- Saudi Arabia improves its score and ranks 27th in the global Index
Riyadh, KSA – The pension system of the Kingdom of Saudi Arabia improved its score, ranking 27th out of 44 retirement systems in the 14th annual Mercer CFA Institute Global Pension Index (MCGPI). Globally, Iceland was top, followed by the Netherlands, while Thailand ranked last. This year’s MCGPI also features Portugal as a new addition.
The MCGPI is a comprehensive study of 44 global pension systems, accounting for 65 percent of the world’s population. It benchmarks retirement income systems around the world, highlighting some shortcomings in each system, and suggests possible areas of reform that would help provide more adequate and sustainable retirement benefits. The Saudi retirement income system was benchmarked against global peers across three key areas of focus: adequacy, sustainability, and integrity.
Saudi Arabia’s overall index value improved from 58.1 in 2021 to 59.2 in 2022, primarily due to an increase in its sustainability score which went from 50.9 to 54.3. The sustainability of the Kingdom’s pension system has been bolstered in recent years due to an increased labor force participation rate, with the number of women with jobs nearly doubling in the last five years, and by the mandatory contributions set aside for retirement benefits as a percentage of annual compensation by both employee and employer. Despite the improvement, the study suggests further increasing the state pension age over time to strengthen its sustainability.
The 2021 merger of the Public Pension Agency (PPA) into the General Organization for Social Insurance (GOSI) has helped consolidate $29bn of funds. The move has strengthened the position of the pension system in terms of its financial status, investment returns and opportunities for strategic diversification.
The adequacy score in Saudi Arabia, which saw a slight dip this year from 61.7 to 61.4, can be improved by increasing the minimum level of support provided to the poorest aged individuals. While the Kingdom also recorded a positive integrity score, driven by the overall high degree of governance structure around the pension system in the Kingdom, it could be further elevated by enhancing the level of communication to pensioners from private pension arrangements, and increasing the labor force participation rate at older ages as life expectancies rise.
Commenting on the results of the Index, Robert Ansari, Mercer's Head of Investment and Retirement for IMETA, stated: “Included in the index for a fifth year, Saudi Arabia’s index score has increased for 2022 once again faring better than a number of more established global peers. With two thirds of its population under the age of 30 and continued population growth, the introduction of private pension plans as a complementary retirement program in the Kingdom will reduce the pressure on the existing social security programmes and enhance the overall retirement income. It will also serve as a further mechanism to attract and retain talent in a buoyant job market and deliver overall financial well-being for its citizens.”
The study revealed a few key areas that require development in the country’s pension system, including increasing the minimum level of support provided to the poorest aged individuals, further increasing the state pension age over time and increasing the labor force participation rate at older ages. The study called for encouraging higher levels of private saving, both within and beyond the pension system, to reduce the future dependence on the public pension, while also adjusting the expectations of many workers.
CFA Institute President and CEO, Marg Franklin, CFA, underscored the dynamic environment of the investment industry. “Since the inception of the Mercer CFA Institute Global Pension Index, the investment management and pension industry at large have faced extraordinary challenges. New financial products and strategies will be required to deliver adequate returns for beneficiaries. This past year, we’ve gone from a ‘lower for longer’ interest-rate environment to significant rates of inflation, quadrupling of interest rates in some global markets and a rise in the cost of living for many, all of which have a significant impact on the fixed income of retirees,” said Ms. Franklin.
“At CFA Institute, we believe financial professionals can serve as a force for good in society to support individuals through this complex time. This report provides insights on how retirement plans need to adapt or are adapting to the changing environment, and also makes recommendations for a range of reforms that can be implemented to improve the long-term outcomes from our retirement income systems,” she added.
By the numbers
Saudi Arabia had an overall index score of 59.2, ranking 27th on the list. The Index uses a weighted average of the sub-indices of adequacy, sustainability and integrity.
The country scored 61.4 (30th globally) in adequacy, driven by the Kingdom’s healthy pension replacement ratio and net household savings rate. Strong mandatory contributions set aside for retirement benefits have helped improve the sustainability of the system, with a score of 54.3 (20th globally). The country scored the highest for integrity, 62.5 (36th globally), supported by the overall high degree of governance structure around the pension system in the Kingdom.
Global results
Globally 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). 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).
In comparison to 2021, Mexico showed the most improvement as a result of pension reform, which improved outcomes for individuals and pension regulation.
