How good is the UK’s pension system compared to other countries? #UKFinance

The system is made up of a pay-as-you-go social security scheme that comprises a basic pension and an earnings-related element on top, plus various voluntary occupational pension plans. The part of the system you use depends on the kind of job you have. The pension age is normally 65 for men and 60 for women, but Milei has spoken of wanting to unify these and raise them to as high as 75 years old. His austerity measures have led to fierce protests (pictured).

It’s not all doom and gloom though. Argentina might be a poorly performing country, but its index value has risen by over three points since 2023, mainly because of an increase in the basic pension.

The Philippines’ score has increased very slightly from 45.2 in 2023, and Mercer attributes this to changes in its Integrity aspects. Still, it remains third from bottom in the overall Index.

Retirees in the archipelago nation can access an earnings-related social security pension. To qualify, public sector workers need to pay into it for a minimum of 180 months, while others need to pay into it for 120. Those who don’t make the necessary contributions get a proportion of benefits. Meanwhile, there is a small basic pension for everyone.

Mercer says the Philippines’ index score could be improved by increasing the minimum level of support and linking benefits to cost-of-living figures. It also suggests that private pensions need better governance.

Türkiye’s overall index value of 48.3 is identical to its score for the Adequacy sub-index. It scores much better on Integrity at 70.8 – but at just 32.2, its Sustainability measure is one of the worst. Each sub-index has improved in the last year, but overall Türkiye languishes in 45th place.

The country’s retirement income system comprises a means-tested public pension plus an earnings-related scheme. Retirees might supplement their income with voluntary private pension schemes, but not many do. Workers can opt out of mandatory auto-enrolment pension plans at any time. The normal retirement age is 58 for women and 60 for men, though it will rise to 65 for both by 2044.

To improve the system, Mercer suggests increasing minimum provision for the poorest retirees, expanding the number of workers in occupational schemes, and requiring at least part of retirement benefits be taken as a regular income.

Making up the bottom five is South Africa, whose index value of 49.6 has decreased by 4.4 points since last year – primarily, says Mercer, because of a reduction in the base pension as measured against the average wage.

South Africa’s system includes a means-tested public pension that can pay out at 60, and tax-supported voluntary occupational schemes. In September this year, it introduced a so-called two-pot savings arrangement where two-thirds of contributions are reserved for retirement only. The other third can go toward building up general reserves.

Along with increasing the minimum provision for the poorest citizens, Mercer says increasing workers’ participation in occupational pensions would help improve outcomes.

With Indonesia’s score of 50.2, we come to the systems that Mercer grades as C or C+ which means they have good features but possible long-term risks unless they address problems. The Indonesian index value includes an Adequacy element of 38.1 – the third worst. The overall score has fallen since last year when it was 51.8. Mercer says this is partly thanks to decreasing net pension replacement rates.

How you retire in Indonesia depends on your employment status: Civil servants get an earnings-based pension while the private sector relies on a variety of plans. There’s also a mandatory DC-based (defined contribution) scheme that workers and employers pay into as part of the government’s social security program. Meanwhile, the national statutory pension offers DB-based (defined benefit) severance pay and long-service pay. The normal pension age is currently 58 but is rising by one year every three years until it becomes 65 years old.

Mercer suggests that increased coverage, better minimum payouts and improved regulation for private pensions could lead to a better score for Indonesia in the future.

South Korea has an index value of 52.2, one point higher than last year and roughly equal to its mid-ranking Sustainability score of 52.4. The Integrity sub-index is valued at 70.5 but Adequacy is a comparatively poor 40.5.

The country has statutory private pension plans and a public earnings-related pension scheme, which is based on both the individual earnings of each member and the average earnings of all members. The pension age for this is currently 60 but it’s set to rise to 65 by 2033.

Those private pension pots needn’t be taken as an income stream, something which Mercer says the government should change. Improved governance and greater support for the poorest are among its other recommendations.

