5 Countries With the Best Retirement Systems, According To Experts

A country’s retirement system should be designed to create financial security for retired citizens by providing a guaranteed and reasonable amount of income for life. Unfortunately, not all countries meet that ideal — and some fall shorter than others.

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To find the five countries with the best retirement systems and how they qualify as such, GOBankingRates looked at data published by the 2021 Mercer CFA Institute Global Pension Index. The Index compares 43 different retirement income systems across the globe in reference to adequacy, sustainability and integrity.

These three sub-indices, which make up the overall index value for each country’s retirement system, are weighted to reflect their overall importance. Here’s a breakdown of each one. 

• Adequacy 40%: Overall, this sub-index represents the benefits provided and the retirement system design of each country. Although there are many indicators that comprise the Adequacy sub-index score for each country, the minimum pension level and the net replacement rate (individual net pension entitlement divided by net pre-retirement earnings) for a range of incomes are the most important.
• Sustainability 35%: Overall, this sub-index measures indicators that reveal whether a current country’s retirement system will be able to provide benefits in the future. Although several factors make up the Sustainability sub-index, the level of coverage of private pension plans, the projected demographic factors and the level of pension assets as a proportion of GDP are the most important.
• Integrity 25%: Overall, this sub-index includes many of the legal requirements involved in the governing and operation of each country’s retirement system. The integrity sub-index considers the integrity of the overall pension system but focuses on private sector pensions.

The Index also assigned a grade to each country’s retirement system as follows:

• A: A first-class, solid retirement system that features good benefits, sustainability and a high level of integrity.
• B, B+: A sound retirement system that has good features but also needs improvements. 
• C, C+: A retirement system with some good features, but major risks and shortcomings are present that need to be addressed. Otherwise, efficacy and long-term sustainability are at stake.
• D: A retirement system that has advantages but also has major weaknesses or omissions that need correcting. Without correction, efficacy and sustainability are threatened.

Taking all the above data into account, here the five countries with the best retirement systems in descending order, and a review of America’s at the end.

• Grade: A
• Overall index value: 84.2
• Adequacy sub-index: 82.7
• Sustainability sub-index: 84.6
• Integrity sub-index: 86.0

Ranking analysis: This is the first year Iceland has been included in the Index, and it takes the top spot from the Netherlands with an overall index value of 84.2. It ranks No. 1 for adequacy and sustainability among the 43 retirement systems. However, it’s integrity sub-index ranks lower, in 7th place.

Type of retirement system: Iceland’s retirement system is comprised of a state pension with two components: mandatory occupational pension schemes that require both employer and employee contributions and voluntary contributions in goverment-approved pensions.

How the system can improve: One way Iceland’s retirement system could improve is by increasing the pension age to keep up with increasing life expectancy.

• Grade: A
• Overall index value: 83.5
• Adequacy sub-index: 82.3
• Sustainability sub-index: 81.6
• Integrity sub-index: 87.9

Ranking analysis: In the 2020 Index, the Netherlands held the top spot, according to overall index value. However, for 2021, Iceland’s retirement system had higher values regarding adequacy and sustainability, placing 1st in each, which bumped the Netherlands to No. 2.

Type of retirement system: The Netherland’s retirement system is made up of a flat-rate public pension and a quasi-mandatory earnings-related occupational pension linked to industrial agreements.

How the system can improve: One factor that would increase the overall index for the country is increasing the level of household saving, while decreasing the level of household debt.

• Grade: A
• Overall index value: 82
• Adequacy sub-index: 81.1
• Sustainability sub-index: 83.5
• Integrity sub-index: 81.4

Ranking analysis: Denmark placed No. 3 for overall index value. And although the country placed No. 2 for sustainability and No. 4 for adequacy, it placed No. 13 for integrity.

Type of retirement system: Denmark’s retirement system is multifaceted, consisting of a public basic pension plan, a means-tested supplementary pension benefit, a fully funded defined contribution plan and mandatory occupational plans.

How the system can improve: One way the overall index value for Denmark’s retirement system could be increased is for the country to require all pension plans to produce publicly available annual reports.

• Grade: B+
• Overall index value: 77.1
• Adequacy sub-index: 73.6
• Sustainability sub-index: 76.1
• Integrity sub-index: 83.9

Ranking analysis: Israel ranks 10th for adequacy, 4th for sustainability and 9th for integrity out of all 43 retirement systems.

Type of retirement system: A universal state pension and private pensions with compulsory contributions from employers and employees make up Israel’s retirement system.

How the system can improve: Introduce protections for members of private pension plans in case of mismanagement or fraud.

• Grade: B+
• Overall index value: 75.2
• Adequacy sub-index: 81.2
• Sustainability sub-index: 57.4
• Integrity sub-index: 90.2

Ranking analysis: Norway ranked 3rd for adequacy, 16th for sustainability and 2nd for integrity.

Type of retirement system: The retirement system in Norway includes an earnings-related social security pension and mandatory occupational pension plans. Other voluntary plans are also available.

How the system can improve: Increase the amount of required contributions for defined contribution plans, which would raise the level of pension assets.

For context, here’s how the U.S. ranked among the 43 countries:

• Grade: D
• Overall index value: 61.4
• Adequacy sub-index: 60.9
• Sustainability sub-index: 63.6
• Integrity sub-index: 59.2

Ranking analysis: The U.S. ranked 27th for adequacy, 10th for sustainability and 37th for integrity.

Type of retirement system: The retirement system in the U.S. includes three main pillars: Social Security, employer-sponsored pensions or retirement savings plans and individual savings.

How the system can improve: One way the U.S. can improve its retirement system is to further limit the access to funds before retirement, which will help reduce pre-retirement leakage.

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