(Finance) – The social security system of the Netherlands remains in first place globally, followed by Iceland and Denmark. In terms of the pension system, Italy is placed in 35th place, followed by Japan. This is what the 16th annual Mercer CFA Institute Global Pension Index (MCGPI) study. “In a world where fertility rates are decreasing and life expectancy is increasing, pension systems are in focus – he comments Marco Valerio Morelli, CEO of Mercer Italia –. There is a need to ensure better alignment between public and private pension income to increase employee coverage. In addition to this, it is essential to create an adequate working environment in a context in which there will be an increasing number of those who wish to work at an older age.”
In detail i Netherlands achieve the highest overall score of the index (84.8), followed closely byIceland (83.4) and from Denmark (81.6). In addition to the presence of structured regulations and support services available to participants, the Dutch pension system continues to enjoy the benefits of the transition from a collective defined benefit structure to a more individual, defined contribution approach.
The Global Pension Index uses the weighted average of sub-indexes of adequacy, sustainability and integrity. For each of these macro-categories, the social security systems that achieved the highest values are i Netherlands for adequacy (86.3), theIceland for sustainability (84.3) and Finland for integrity (90.8).
Italy remains below the European average on all 3 dimensions of the indextogether with Austria, Poland and Türkiye, although with a slight total decrease compared to 2023 (from 56.3 to 55.4), particularly due to the adequacy index which went from 72.7 to 68.2. On the other hand, the sustainability and integrity indices show slight increases. As part of theadequacyItaly has slightly worsened its position by seeing the index relating to this dimension go from 72.7 to 68.2. The sustainability index improved slightly (from 23.7 to 25.1), mainly attributable to a small increase in the number of people over the age of 50 enrolled in a pension fund. However, our country confirms itself in the lowest part of the European ranking with regards to sustainability, positioning itself in penultimate place (followed by Austria). The difficulties in this area remain the high public debt, the low growth rate, the high government spending on pensions and the level of participation in supplementary pensions that is still very low. The value of the third sub-index considers lintegrity of the overall pension system, but with particular attention to the private sector, and is the highest value of the three sub-indexes for Italy (77.2), with a significant improvement compared to last year (75.9), mainly due to the increase in pension capital held from the major private pension funds and the availability of information regarding their individual position for members registered with a pension fund.
Globally, rising longevity, high interest rates and rising healthcare costs have put greater pressure on government budgets to support pension programs, causing scores this year to be slightly lower overall. Different systems, including China, Mexico, India and France, hyear undertaken recent reforms to improve their scores in recent years. The most recent pension reforms in China, announced in September, are not reflected in the Index score.
Pension systems around the world are increasingly moving away from defined benefit plans (DB) and they are moving towards defined contribution (DC) agreements. The study explores the opportunities and challenges associated with DC regimes for both pension plans and individuals. “The shift to defined contribution pension plans introduces a host of new financial planning challenges, which fall squarely on the shoulders of tomorrow’s retirees – he says Margaret Franklin, CFA, President and CEO of CFA Institute –. DC plans require individuals to make many complex financial planning decisions, which could have a significant impact on their financial circumstances in later life. However, many people are not always well prepared to manage the decisions required: the report data and the index contained highlight this gap, with the aim of promoting long-term financial security and offering useful indications. The need for ethical and credentialed financial advisors emerges once again, which is why we at CFA Institute have launched new initiatives in the private investment space to fill this gap.”
Looking at the Italian system, a greater membership of supplementary pension funds it could be healthy for both the pension system and citizens. However, there is a challenge for subscribers, as they must be prepared to choose investment lines themselves. It is not enough to be supported by trained advisors, but it is necessary to invest in important awareness-raising and training activities in the field of savings management and personal finance. Here companies can make a difference by decisively launching investment training courses and support desks for workers. Faced with the need for greater involvement of individuals in supplementary pension provision, it is clear that interventions at a higher level are also necessary to face the challenges at a demographic level, the reduction of taxpayers in the face of an increase in the retired population and those related to the growth of public debt. As life expectancy increases, the greater flexibility and customization afforded by DC regimes will be critical. The concept of retirement has changed and many individuals are approaching retirement gradually or re-entering the workforce in a different capacity after initial retirement. THE DC pension plans they also offer important benefits for fixed-term workers, who are often left on the margins of defined benefit pension schemes.
“Policy reforms of retirement income systems must develop as retirees’ financial needs and their work expectations evolve – continues Morelli –. There is no single solution to put pension systems on firmer ground. Now is the time for governments, politicians, the pensions sector and businesses to work together to ensure that older people are treated with dignity and can maintain a lifestyle similar to that which they experienced in their working years.”