Austria’s score of 53.4 makes it the lowest-ranking European country in the Index. It also has the worst score of all for Sustainability at a very poor 22 points. Adequacy and Integrity fare better at 67.2 and 75.2 respectively. It’s also worth pointing out that Mercer has upgraded Austria’s overall score by one point since last year.

Relatively high Adequacy and low Sustainability are no surprise considering the country’s generous retirement income system: It’s a public DB pension scheme with means-tested top-ups for those on lower incomes. Private pension plans are also available if anyone wants them.

The normal retirement age for men is 65. For women, it was 60, but this is rising by six months per year and will match the male age by 2033. Mercer suggests Austria needs to increase the contributions and assets of its pensions by expanding coverage, and should also work to ensure that private plans are preserved for retirement income only and protect people’s pensions if they divorce.

New demographic data has brought Peru’s overall index value down slightly since last year. It was 55.5 but now stands at 54.7 points.

Poorer Peruvians can access a means-tested basic pension, but those who can afford to must choose their retirement income system: they can opt for a pay-as-you-go DB public system or a DC system in the private sector. Whichever they opt for, all the contributions are made by employees alone; employers do not need to make any co-payments.

Mercer believes that a more flexible arrangement with tax incentives to pay in would result in better funding. Similarly, people could be allowed to retire gradually, taking a part-pension as they wind down their working hours.

The median age in Japan has been increasing relentlessly for decades while its birth rate has plunged. The country’s net pension replacement rates are also falling, and for this reason, Mercer has downgraded its pension score – from 56.3 last year to 54.9 today.

The Japanese retirement income system includes a flat-rate basic pension payable at 65, an earnings-related public pension and various voluntary private plans.

Japan has increased its state pension age, but Mercer says it needs to do so again in line with rising life expectancy. Meanwhile, more people could be encouraged to enter private pension plans rather than rely on the state. Finally, Japan must reduce its sky-high government debt to release more money for pension provisions.

Another low-ranking European country, Italy manages 55.4 index points, slightly down on its 2023 score. Adequacy and Integrity are not bad, at 68.2 and 77.2 points respectively, but at 25.1, Sustainability is the second worst of all 48 countries surveyed.

The retirement income system is based on what Mercer describes as a notional DC scheme. There’s also a basic social assistance benefit that’s means-tested. Italy’s statutory retirement age is now 67, though there are earlier options for those with enough pension contributions.

According to Mercer, Italy needs to avoid problems in the long term by getting more people into occupational schemes, boosting participation in schemes at older ages to match life expectancy, and restricting benefits taken before retirement. Another big requirement is to tackle the country’s enormous national debt and reduce government spending on pensions relative to the size of the economy.

With an index value of 55.8, a slight increase from last year’s score, Brazil ranks 33rd out of Mercer’s 48 selected countries. Its Adequacy and Integrity sub-indices hover around the 70 mark, but at just 31, its Sustainability is much less impressive.

Brazil has what the World Bank describes as quasi-universal old-age benefit coverage. Its retirement system features a combination of pay-as-you-go social security, voluntary corporate occupational pensions and individual pension plans.

Mercer believes that the occupational schemes would benefit from auto-enrolment to increase coverage, which would boost contribution and asset levels. A minimum access age for plans would also preserve benefits solely for retirement rather than being available for other uses.

Malaysia’s overall index score is 56.3, meaning it ranks 32nd of 48 nations. Sustainability and Integrity are mid-ranking, but its Adequacy score is low, coming in at an uninspiring 42nd place.

Malaysian government employees get a state-funded DB pension, though the scheme is less generous to new joiners. Meanwhile, private sector workers pay into the Employee Provident Fund with their employers making co-payments. The fund allows members to withdraw some of their savings at any time and some for specific purposes like education or ill health. The rest must be kept to pay for retirement, but it does not provide an income stream. The retirement age is 60, but you can access EPF savings at 55 years old.

Malaysia has one of the fastest-ageing societies in the region, and Mercer suggests that minimum support levels and household savings need to increase for the country’s pension system to improve.

