The UK’s retirement income system has ranted tenth in a global index comparing 47 countries globally.
The Mercer CFA Institute Global Pension Index 2023 revealed Netherlands topped the list, with second and third places taken by Iceland and Denmark respectively.
Covering nearly two-thirds (64%) of the world’s population, the 15th annual study by Mercer and CFA Institute found that while the Netherlands is going through major pension reform, its system is best positioned to offer the most benefits while it moves from a collective benefit to an individual defined contribution structure.
At the bottom of the list was Argentina, with the Philippines and India also having among the lowest index values.
Margaret Franklin, president and CEO of CFA Institute, said: “The average age of populations around the world continues to rise in many markets, mainly more mature markets.
“Inflation and rising interest rates have created a new market dynamic that poses significant challenges to pension plans. We also see continued fracturing as it relates to globalisation. These are just a few of the increasingly complex challenges that pension funds face that impact retirees in significant ways.
“More and more often, individuals will have an increasingly important role to play as it relates to their own retirement. As investment professionals, we need to help them prepare for that. Each year, this index serves as a critical reminder that there is a long way to go in many jurisdictions to make pension plans function at their best and for the long-term financial security of beneficiaries.”
As well as highlighting the best pensions systems globally, the index looked at the potential of artificial intelligence (AI) in boosting pensions and improving people’s quality of life in retirement.
Dr David Knox, senior partner at Mercer and lead author of the study, said: “The ongoing expansion of AI within the operations and decisions of investment managers could lead to more efficient and better-informed decision-making processes, which could potentially lead to higher real investment returns to pension plan members.
“AI also has the potential to improve member-engagement and help individuals make long-term decisions about their financial decisions. Both advances should improve retirement outcomes.”
However, the report also highlights the risks associated with AI, such as modelling challenges, ethical considerations and the importance of optimal data privacy and cybersecurity. It suggests that AI models must have strong governance and clear accountability to reduce biases and unjustified responses., as well as safeguards to retain long-term trust among members.
Knox added: “AI by itself is not the complete answer. There will always be a need for human oversight. Despite these risks, AI has the opportunity to deliver a higher standard of living in retirement – a worthwhile objective for all pension systems.”
