The UK’s pension system has lost its top-10 position among global retirement systems, according to the latest Mercer CFA Institute Global Pension Index.
The research – which compares 48 pension systems on adequacy, sustainability and integrity – ranked the Netherlands top overall, followed by Iceland and Denmark.
The UK fell to 11 after its score for all three factors fell year on year. Mercer said this was “primarily due to decreases in the net pension replacement rates and the level of pension assets”.
The consultancy giant said the fall highlighted the need for retirement system improvements amid falling birth rates and increasing longevity.
Benoit Hudon, Mercer’s UK president and chief executive officer, said the UK was facing a challenge to ensure people have saved enough for an adequate retirement.
“The UK’s pension sector has fallen outside of the top 10 in the global rankings illustrating the need for reforms,” he said.
“The government should expand auto-enrolment, address the fragmented pension system, and support productive asset investment.
“The changes proposed in the Mansion House Compact to increase investment should also improve outcomes for pension scheme members.”
The rise of DC
The Mercer and CFA Institute research also explored how retirement systems around the world were increasingly moving away from defined benefit plans and shifting to defined contribution (DC) arrangements.
The report explored the opportunities and challenges associated with DC plans for both pension plans and individuals.
Margaret Franklin, CFA Institute’s president and chief executive office, said: “The ongoing shift to DC pension plans introduces many financial planning challenges, which are falling squarely on the shoulders of tomorrow’s retirees.
“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 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, the report found.
David Knox, lead author of the report and a senior partner at Mercer, said retirement income system reform needs to continue as the financial needs of retirees and their work expectations evolve.
He added: “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.”
