.

Here, we analyze the results of the latest index, launched in October 2024, which ranks pension schemes out of 48 pension schemes:

The 4 best pension systems

The index value for each country is represented by a value between zero and 100, with higher values ​​signifying more favorable pension systems. The top four countries with the highest overall index score were:

1. The Netherlands

With an index value of 84.8, the Netherlands received the highest score for 2024, down from 85 in 2023 due to recent reforms.

Its retirement income system uses a flat rate public pension and a semi-compulsory occupational pension linked to earnings and industrial agreements. Most employees in the Netherlands are members of these occupational plans, which are industry-wide defined benefit plans. Earnings are based on a lifetime average.

The index found that the overall value of the Netherlands index could be improved by:

• Reducing the level of household debt
• Introducing Carer’s Pension Credit for those looking after young children
• Providing greater protection of accrued member benefits

2. Iceland

Iceland ranked second with an overall index value of 83.4 in 2024. Its rating fell slightly from 84.8 in 2023 due to lower net pension replacement rates.

Iceland’s pension system is composed of a basic state pension with a supplement and private occupational pensions with mandatory employee and employer contributions, as well as voluntary personal pensions.

The index found that Iceland’s overall index value could be improved by:

• Reduction of household debt and public debt as a percentage of GDP
• Reduction of public debt as a percentage of GDP
• Introducing ways to protect both parties’ pension interests during a divorce

Globally, pension systems are under greater pressure than ever due to increased life expectancy, increased government debt, uncertain economic conditions, the risk of inflation and the shift to defined contribution plans.

3. Denmark

Denmark came third with an overall score of 81.6, up slightly from 81.3 the previous year due to minor schedule changes.

Denmark has a public basic pension scheme, an income-related supplementary pension, a fully funded defined contribution plan and mandatory occupational schemes.

The index noted that Denmark’s score could be improved by:

• Introducing measures to protect the interests of both spouses in a divorce
• Requiring pensions to provide an annual report to all members
• Require pensions to display pension income forecasts in annual statements

4. Israel

With an index value of 80.2, Israel also received an A grade for 2024. Its score dropped slightly from 2023 due to lower net pension replacement rates.

Israel’s pension system is composed of a universal state pension and private pensions with mandatory employee and employer contributions.

The index noted that Israel’s score could be improved by:

• Reduction of public debt as a percentage of GDP
• Increasing the protection of members of private pension plans in the event of mismanagement or fraud
• Introducing Carer’s Pension Credit for those looking after young children

How the USA scored

The US scored 60.4 in 2024, down a few points from 63.0 in 2023. It ranks 29th out of 48 pension systems, placing it in the bottom half of all systems worldwide. The US retirement income system includes social security and has optional private pensions, which can be occupational or personal.

How all countries ranked

The following chart shows the 48 pension schemes included in the index and how their pension schemes scored and ranked in 2024: