The 11th annual Melbourne Mercer Global Pension Index, a comparison of retirement systems worldwide, has just been released, and once again Germany has landed an above-average score. Coming in at 13th place overall, the German pension system has it strengths - but still plenty of room for improvement. 

Global Pension Index 2019

This year’s Global Pension Index compared pension systems in 37 different countries, which together represent more than 63 percent of the world’s population. The ranking compares the retirement income systems on the basis of more than 40 indicators.

These indicators are divided into three sub-categories: adequacy (benefits, system design, savings, tax support, home ownership and growth assets), sustainability (pension coverage, total assets, contributions, demography, government debt and economic growth), and integrity (regulation, governance, protection, communication and operating costs). Adequacy is worth 40 percent of the final score, sustainability 35 percent and integrity 25 percent. 

Once the aggregate scores are calculated, each country is then assigned a grade, ranging from A to E. There are also B+ and C+ grades. The top A grade is only awarded to countries with scores of 80 points or higher. An E grade is given to those with scores lower than 35. 

Pension system in Germany ranks 13th worldwide

The German pension system - which combines an earnings-based, pay-as-you-go system with other supplementary pension plans - was once again placed in category B, which is defined as “a system that has a sound structure, with many good features, but has some areas for improvement that differentiates it from an A-grade system.” 

Overall, Germany’s index score dropped slightly - from 66,8 in 2018 to 66,1 this year. The report’s authors note that this is primarily due to methodological changes. Despite strong scores in both the “adequacy” and “integrity” categories (for which it ranked near the top of the group), Germany’s overall standing was hampered by a below-average score for “sustainability”. 

This is largely down to the federal republic’s pay-as-you-go system being ill-suited to adapt to demographic change. Indeed, experts are warning that a crisis in Germany’s statutory pension insurance system is looming as the population ages. Faced with the unattractive prospect of raising contribution rates and lowering pension benefits, the federal republic is in need of some other options. 

The Melbourne Mercer report has some suggestions to improve the pension system: they recommend that Germany increases the minimum pension for low-income pensioners, while also putting up the retirement age as life expectancies rise (as the Bundesbank also recommended this week). Following the example of more future-proofed systems like those in the Netherlands and Denmark, they also advised that the coverage of employees in Germany in occupational pension plans should be widened.

The top pension systems in the world 2019

Once again, this year’s index was topped by Denmark and the Netherlands, Germany’s close neighbour, who both achieved the coveted A-grade with scores higher than 80. The full ranking was as follows: 

• 1. The Netherlands
• 2. Denmark
• 3. Australia
• 4. Finland
• 5. Sweden
• 6. Norway
• 7. Singapore
• 8. New Zealand
• 9. Canada
• 10. Chile

For the full ranking, including detailed information on how the scores are calculated, visit the MMPGI website.