New Zealand retirement system ranked 14th in Mercer CFA Institute Global Pension Index 2024 

AUCKLAND, October 15, 2024 — Mercer, a business of Marsh McLennan (NYSE: MMC) and a global leader in helping clients realise their investment objectives, shape the future of work and enhance health and retirement outcomes for their people, and CFA Institute today released the 16th annual Mercer CFA Institute Global Pension Index (MCGPI).

In the global comparison study, New Zealand’s retirement system achieved a B grade again, ranking 14th out of 48 retirement systems around the world. This result recognises the strength of the scheme’s foundation, and highlights the need for both increased coverage and the level of contributions to further strengthen the ability of New Zealanders to retire well. 

The index values for New Zealand’s retirement system have remained stable across the three sub-indices of Adequacy, Sustainability, and Integrity. However, a drop from 25^th to 28th place in the Adequacy category signals the critical need to enhance confidence and participation in KiwiSaver, especially amid market volatility and global uncertainties. Increased engagement is critical for improving household savings, ultimately contributing to a more sustainable and robust retirement system.

Sarah Whitelock, Mercer New Zealand’s Consumer Wealth Leader, believes the benefits of the KiwiSaver system are now clear to employees, employers and the Government, and further improvements should be considered to improve retirement outcomes for New Zealanders.

“KiwiSaver is the fastest growing invested asset in the country, having surpassed $100 billion NZD. As the KiwiSaver system matures, and we are starting to see the benefits play out for retirees through a supplemented retirement income, we now need to ensure that savers of all ages understand the importance of retirement planning and decumulation strategies,” Whitelock said.

“The success of a long-term savings plan will be boosted by additional contributions from employers and the Government, and these should be underpinned by an overall enhancement in the importance of KiwiSaver as part of a financial plan,” she said.

The Netherlands’ retirement income system has retained the top spot on the list, with Iceland and Denmark remaining in second and third places, respectively. For the first time Australia has dropped from being the highest ranked retirement system in the Asia Pacific region, with Singapore ranking ahead of Australia in fifth and sixth place respectively. 

Retirement systems around the world are increasingly moving away from defined benefit (DB) plans and shifting to defined contribution (DC) arrangements. The report explores the opportunities and challenges associated with DC plans for both pension plans and individuals.

“The ongoing shift to defined contribution pension plans introduces many financial planning challenges, which are falling squarely on the shoulders of tomorrow’s retirees,” said Margaret Franklin, CFA and CFA Institute’s President and CEO. “DC plans require individuals to make complex financial planning decisions that may significantly impact their financial circumstances, and yet many individuals are not well prepared to manage the required decisions. The Index serves as an important reminder of the gaps that remain in providing long-term financial security and advice for individuals. The need for credentialed and ethical financial advisors once again stands out, and that’s why we have launched new initiatives in the private wealth space to meet this gap.”

Despite these challenges, as people live longer, the increased flexibility and personalisation offered by DC programs will be critical. The concept of retirement is shifting, and many individuals are transitioning gradually to retirement or rejoining the workforce in a different capacity after their initial retirement. DC plans also offer important benefits to gig and contract workers, who have often been left out of traditional DB schemes.

“Significant retirement income system reforms are needed to meet the financial needs of retirees and their evolving work expectations,” commented Dr. David Knox, lead author of the report and Senior Partner at Mercer. “There is no single solution to getting retirement systems onto more solid ground. Now is the time for governments, policymakers, the pension industry and employers to work together to ensure that older populations are treated with dignity and can maintain a lifestyle similar to what they experienced through their working years.”

The Netherlands had the highest overall index value (84.8), closely followed by Iceland (83.4) and Denmark (81.6). The Netherlands’ pension system has continued to be the best system, as it moves from a DB structure to a more individual DC approach. The system also features strong regulations and offers participants guidance regarding their pensions.

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 the Netherlands for adequacy (86.3), Iceland for sustainability (84.3), and Finland for Integrity (90.8).

Increasing longevity, high interest rates and rising costs of care have put increased pressure on government budgets to support pension programs, causing scores to be slightly lower this year overall. Several systems, including China, Mexico, India and France, have undertaken pension reforms in recent years. The most recent pension reforms in China, announced in September, are not reflected in its Index score. 

The MCGPI benchmarks retirement income systems around the world and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits.

This year, it compares 48 retirement income systems across the globe, including a new entrant, Vietnam, and covers 65% of the world’s population.

The Global Pension Index is a collaborative research project co-sponsored by CFA Institute, the global association of investment professionals, and Mercer, and is supported by the Monash Centre for Financial Studies (MCFS), part of Monash Business School at Monash University. Find more information about the Mercer CFA Institute Global Pension Index here.

As the global association of investment professionals, CFA Institute sets the standard for professional excellence and credentials. We champion ethical behavior in investment markets and serve as the leading source of learning and research for the investment industry. We believe in fostering an environment where investors’ interests come first, markets function at their best, and economies grow. With more than 200,000 charterholders worldwide across 160 markets, CFA Institute has 10 offices and 160 local societies. Find us at www.cfainstitute.org or follow us on LinkedIn and X 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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