The American index value has decreased from 63.0 last year to 60.4 due to updated OECD data on its retirement system. The Integrity sub-index is also keeping the overall score down: at just 57.5, it ranks a dismal 46th out of 48.

America’s public retirement offering features a social security system with benefits based on lifetime earnings, adjusted to today’s prices. The statutory retirement age is between 65 and 67, depending on your date of birth. Meanwhile, DC schemes dominate the private workplace pensions sector and you must begin to take them by the age of 73. You don’t have to take the benefits as an annuity though, and many people withdraw them as a lump sum or in instalments.

Mercer suggests the US should raise the minimum pension available to the poorest pensioners and limit the access that wealthier people have to their funds prior to retirement. It also wants to see a statutory requirement for at least part of those DC schemes to be taken as an income stream.

Colombia ranks 27th in the Index with a value of 63.0, up more than one point since 2023. Mercer says the increase is thanks to better coverage of retirement schemes and a plan to raise the state pension age. It’s currently 62 for men and 57 for women – one of the lowest ages of any OECD country.

The South American nation has two pension systems that members must choose between. One is a pay-as-you-go DB plan managed through the state pension fund Colpensiones. Workers earning up to 2.3 times the minimum wage must pay into this. The other is a system of individual private sector accounts to which members can make additional contributions if they wish. Meanwhile, there’s a means-tested pension for the needy.

Mercer suggests Columbia could improve its index value by increasing the minimum provision for the poorest pensioners, encouraging more household savings, and proceeding with raising the state pension age, especially for women.

Spain’s overall score has risen from 61.6 to 63.3 thanks to an increase in the base pension. It ranks 26th in Mercer’s Index.

The retirement system here is based on an earnings-related public pension alongside a minimum means-tested social assistance benefit. Voluntary personal and occupational pensions are also available, but they don’t cover many people.

Spain passed laws in 2022 to promote these occupational schemes, and Mercer thinks it should continue to encourage them, possibly by introducing automatic enrolment. It would also like to see scheme membership continue at older ages as life expectancy increases, along with a legal requirement to take retirement benefits as an income stream rather than as a lump sum in most cases.

Ranking 23rd out of 48, the United Arab Emirates (UAE) comes in at almost exactly the halfway point. Its index value of 64.8 is more than two points higher than last year, mainly because the country has introduced a minimum age to access benefits. Notably, the adequacy sub-index performs relatively well at 77.1 – more than some overall higher-ranked European countries including the UK, Finland and even Sweden.

Emirati citizens can retire at 60, as long as they have enough insured years. They benefit from a minimum means-tested state pension plus an earnings-related scheme for employees, which is managed by different entities in different emirates.

Mercer says further improvement might come from getting more employees into the latter scheme and increasing the state pension age. Additionally, it would like the UAE to oversee improvements in the level of communication that pension providers have with their members and take steps to reduce household debt.

With Germany, we come to the group of countries that Mercer grades as B/B+, meaning their retirement systems have “sound structure, with many good features but … some areas for improvement”. At 67.3 the German index value is up on last year, thanks in part to better household savings and less household debt. It scores highly for Integrity at 75.3 and its Adequacy rating is in the top 10, at 81.1. However, it scores just 45.8 for Sustainability.

Germany’s retirement system comprises a public pension scheme that’s mandatory for employees, excluding the self-employed or civil servants, who have their own scheme. There’s also a safety net for the poorest. On top of the public offering, occupational pensions are common and voluntary private schemes are available too.

Germany is changing its previous pension age of 65, and those aged up to 60 this year will now access benefits at 67. As the population grows older, Mercer suggests increasing contribution levels in private pensions and increasing the coverage of occupational schemes to boost that Sustainability figure.

France is another European country with generous pensions. At 84.8, its system scores high for Adequacy – second only to the country that ranks first overall. Its Integrity index of 75.7 is in mid-table territory, but like Germany, its Sustainability is low. This brings the overall index value down to 68 points, ranking the country 19th out of 48.

The French retire using an earnings-related public pension that features a minimum pension. There’s an additional pension scheme for private-sector workers, plus voluntary occupational plans. The retirement age has risen from 62, but only to 64.

According to Mercer, the country needs to increase its level of funded contributions to build up more assets in the system. Better communication with members is another recommendation. But the main takeaway is that France should somehow reduce the amount of public money it spends on pensions. Given the protests that met a modest increase in the pension age, this is likely to be a difficult task.

Ireland’s score of 68.1 is over two points down from last year, which Mercer blames on decreases in the base pension as a percentage of average earnings, net pension replacement rates and reduced household savings. Nevertheless, it’s a respectable 18th in the rankings.

There’s a basic flat-rate social security pension scheme paid at 66 years old to those who’ve made enough social insurance contributions. Those who haven’t can still access a means-tested benefit. On top of that, employees can pay into voluntary occupational and personal pensions.

Ireland is currently implementing the European Union’s Second European Pensions Directive (known as IORP II) which is intended to tighten the regulation and governance of funds. Mercer expects to see improvements in these areas over time. But it also suggests introducing auto-enrolment into both employer-sponsored schemes and the state system.

The Canadian index value is down slightly from 70.2 last year to 68.4. One reason for this is that the OECD has reported an increase in its average earnings, which has reduced its base pension in relative terms.

Canada has a range of schemes. There’s a universal flat-rate pension with a means-tested income supplement and a national system that provides earnings-related pensions. Among the voluntary schemes, many occupational plans are DB but Mercer reports that DC prevalence is increasing in common with many other parts of the world. Some Canadians opt for individual voluntary retirement plans. The normal retirement age is 65 years old.

Mercer’s suggestions for improving the retirement system include introducing a minimum access age for all pensions, boosting domestic savings and reducing household debt. Meanwhile, Canada’s government debt – currently 106% of GDP according to the IMF – also needs to go down.

With 68.5 index points, Mexico scores the highest of the North American countries. Mercer marks it out as making a big improvement on its 2023 figure of 55.1 and ascribes the jump to a revised scoring system that now focuses on the country’s mandatory DC pension rather than voluntary occupational schemes. It also notes an increase in the basic pension.

That basic pension is a universal means-tested safety net pension funded by the federal budget. In addition, the DC system includes a minimum pension set to Mexico City’s minimum wage that’s mandatory for employees. Voluntary occupational schemes are also available, and the retirement age is 65.

Mercer would like to see continued increases to the universal pension and more assets accumulated. However, its other recommendations are on the Integrity side: greater protection of accrued benefits and a requirement to show future income projections on annual statements. Mercer only scores Mexico’s Integrity sub-index at 67.1, making it 40th out of 48 in that category.

Like France and Germany, Belgium’s 68.6 index value comprises higher Adequacy (81.8) and Integrity (87.4) sub-indices but a rather poor Sustainability figure (40.1). Its overall score is unchanged from last year and puts the country in 15th place.

Belgium’s retirement system includes public, occupational and private pension schemes. The state scheme is earnings-related and has a means-tested safety net. Retirement is usually at 65.

Mercer thinks the Belgian system would benefit from introducing a minimum level of mandatory contributions to grow the asset base, requiring at least part of the benefits to be taken as retirement income and making the system more flexible to allow for transition into retirement.

New Zealand’s index value has gone up slightly since last year. At 68.7, it ranks 14th out of Mercer’s 48 countries.

Its retirement system is based upon a universal public pension and a DC retirement scheme called KiwiSaver, though there are also occupational pension schemes. KiwiSaver is a voluntary scheme which both employers and members contribute to, as does the government. When you take up new employment, you automatically enrol into it if you’re not already a member, and you remain in it unless you opt out within a limited time. The retirement age is 65.

New Zealand could increase its index value by increasing the level of KiwiSaver contributions, and Mercer says that both the coverage and tax efficiency of contributing payments could also be improved. Meanwhile, as with many other countries, Mercer thinks raising personal savings and tackling household debt would be beneficial.

