Finance

South Africa has one of the worst pension systems in the world

South Africa

The 2022 Mercer CFA Institute Global Pension Index revealed that South Africa has one of the worst pension systems in the world.

The Mercer index is a comprehensive study of 44 global pension systems, accounting for 65% of the world’s population.

It benchmarks retirement income systems worldwide and highlights shortcomings in each system.

The Index also suggests possible areas of reform that would help provide adequate and sustainable retirement benefits.

Iceland’s retirement income system topped the list, with The Netherlands and Denmark ranked second and third.

South Africa ranks towards the bottom of the list, with particularly poor scores in adequacy and sustainability.

The country scored significantly higher on integrity, where it ranked among the top nations in the world.

The shift to defined contribution

The study found that employers continue to step away from the financial security offered in defined benefit (DB) plans.

Instead, defined contribution (DC) plans are gaining in popularity, where individuals bear the risks and opportunities before and after retirement.

Unlike DB plans, where an individual receives regular income payments for life upon retirement, DC plans typically provide individuals with a lump sum benefit at retirement.

Additionally, many governments are considering reducing their level of financial support during retirement to ensure the country’s financial sustainability over the longer term.

The result is that many individuals will no longer be able to rely on significant financial support from their previous employers or government during their retirement years.

Therefore, individuals must make the best financial decisions at retirement to maximize the value of their available DC pension assets.

Just as diversification is a key part of any investment scheme, individuals may also seek to diversify their retirement savings between regular income.

They should also ensure appropriate protection and access to capital, and different sources of financial support, including government, private pensions, and individual savings.

2022 Mercer CFA Institute Global Pension Index rankings

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).

The Index uses the weighted average of adequacy, sustainability, and integrity sub-indices.

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).

South Africa scored poorly on adequacy (44.2) and sustainability (49.7) but much better on integrity (78.4).

The table below gives an overview of the 2022 Mercer CFA Institute Global Pension Index rankings.

2022 Mercer CFA Institute Global Pension Index
System Overall Grade Overall Score
Iceland A 84.7
Netherlands A 84.6
Denmark A 82.0
Israel B+ 79.8
Finland B+ 77.2
Australia B+ 76.8
Norway B+ 75.3
Sweden B 74.6
Singapore B 74.1
UK B 73.7
Switzerland B 72.3
Uruguay B 71.5
Canada B 70.6
Ireland B 70.0
New Zealand B 68.8
Chile B 68.3
Germany B 67.9
Belgium B 67.9
Hong Kong SAR C+ 64.7
USA C+ 63.9
Colombia C+ 63.2
France C+ 63.2
Malaysia C+ 63.1
Portugal C+ 62.8
UAE C+ 61.8
Spain C+ 61.8
Saudi Arabia C 59.2
Poland C 57.5
Mexico C 56.1
Peru C 55.8
Brazil C 55.8
Italy C 55.7
Austria C 55.0
South Africa C 54.7
Japan C 54.5
China C 54.5
Taiwan C 52.9
Korea C 51.1
Indonesia D 49.2
Turkey D 45.3
India D 44.4
Argentina D 43.3
Philippines D 42.0
Thailand D 41.7


2022 Mercer CFA Institute Global Pension Index
System Adequacy Sustainability Integrity
Iceland 85.8 83.8 84.4
Netherlands 84.9 81.9 87.8
Denmark 81.4 82.5 82.1
Israel 75.7 81.9 83.2
Finland 77.5 65.3 93.3
Australia 70.2 77.2 86.8
Norway 79.0 60.4 90.3
Sweden 70.6 75.7 79.5
Singapore 77.3 65.4 81.0
UK 76.5 63.9 83.0
Switzerland 68.7 70.5 80.7
Uruguay 84.5 50.6 79.8
Canada 70.8 64.7 78.6
Ireland 75.9 53.5 83.7
New Zealand 64.0 64.7 82.1
Chile 60.0 70.3 78.9
Germany 80.5 44.3 80.9
Belgium 80.8 39.1 87.5
Hong Kong SAR 61.5 52.1 87.6
USA 67.5 61.2 61.7
Colombia 65.2 55.3 71.3
France 84.6 40.9 60.1
Malaysia 57.2 60.2 76.9
Portugal 84.9 29.7 73.9
UAE 63.8 51.9 72.6
Spain 80.0 28.7 78.9
Saudi Arabia 61.4 54.3 62.5
Poland 59.5 45.4 71.2
Mexico 63.1 57.1 43.6
Peru 54.7 51.5 63.7
Brazil 71.1 27.8 70.5
Italy 72.3 23.1 74.7
Austria 69.8 22.7 76.5
South Africa 44.2 49.7 78.4
Japan 58.0 44.5 63.0
China 64.4 39.3 60.0
Taiwan 42.0 53.2 69.8
Korea 40.1 54.9 63.5
Indonesia 39.3 44.5 71.5
Turkey 45.6 29.8 66.6
India 37.6 40.7 60.4
Argentina 55.6 29.4 42.9
Philippines 40.5 52.3 30.0
Thailand 41.3 36.4 50.0

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