Mercer CFA Institute Global Pension Index 2023: Singapore’s retirement income system moved up two spots to retain its top 10 position globally, while most pension systems in Asia showed improvements 

• Singapore ranks the highest among the retirement income systems in Asia, followed by Hong Kong SAR and Japan
• The Netherlands tops the list globally, followed by Iceland and Denmark respectively

ASIA, 17 October 2023 – Singapore’s retirement income system jumped two spots – ranking 7th out of 47 retirement income systems reviewed in the 15th annual Mercer CFA Institute Global Pension Index (MCGPI) – retaining its top spot in Asia and cementing its position in the top 10 systems globally. Hong Kong SAR and Japan round out the top three in the region, while ranking 21st and 30th respectively, against their global peers.

“The average age of populations around the world continues to rise in many markets, mainly more mature markets,” said Margaret Franklin, CFA, President and CEO, CFA Institute. “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 globalization. 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.”

Singapore (76.3) improved its overall index value this year and achieved a B+ grade for the first time, mainly due to the increased level of pension coverage. Indonesia (51.8) also received a higher grade of C, up from its D in 2022.

Most pension systems in Asia saw improvements, with higher increases observed in most Southeast Asian systems, like Thailand (46.4) and the Philippines (45.2). Mainland China (55.3), Japan (56.3), South Korea (51.2), Taiwan (53.6) and India (45.9) also scored better than the year before. (Refer to the Appendix for more details of systems in Asia.)

Hong Kong SAR (64) and Malaysia (56) were the only two systems that saw a drop in their index value. The latter was downgraded from C+ to C, largely due to the significant reduction in the net pension replacement rates.   

Adeline Tan, Wealth Business Leader and Mercer Asia’s spokesperson for MCGPI, said, “While the world has moved on from the pandemic, global issues like inflation and geopolitical conflicts continue to impact the attention required to improve many retirement systems. In Asia, we are seeing progress for most of the markets, but low birth rates and longevity issues continue to plague many societies. A lot more can be done to create better outcomes for the populations, and governments must prioritize pension system reviews and enhancements sooner rather than later.”

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 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. 

Globally, the Netherlands’ pension system had the highest overall index value (85), closely followed by Iceland (83.5) and Denmark (81.3). Argentina had the lowest index value (42.3).

The MCGPI uses the weighted average of the sub-indices of adequacy, sustainability, and integrity. For each sub-index, the systems in Asia with the highest values were Singapore for adequacy (79.8) and sustainability (71.6), and Hong Kong SAR for integrity (87.6). The systems with the lowest values across the sub-indices were South Korea for adequacy (39), Mainland China for sustainability (39), 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, Thailand, Singapore, and Japan, have undertaken reform to improve their scores in the last five years.

The MCGPI benchmarks retirement income systems around the world, highlighting some shortcomings in each system, and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits.

This year, the Global Pension Index compares 47 retirement income systems across the globe and covers 64 per cent of the world’s population. The 2023 Global Pension index includes three new retirement income systems – Botswana, Croatia, and Kazakhstan.

The Global Pension Index uses the weighted average of the sub-indices of adequacy, sustainability and integrity to measure each retirement system against more than 50 indicators.

The Global Pension Index is a collaborative research project sponsored by CFA Institute, the global association of investment professionals, in collaboration with the Monash Centre for Financial Studies (MCFS), part of Monash Business School at Monash University, and Mercer, a global leader in redefining the world of work and reshaping retirement and investment outcomes.

For more information about the Mercer CFA Institute Global Pension Index, click here.

Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s approximately 25,000 employees are based in 43 countries and the firm operates in 130 countries. Mercer is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 83,000 colleagues and annual revenue of approximately $20 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit mercer.com. Follow Mercer on LinkedIn and Twitter.

CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organization is a champion of ethical behavior in investment markets and a respected source of knowledge in the global financial community. Our aim is to create an environment where investors’ interests come first, markets function at their best, and economies grow. There are nearly 200,000 CFA® charterholders worldwide in more than 160 markets. CFA Institute has ten offices worldwide, and there are 160 local societies. For more information, visit www.cfainstitute.org or follow us on LinkedIn and Twitter at @CFAInstitute.

A research centre based within Monash University's Monash Business School, Australia, the MCFS aims to bring academic rigour into researching issues of practical relevance to the financial industry. Additionally, through its engagement programs, it facilitates two-way exchange of knowledge between academics and practitioners. The Centre’s developing research agenda is broad but has a current concentration on issues relevant to the asset management industry, including retirement savings, sustainable finance and technological disruption.

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