Switzerland takes 12th place in the Mercer Index with 71.5 points. The Alpine country’s score is down slightly on last year because increased earnings resulted in a relatively smaller base pension.

Switzerland has an earnings-related public pension scheme and a mandatory occupational system whose contribution rates rise with age. In addition, there are voluntary pension plans where savers can benefit from tax advantages. The normal retirement age is 65 and in March, voters rejected raising it to 66 in a referendum. (The same poll backed a proposal to add a 13th pension payment each year to tackle the cost-of-living crisis).

Nevertheless, Mercer suggests that the pension age should rise over time and recommends making it compulsory for retirees to take part of the benefits as an income stream. Swiss pensioners would also benefit from the lower financial outgoings that a higher home ownership rate might entail.

Decreases in net pension replacement rates and pension assets mean that the UK index value has fallen from last year’s 73.0 to 71.6, putting it in 11th place overall. Its Adequacy, Sustainability and Integrity sub-indices all rank respectably enough between 15th and 18th places.

The country’s retirement system is based around a universal state pension that’s fixed in value for most new retirees. For the less well-off, there’s also an income-tested pension credit. Many people have some form of voluntary occupational or personal pension, and all new employees are auto-enrolled in a workplace pension with a minimum 8% contribution rate, though they can subsequently opt-out.

The UK pension age is 66 but will rise to 67 in 2026. However, there is no prescribed retirement age. Mercer sees potential improvements in making it compulsory to take part of retirement benefits as an income stream and increasing the number of employees and the self-employed in private pension schemes. It also suggests increasing contribution levels for auto-enrolled staff and tackling the UK’s high levels of household debt.

Chile is one of the most eye-catching performers of this year’s Mercer index. It’s jumped five points since last year to 74.9, leapfrogging the UK and hitting the top 10 overall with a ninth-place ranking. It’s also the highest-ranked South American country.

The Chilean score rose because of increases in the base pension and net pension replacement rates. Imposing a pension age of 65, Chile’s system features a nearly universal social pension and a mandatory DC system managed in the private sector, which sees employees contribute to individual accounts managed by dedicated administrators. The system scores a highly respectable 86.5 on its Integrity sub-index.

Even so, Mercer has suggested ways to improve the Chilean system. It recommends further increasing the minimum level of support for the poorest and introducing government payments to cover missed pension contributions for those caring for young children.

Eighth overall with an index value of 75.2, Norway has increased the coverage of its retirement savings plans and its pension assets, gaining slightly on its 2023 score.

A wealthy country, the retirement system is rated just outside the top 10 for Adequacy at 77.2, and its Sustainability sub-index achieves 63.6 – not top-rated but well within the top third. Meanwhile, Integrity is an impressive 88.3, the second-highest score for this sub-index of any country on the list.

Norway’s retirement system is based on a universal earnings-related pension which features a minimum pension level and mandatory occupational plans. Private voluntary schemes offer a further tier of saving. The retirement age is flexible and you can draw pensions between the ages of 62 and 75, with 67 the normal age and pensions adjusted accordingly.

Despite its good performance, Mercer believes improvements could still be made by raising household savings, reducing debt, making it easier to contribute to DC plans and making rules to protect pension interests when people get divorced.

Another wealthy Nordic country, Finland is in seventh place overall with 75.9 points. It has a higher Integrity sub-index score (90.8) than any other country on Mercer’s list, while Adequacy and Sustainability are 77.0 and 64.2 respectively.

Although it scores well, all of its 2023 values were higher and have dipped because of a reduction in pension assets.

The country’s retirement income system consists of a basic income-tested public pension and a range of statutory earnings-related schemes, with retirement normally at 65 years. Mercer suggests things could be improved by increasing the levels of mandatory contributions, boosting support for the poorest, raising household savings and reducing debt, and protecting the pensions of individuals who divorce.

Sixth place overall, Australia’s index value has also gone down slightly since last year because of a reduction in the amount of pre-retirement income its pension offers, which is known as the net replacement rate. The index value was 77.3 and now stands at 76.7 points.

