Global Pension Index 2022 reveals key areas for improvement in Swiss pension system

Zurich, 11 October 2022

 

Iceland’s retirement income system has once again topped the list in the 14th annual Mercer CFA Institute Global Pension Index (MCGPI), with The Netherlands and Denmark retaining second and third places respectively in the rankings. Switzerland again ranks 11th, in the top third of the 44 systems analysed. The Swiss pension system is rated above average in all three subcategories and receives a good rating, however there is a need for improvement, particularly when looking at how pension assets are invested in order to safeguard future returns for insured members. 

 

The MCGPI is a comprehensive study of 44 global pension systems, accounting for 65 percent of the world’s population. It benchmarks retirement income systems around the world, highlighting some shortcomings in each system, and suggests possible areas of reform that would help provide more adequate and sustainable retirement benefits.

 

Iceland had the highest overall index value (84.7), closely followed by the Netherlands (84.6) and Denmark (82.0). Thailand had the lowest index value (41.7). In comparison, Switzerland received a total of 72.3 points, well above the average of 63 and a slight improvement over 2021 (70). 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 Iceland for adequacy (85.8) and sustainability (83.8), and Finland for integrity (93.3). The systems with the lowest values across the sub-indices were India for adequacy (37.6), Austria for sustainability (22.7), and the Philippines for integrity (30.0). Switzerland receives above-average grades for all three subcategories: 68.7 for adequacy (average: 65.7), 70.5 for sustainability (average: 53) and 80.7 for integrity (average: 72.9). In comparison to 2021, Mexico showed the most improvement as a result of a pension reform.

 

“Across the different pension systems, the MCGPI report highlights the importance of strong retirement schemes, especially in light of growing external uncertainty”, comments Ivan Guidotti, Head of Investments at XO Investments and Committee Chair at the CFA Society Switzerland. “While it is true that individuals have to take responsibility for their retirement savings, and have done so for a while now, they need to be able to also rely on a system that supports their efforts – especially when facing increased volatility in light of high levels of inflation, rising interest rates and a general sense of uncertainty about the economy. Pension reforms driven by politics need to be part of the equation, however for many individuals, the second pillar is just as important. And pension funds don’t need to wait for the government to start work on improving outcomes for their members.”

 

Better investment processes and governance can improve outcomes

 

One area that deserves particular attention is the investments of the pension assets. Tobias Wolf, Head Investments at Mercer Switzerland, sees a number of opportunities here: “Pension funds in Switzerland often follow a very traditional approach to asset allocation, investment implementation and governance: Giving much weight to Swiss bonds and real estate, complemented by more diversified equity investments. We do also often see cumbersome investment processes that delay important decisions for months or even quarters. Of course, this is mainly driven by a lack of resources due to missing scale. While this approach might have worked fine in the past, the reality test under more challenging market conditions clearly demonstrates the need for better strategies and approaches.”

 

The current setback and new market environment should be taken as an opportunity to question the effectiveness and efficiency of the investment processes. Investment funds should rethink their investment processes and improve investment governance, professionalize manager selection and define a delegation concept to establish a state-of-the art investment setup.

 

In the expert's view, it is particularly important to have a strategic investment allocation that takes into account suitable asset classes from a global universe, especially in alternatives such as private markets, and relies on highly rated investment managers. In addition, the implementation and governance of the investment strategy must be handled professionally. "Often, the ongoing monitoring of the portfolio and the selected managers, as well as the monitoring of the markets, active management of demanding market situations and exploitation of investment opportunities that arise, present significant challenges. In addition, pension funds often do not have the transparency and access to leading managers, while there is also a lack of negotiating power regarding fees.”

2022 Mercer CFA Institute Global Pension Index

 

System

Overall Grade

Overall Score

Adequacy

Sustainability

Integrity

Iceland

A

84.7

85.8

83.8

84.4

Netherlands

A

84.6

84.9

81.9

87.8

Denmark

A

82.0

81.4

82.5

82.1

Israel

B+

79.8

75.7

81.9

83.2

Finland

B+

77.2

77.5

65.3

93.3

Australia

B+

76.8

70.2

77.2

86.8

Norway

B+

75.3

79.0

60.4

90.3

Sweden

B

74.6

70.6

75.7

79.5

Singapore

B

74.1

77.3

65.4

81.0

UK

B

73.7

76.5

63.9

83.0

Switzerland

B

72.3

68.7

70.5

80.7

Uruguay

B

71.5

84.5

50.6

79.8

Canada

B

70.6

70.8

64.7

78.6

Ireland

B

70.0

75.9

53.5

83.7

New Zealand

B

68.8

64.0

64.7

82.1

Chile

B

68.3

60.0

70.3

78.9

Germany

B

67.9

80.5

44.3

80.9

Belgium

B

67.9

80.8

39.1

87.5

Hong Kong SAR

C+

64.7

61.5

52.1

87.6

USA

C+

63.9

67.5

61.2

61.7

Colombia

C+

63.2

65.2

55.3

71.3

France

C+

63.2

84.6

40.9

60.1

Malaysia

C+

63.1

57.2

60.2

76.9

Portugal

C+

62.8

84.9

29.7

73.9

UAE

C+

61.8

63.8

51.9

72.6

Spain

C+

61.8

80.0

28.7

78.9

Saudi Arabia

C

59.2

61.4

54.3

62.5

Poland

C

57.5

59.5

45.4

71.2

Mexico

C

56.1

63.1

57.1

43.6

Peru

C

55.8

54.7

51.5

63.7

Brazil

C

55.8

71.1

27.8

70.5

Italy

C

55.7

72.3

23.1

74.7

Austria

C

55.0

69.8

22.7

76.5

South Africa

C

54.7

44.2

49.7

78.4

Japan

C

54.5

58.0

44.5

63.0

China

C

54.5

64.4

39.3

60.0

Taiwan

C

52.9

42.0

53.2

69.8

Korea

C

51.1

40.1

54.9

63.5

Indonesia

D

49.2

39.3

44.5

71.5

Turkey

D

45.3

45.6

29.8

66.6

India

D

44.4

37.6

40.7

60.4

Argentina

D

43.3

55.6

29.4

42.9

Philippines

D

42.0

40.5

52.3

30.0

Thailand

D

41.7

41.3

36.4

50.0

 

 

About the Mercer CFA Institute Global Pension Index (MCGPI)

 

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 44 retirement income systems across the globe and covers 65 percent of the world’s population. The 2022 Global Pension index includes one new retirement income system – Portugal.

 

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.

 

About Mercer

 

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 over $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.

 

About CFA Institute

 

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 more than 190,000 CFA® charterholders worldwide in more than 160 markets. CFA Institute has nine offices worldwide, and there are 160 local societies. For more information, visit www.cfainstitute.org or follow us on LinkedIn and Twitter at @CFAInstitute.

 

About the Monash Centre for Financial Studies (MCFS)

 

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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