Saudi Arabia and UAE rise in Mercer’s ranking of top pension systems in the world

11 December 2024 Consultancy-me.com

Global HR consultancy Mercer and CFA Institute have released their 2024 edition of the world’s top pension systems, with the Netherlands once again crowned as the global leader. Closer to home, both Saudi Arabia and the UAE have boosted their positions in the annual benchmark.

Every year, the Global Pension Index assesses the strength, adequacy, integrity and financial solidity of pensions systems around the world. A total of 48 systems were assessed this year, including those of the US, the UK, Germany, France, Japan, China, Argentina, India, Singapore, as well of the top 3 of the pack: the Netherlands, Iceland, and Denmark.

Global leader the Netherlands has been placed in the top 3 for six consecutive years, largely thanks to the size of its pension sector and its financial solidity. “The Netherlands’ pension system has continued to be the best system, as it moves from a defined benefit (DB) structure to a more individual defined contribution (DC) approach. The system also features strong regulations and offers participants guidance regarding their pensions,” said the authors.

Nordics countries, such as Iceland and Denmark, but also Sweden, also traditionally score highly in the annual benchmark of pension systems. Israel secured the fourth position, while Singapore, Australia, and Finland ranked fifth, sixth, and seventh, respectively. Norway placed eighth, followed by Chile in ninth and Sweden in tenth.

Saudi Arabia and UAE rise in Mercer's ranking of top pension systems in the world

Saudi Arabia

Saudi Arabia’s score on the index improved slightly, with its score upgraded from C to C+, placing it alongside the US, the UAE, and Spain. Mercer defines C+ as a system with good features but significant risks that need addressing.

Saudi Arabia’s retirement system includes an earnings-based pension and lump-sum award – while those who do not qualify for monthly payouts receive just the one-off benefit.

Tarek Lotfy, president of Mercer in India, the Middle East and Africa, said: “Saudi Arabia continues to make steady progress in reforming and enhancing its pension system and stands to benefit as more private pension options are provided to complement existing retirement programs.”

He added: “As these reforms are rolled-out, they will provide an important tool to retain talent in the Kingdom’s buoyant job market and support the wider aims of the Vision 2030 strategy by contributing to the financial well-being of its citizens.”

In July, the Kingdom raised the retirement age from 60 to 65 for both public and private sector employees, as part of a key Vision 2030 reform aimed at ensuring sustainability and improving retirees’ living conditions.

Saudi Arabia and UAE rise in Mercer's ranking of top pension systems in the world

“With a youthful population and increasing labor force participation, Saudi Arabia is in an ideal position to observe the challenges that many of its global peers are facing and guide the development of its pension system accordingly,” said Claudia Maldonado, a leader at Mercer in the Middle East.

Mercer also outlined several measures the Kingdom could implement to improve its overall index score, including increasing the minimum support provided to low-income seniors and raising the labor force participation rate among older individuals as life expectancies rise.

The UAE

The UAE’s retirement income system meanwhile has improved its score for the fourth year in a row, increasing its position to 23rd worldwide, five places ahead of Saudi Arabia. The uplift was booked primarily thanks to the introduction of a minimum access age to receive benefits, which was announced in November 2023.

In the benchmark, the UAE retirement system saw improvements in adequacy, to rank 12th globally in 2024, driven by the country’s generous retirement benefits. It also improved its score for the integrity of its pension systems, now 25th globally, supported by the high degree of governance structure.

The UAE’s retirement income system comprises a minimum means-tested state pension and an earnings-related national employment-based scheme administered by Abu Dhabi Pension Fund for the Emirate of Abu Dhabi, Sharjah Social Security Fund for the Emirate of Sharjah and the General Pensions and Social Security Authority for the rest of the emirates. Employees contribute 5% of salary, and employers contribute 12.5% to 15% of salary, with benefits guaranteed by the government.

Saudi Arabia and UAE rise in Mercer's ranking of top pension systems in the world

According to the report’s authors, the overall index value for the Emirati system could be increased by increasing the coverage of employees in occupational pension schemes, thereby increasing the level of contributions and assets; improving the required level of communication to members from pension arrangements; increasing the state pension age as life expectancies rise; and reducing the level of household debt.

Lotfy noted: “The UAE is taking a far-sighted approach to the sustainable development of its pension system, preparing for longer life expectancies and for an increased number of people reaching retirement age, which will necessitate a well-run and adequately provisioned national pension program.”

Maldonado added: “The UAE has recognized that there is a global trend of moving away from defined benefit plans and shifting towards defined contribution arrangements and is taking the necessary steps to safeguard and support the needs of tomorrow’s retirees by encouraging increased flexibility and personalization.”

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