Mercer CFA Institute Global Pension Index 2023 sees United Arab Emirates improve score for the third year in a row  

• Index compares 47 retirement income systems, covering 64 per cent of the world’s population
• UAE improves score ranking 23 out of 47 pension systems 

DUBAI, October 17, 2023 — Mercer and CFA Institute have released the 15th annual Mercer CFA Institute Global Pension Index (MCGPI). The United Arab Emirates’ (UAE) retirement income system improved its score, ranking 23rd globally among countries with robust pension systems such as the United States, Singapore and France in the annual Mercer CFA Institute Global Pension Index (MCGPI). This is the third year UAE has been included in the report.

The UAE’s pension adequacy rankings are supported by the country’s generous retirement benefits, which ensure a continued income to sustain a good quality of life with a suitable minimum pension relative to earnings. Its improvement in sustainability can be attributed to the UAE’s high labor force participation rate, especially for individuals over the age of 55. The robust governance structure around the national pension system in the UAE also contributed to its strong ranking in terms of integrity.

Robert Ansari, Mercer's Head of Investment and Retirement for IMEA, stated: “The UAE’s index score improved this year, reflecting the UAE’s continued drive to support economic growth and attract skilled talent including recent changes to end of service benefits. The UAE has fared better than a number of more established global peers. Like many of its peers, the UAE is preparing for an increased population size entering retirement, necessitating a well-run and adequately provisioned pension scheme”.

The UAE’s retirement income system comprises a minimum means-tested state pension and an earnings-related national employment-based scheme administered by Abu Dhabi Pension Fund for the Emirate of Abu Dhabi, Sharjah Social Security Fund for the Emirate of Sharjah and the General Pensions and Social Security Authority for the rest of the emirates. Employees contribute 5% of salary, and employers contribute 12.5%–15% of salary, with benefits guaranteed by the government.

Overall, the UAE has put in place a sound structure for a funded pension system for Emiratis with both the public and private sectors setting aside mandatory contributions during an employee’s tenure. Progress is being made to implement a new retirement savings scheme targeted at supporting private sector employers and expat employees to plan for their financial future.

In addition to identifying the world’s top pension systems, the report examines the potential of artificial intelligence (AI) to improve pension and social security systems and provide people a better quality of life in retirement.

“The UAE is on a mission to provide “innovative, efficient and transparent pension services to achieve social stability and financial sustainability” and while it has work to do to realize this vision, its willingness to embrace technology suggests it is well placed to accelerate the current pace of change. Using AI for data analysis, scenario planning, and communication to manage the retirement transition effectively represents an opportunity for policymakers,” said Antoine Shehadeh, Senior Director MENA, CFA Institute.

“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,” commented Senior Partner at Mercer and lead author of the study, Dr. David Knox. “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.”

The report, however, makes clear that AI is not without risks, including modeling challenges and ethical concerns as well as the need for optimal data privacy and cybersecurity. In developing these systems, it is essential that AI models have strong governance and clear accountability to reduce biases and unjustified responses. Safeguards are critical for pension plans to retain their members’ long-term trust.

“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,” Dr. Knox continued. 

UAE had an overall index score of 59.5, ranking 23rd on the list. Index uses a weighted average of the sub-indices of adequacy, sustainability and integrity.

The country scored 72.2 (29th globally) in adequacy, driven by the country’s generous retirement benefits with suitable minimum pensions relative to earnings. Positive scores around sustainability are driven by the high labor force participation rate, especially for individuals over the age of 55 and due to the sound structure of a funded pension system with mandatory contributions set aside for the retirement benefit, with a score of 45.4 (23th globally). The country was awarded for the integrity of its pension systems, 70.8 (40th globally), supported by the overall high degree of governance structure.

The Netherlands had the highest overall index value (85.0), closely followed by Iceland (83.5) and Denmark (81.3). Argentina had the lowest index value (42.3). Although the Netherlands is currently undertaking significant pension reform, the system is well-positioned to provide excellent benefits amid the move from a collective benefit structure to a more individual defined contribution approach.

The Index uses the weighted average of the sub-indices of adequacy, sustainability, and integrity. For each sub-index, the systems with the highest values were Portugal for adequacy (86.7), Iceland for sustainability (83.8), and Finland for integrity (90.9). The systems with the lowest values across the sub-indices were South Korea for adequacy (39.0), Austria for sustainability (22.6), and the Philippines for integrity (25.7).

Falling birth rates have placed pressure on several economies and pension systems over the longer term, negatively affecting the sustainability scores for countries like Italy and Spain. Several Asian systems, however, including mainland China, Korea, Singapore, and Japan, have undertaken reform to improve their scores in the last five years.