The most recent Global Pension Index from Mercer has ranked the German pension system as the 19th best in the world. But in Germany, many organisations say the system sees people fall through the cracks too easily.

Mercer’s Global Pension Index 2023

For almost 15 years, the human resources company Mercer has worked with the Chartered Financial Analyst (CFA) Institute to rank pension systems around the world, and assess which are the best and most sustainable. This year, 47 nation’s pension systems - representing 64 percent of the global population - were ranked using the following criteria:

• Adequacy (benefits, system design, savings, tax support, home ownership and growth assets)
• Sustainability (pension coverage, total assets, contributions, demography, government debt and economic growth)
• Integrity (regulation, governance, protection, communication and operating costs)

Scores in each of the categories contribute to the country’s final aggregate score, although each is weighted differently - adequacy is worth 40 percent of the final score, sustainability 35 percent and integrity 25 percent. Based on the aggregate score out of 100, each country is assigned a grade from A to E, with A only awarded to countries with scores of 80 points or higher.

The Netherlands offers the world's best pension system

Mercer ranked the Netherlands as having the best pension system internationally, achieving A grades in all categories and increasing their overall score to 85. Iceland, Denmark, and Israel rounded out the top four as the only countries rated as having “first-class and robust” pension systems.

By contrast, Thailand, Turkey, the Philippines, Argentina and India occupied the bottom of the list. Pension systems in these countries were deemed to have “some desirable features” but also “major weaknesses and / or omissions that need to be addressed.”

German pensions should increase for low-income recipients, says Mercer

Germany’s current pension system was given 66,8 points by Mercer and ranked in an average spot at 19th place out of 47.

The German pension system combines a pay-as-you-go system, in which the working population pays for pensioners’ benefits, with supplementary pension plans. In these schemes, individuals (either independently or through an occupational scheme) contribute to pension plans to “top up” what they receive from the state pension. These different models make up the three pillars of the German pension system.

How much money you receive from your state pension fund is connected to how much you earn during your working life in Germany, since the monthly payments are 70 percent of your net working income.

In its assessment of the German pension plan, Mercer suggested that the government improve all three pillars of the system, increasing minimum the state pension for low-income earners, increasing funded contributions to private plans and increasing pension coverage offered through occupations.

Germany’s Mercer ranking index has decreased slightly since 2022, from 67,9 to 66,8. While the ranking decrease is only marginal, pensioners in the federal republic have been hit hard by the rising cost of living in the past two years. 

According to the Federal Office of Statistics (Destatis), between June 2022 and June 2023 the number of retirees who had to claim basic security benefits (Grundsicherung) because their pension packet was insufficient rose by 10 percent. Based on assessments by Germany’s social welfare association the VdK, the real figure is likely much higher, since an estimated 70 percent of people who are eligible for basic security benefits don’t even claim the support, either because they do not know they are eligible or because they are too embarrassed to do so.

The best pension systems according to Mercer

According to Mercer, these are the countries with the best pension systems in 2023: 

1. The Netherlands (85)
2. Iceland (83,5)
3. Denmark (81,3)
4. Israel (80,8)
5. Australia (77,3)
6. Finland (76,6)
7. Singapore (76,3)
8. Norway (74,4)
9. Sweden (74)
10. United Kingdom (73)

For more information, check out the official study.

Thumb image credit: Karsten Leineke / Shutterstock.com