In Australia, taxpayers fund a means-tested old age pension but people must also pay into mandatory private-sector occupational schemes. Meanwhile, employers, employees and the self-employed can make additional contributions into private-sector plans if they wish. The usual pension age is 67.

Mercer’s suggestions for improving the system include introducing a government contribution to the pension funds of primary carers of children and altering the means test on the public pension to increase its replacement rate.

The highest-ranked Asian country, Singapore scores a very respectable 78.7 overall and its index value has increased since last year. Its Sustainability sub-index score of 73.7 puts it firmly in the top 10 of Mercer’s sample countries.

The Lion City uses an investment vehicle called the Central Provident Fund (CPF). All citizens and permanent residents must pay into it and while some of the accrued savings can be withdrawn early for specific purposes such as buying accommodation or medical care, others are ringfenced for retirement. A minimum amount must be drawn down as a lifetime income stream, and the retirement age is between 65 and 70.

Mercer suggests improving the system by opening the CPF to non-residents since they make up a significant part of the labour force and raising the age at which CPF members can access their retirement funds. Making it easier for companies to set up their own pension schemes and ruling that members should receive annual income projections would also be helpful.

With an index value of 80.2, Israel is the first country that Mercer categorises as A, meaning it has a “first-class and robust retirement income system that delivers good benefits, is sustainable and has a high level of integrity”. Israel is ranked fourth overall and its Sustainability sub-index does even better, coming in third with 82.6.

Even so, the Israeli overall score has slipped from 80.8 in 2023 due to a reduction in the net pension replacement rates since then. The country’s retirement system features a universal public pension and an income-tested supplement, plus private pensions that employers and employees must pay into. The normal retirement age is 67 for men and 62 for women.

Mercer suggests reducing government debt and bolstering fraud protection within private pension plans to improve the system further.

Third place in the Mercer Index goes to Denmark with a value of 81.6. Its Sustainability score is even higher at 82.6 and achieves second place, while Adequacy is higher still at 84. Integrity, though by no means poor, is less impressive at 76.3.

The Scandinavian country’s retirement income system boasts a state basic pension with a means-tested supplementary benefit, a fully funded DC scheme that gives lifelong pensions and mandatory occupational DC schemes. The normal retirement age is 67.

To improve the nation’s Integrity category, Mercer suggests protecting individuals’ pension interests in divorce proceedings, and requiring all pensions to report annually to their members and show annual income predictions on statements.

Iceland is the runner-up in this year’s Index, scoring 83.4 points overall and achieving top 10 rankings in all its sub-indices. Integrity is 10th at 84.4, Adequacy is seventh at 82.2, and Sustainability is better than any other country at 84.3 points. Even so, Iceland’s overall value has fallen slightly since 2023 because of a decrease in net pension replacement rates.

Its retirement system consists of a basic state pension and a pension supplement, both income-tested according to different rules, and mandatory occupational private pension schemes with contributions from both employers and employees. Voluntary personal pensions complete the picture. The retirement age is flexible, with people allowed to draw their pensions between the age of 65 and 70.

According to Mercer, there’s still room for improvement. Reducing both government and household debt would help, while divorcing couples should have their individual pension interests protected.

This year’s top-ranking pension system belongs to the Netherlands. With an overall index score of 84.8, it has almost twice as many points as that of the lowest-ranked India. Its Adequacy sub-index score of 86.3 also occupies the number one slot, while Sustainability and Integrity are very high too; at 81.7 and 86.8, they rank fourth and fifth place respectively.

The system consists of a flat-rate public pension and quasi-mandatory earnings-related occupational pension schemes. Normal retirement age is 68 but benefits are available up to 10 years earlier or five years later, giving a remarkable degree of flexibility.

The Netherlands shows that even as populations age, high-quality pensions remain possible. But while you might think such a world-beating system is hard to improve, Mercer still suggests one or two tweaks. These include introducing carers’ pension credits and better protection of accrued benefits. Even the best, it seems, can be made better.

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