The Best and Worst Retirement Pensions Around the World — How Does Yours Stack Up?
Written by
Virginia Anderson
Edited by
Renee Ross
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Government pensions form a big part of retirement income for many people. Current retirees rely on those still in the workforce to contribute to the country’s pension system, which funds their retirement checks. As those workers age, younger workers step up to continue the cycle.
However, cracks are starting to form in pension systems worldwide. Several problems, including declining birth rates, rising inflation and interest rates and geopolitical issues fuel concerns about the future of pensions and their sustainability. Here’s a look at some of the best and worst retirement pension systems.
1. The Netherlands
The Netherlands often receives top marks for its pension system. It currently offers benefits to residents once they reach age 67. Residents accumulate 2% of the pension’s value each year they live or work in the Netherlands. Individuals who have lived and worked in the Netherlands for 50 years qualify for the entire amount, which has a maximum value of €1,541.53 in 2024.
A recent Mercer study found the Netherlands to have a first-rate pension. However, rising life expectancies may strain the system, and household debt reduces its ability to fully meet retiree’s financial needs. The Netherlands is partly addressing the issue by tying the standard retirement age to gains in life expectancy.
2. Iceland
Iceland is another well-ranked pension. It provides benefits beginning at age 67, although people may choose to accept a reduced pension amount starting at age 65. Those who have resided in Iceland for 40 years receive full benefits, but reduced amounts are available to individuals who have lived outside Iceland for part of their lifetimes. To receive any benefit, a pensioner must have lived in Iceland for at least three years between the ages of 16 and 67. The current full pension benefit is ISK 3,439,428, roughly $25,000 annually.
Mercer rates Iceland’s pension among the best, but cites household debt as an issue that can impact whether it can fully meet a retiree’s needs. It also notes concerns about government debt, which may strain the pension system in the future.
3. Germany
Germany’s pension system provides benefits at age 65 and 10 or 11 months, depending on the retiree’s birth year. However, a reduced pension is available at age 63 to those with at least 35 contribution years. To qualify for a German pension, a retiree must have made at least five years of contributions toward the system. In 2023, the average monthly pension benefit was €1,550.
Mercer ranks Germany’s pension system 19th out of the 47 retirement systems examined. While the pension system is structurally sound and benefits are adequate, sustainability is a real issue due to an aging workforce and falling birth rates. To correct the problem, contributions to the pension fund will need to increase.
4. United States of America
How does the U.S. Social Security retirement system stack up against the rest of the world? Mercer ranks it the 22nd-best pension, falling just behind Hong Kong. In the U.S., retirees receive benefits based on lifetime earnings, adjusted for inflation. People born in 1960 or after can start receiving their full benefits at age 67, with a reduced benefit available at age 62. The maximum monthly Social Security payment is $3,822 for those who retire at age 67 in 2024; although qualifying for an amount this high is rare, and average monthly benefits fall more in the $1,500 to $2,000 range.
Mercer notes several problems with Social Security. Some recipients may not receive enough Social Security to cover their living expenses in retirement, especially if they took off some of their working years to care for children or worked for low wages. Another issue is pre-retirement leakage, which occurs when retirees take early benefits rather than continue working until age 67. Workers taking benefits early strains the system since fewer contributions are coming in and more money is going out.
5. Japan
Japan’s retirement system includes two tiers — a basic flat-rate plan available for self-employed individuals and an earnings-related employee plan. Qualified pensioners can receive benefits once they reach age 65, provided they have at least ten years of contributions. To get the full benefit, residents must make 40 years of contributions. A reduced benefit is available for shorter contribution periods. The full old-age pension benefit is ¥ 816,000 annually in 2024, a bit over $5,000, while earnings-related pension amounts vary.
Mercer ranks Japan’s pension system 30th, citing significant issues with its long-term sustainability. Japan’s demographics, including an aging population and falling birth rates, impact its ability to sustain the current level of pension benefits. Mercer suggests increasing the pension age or encouraging workers to take the benefit while continuing to work. Another potential solution is increasing private pension availability, which can reduce the strain on government resources.
6. Austria
Austria’s pension system provides benefits to those who pay contributions for at least 180 months or 15 years. At least 84 months must come from employment, while 96 can come from other periods such as sick leave or child-rearing. Austria has a statutory retirement age of 65 for men and 60 for women. However, the country will incrementally raise women’s retirement age beginning this year. Pensioners with at least 40 years of contributions receive a minimum of €1,364.11.
Mercer placed Austria among the worst pensions, highlighting concerns about its sustainability. It recommends increasing the retirement age to reduce outflows of available funds and encouraging individuals to work longer. Like other developed countries, Austria faces lower birth rates and an aging population, meaning fewer contributors to the retirement system.
Final Take
Every country has different costs of living and other factors that impact whether its pension meets recipients’ needs. However, many developed countries share one constant — aging populations with fewer new births. To fix imbalances, countries may need to increase their retirement age, raise contribution requirements or encourage recipients to continue working while receiving their benefits.
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