Iceland’s pension system has taken the top spot on a global pension index in its first year of inclusion, knocking the Netherlands from first place.

The Mercer CFA Institute Global Pension Index 2021 awarded Iceland with an overall score of 84.2 gaining an A grade. The Netherlands and Denmark were also given A grades with scores of 83.5 and 82, respectively.

Norway was awarded a B+, whilst Finland, Sweden, UK, Switzerland, Ireland and Germany were given a B grade.

The 2021 Mercer CFA Institute Global Pension Index compares 43 retirement income systems from around the world and compares each system in respect of adequacy, sustainability and integrity. This year includes the addition of four new countries, Iceland, Taiwan, UAE and Uruguay.

The factors that led to Iceland ranking in first place were a relatively generous state pension, a private pension system that covers all employees with a high contribution rate that leads to significant assets being set aside for the future; and a well-governed and regulated private pension system that has good design features.

No retirement system scored the lowest grade of E, but several were given a D grade, with transcontinental country Turkey being the only European country to given this grade. Several European countries were awarded a C grade, however, including Spain, Poland, Italy and Austria. Belgium and France were given a C+.

Mercer stated that during 2020 and 2021, many of these issues facing retirement systems, such as ageing populations, were accentuated by the Covid-19 pandemic. However, it said it is not only ageing populations and the effects of the coronavirus that represent challenges for pension systems around the world.

“The current economic environment with reduced wage growth, historically low-interest rates and reduced investment returns in many asset classes, are placing additional financial pressures on existing retirement income systems,” the report stated.

In addition, this year’s report considered the gender differences in pension outcomes that exist in retirement income systems.

Mercer senior partner, Dr David Knox, said: “The causes are many and varied and the impacts differ considerably between systems. Nevertheless, it is clear that the average female pension is lower, and in some situations much lower, than the average male pension. Such an outcome is not fair and must be addressed."

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