2022 Mercer CFA Institute Global Pension Index
| System | Overall Grade | Overall Score | Adequacy | Sustainability | Integrity |
| Iceland | A | 84.7 | 85.8 | 83.8 | 84.4 |
| Netherlands | A | 84.6 | 84.9 | 81.9 | 87.8 |
| Denmark | A | 82.0 | 81.4 | 82.5 | 82.1 |
| Israel | B+ | 79.8 | 75.7 | 81.9 | 83.2 |
| Finland | B+ | 77.2 | 77.5 | 65.3 | 93.3 |
| Australia | B+ | 76.8 | 70.2 | 77.2 | 86.8 |
| Norway | B+ | 75.3 | 79.0 | 60.4 | 90.3 |
| Sweden | B | 74.6 | 70.6 | 75.7 | 79.5 |
| Singapore | B | 74.1 | 77.3 | 65.4 | 81.0 |
| UK | B | 73.7 | 76.5 | 63.9 | 83.0 |
| Switzerland | B | 72.3 | 68.7 | 70.5 | 80.7 |
| Uruguay | B | 71.5 | 84.5 | 50.6 | 79.8 |
| Canada | B | 70.6 | 70.8 | 64.7 | 78.6 |
| Ireland | B | 70.0 | 75.9 | 53.5 | 83.7 |
| New Zealand | B | 68.8 | 64.0 | 64.7 | 82.1 |
| Chile | B | 68.3 | 60.0 | 70.3 | 78.9 |
| Germany | B | 67.9 | 80.5 | 44.3 | 80.9 |
| Belgium | B | 67.9 | 80.8 | 39.1 | 87.5 |
| Hong Kong SAR | C+ | 64.7 | 61.5 | 52.1 | 87.6 |
| USA | C+ | 63.9 | 67.5 | 61.2 | 61.7 |
| Colombia | C+ | 63.2 | 65.2 | 55.3 | 71.3 |
| France | C+ | 63.2 | 84.6 | 40.9 | 60.1 |
| Malaysia | C+ | 63.1 | 57.2 | 60.2 | 76.9 |
| Portugal | C+ | 62.8 | 84.9 | 29.7 | 73.9 |
| UAE | C+ | 61.8 | 63.8 | 51.9 | 72.6 |
| Spain | C+ | 61.8 | 80.0 | 28.7 | 78.9 |
| Saudi Arabia | C | 59.2 | 61.4 | 54.3 | 62.5 |
| Poland | C | 57.5 | 59.5 | 45.4 | 71.2 |
| Mexico | C | 56.1 | 63.1 | 57.1 | 43.6 |
| Peru | C | 55.8 | 54.7 | 51.5 | 63.7 |
| Brazil | C | 55.8 | 71.1 | 27.8 | 70.5 |
| Italy | C | 55.7 | 72.3 | 23.1 | 74.7 |
| Austria | C | 55.0 | 69.8 | 22.7 | 76.5 |
| South Africa | C | 54.7 | 44.2 | 49.7 | 78.4 |
| Japan | C | 54.5 | 58.0 | 44.5 | 63.0 |
| China | C | 54.5 | 64.4 | 39.3 | 60.0 |
| Taiwan | C | 52.9 | 42.0 | 53.2 | 69.8 |
| Korea | C | 51.1 | 40.1 | 54.9 | 63.5 |
| Indonesia | D | 49.2 | 39.3 | 44.5 | 71.5 |
| Turkey | D | 45.3 | 45.6 | 29.8 | 66.6 |
| India | D | 44.4 | 37.6 | 40.7 | 60.4 |
| Argentina | D | 43.3 | 55.6 | 29.4 | 42.9 |
| Philippines | D | 42.0 | 40.5 | 52.3 | 30.0 |
| Thailand | D | 41.7 | 41.3 | 36.4 | 50.0 |
-Ends-
About the Mercer CFA Institute Global Pension Index (MCGPI)
The MCGPI benchmarks retirement income systems around the world, highlighting some shortcomings in each system, and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits.
This year, the Global Pension Index compares 44 retirement income systems across the globe and covers 65 percent of the world’s population. The 2022 Global Pension index includes one new retirement income system – Portugal.
The Global Pension Index uses the weighted average of the sub-indices of adequacy, sustainability and integrity to measure each retirement system against more than 50 indicators.
The Global Pension Index is a collaborative research project sponsored by CFA Institute, the global association of investment professionals, in collaboration with the Monash Centre for Financial Studies (MCFS), part of Monash Business School at Monash University, and Mercer, a global leader in redefining the world of work and reshaping retirement and investment outcomes.
For more information about the Mercer CFA Institute Global Pension Index, click here.
About Mercer
Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s approximately 25,000 employees are based in 43 countries and the firm operates in 130 countries. Mercer is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 83,000 colleagues and annual revenue of over $20 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit mercer.com. Follow Mercer on LinkedIn and Twitter.
About CFA Institute
CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organization is a champion of ethical behavior in investment markets and a respected source of knowledge in the global financial community. Our aim is to create an environment where investors’ interests come first, markets function at their best, and economies grow. There are more than 190,000 CFA® charterholders worldwide in more than 160 markets. CFA Institute has nine offices worldwide, and there are 160 local societies. For more information, visit www.cfainstitute.org or follow us on LinkedIn and Twitter at @CFAInstitute.
About the Monash Centre for Financial Studies (MCFS)
A research centre based within Monash University's Monash Business School, Australia, the MCFS aims to bring academic rigour into researching issues of practical relevance to the financial industry. Additionally, through its engagement programs, it facilitates two-way exchange of knowledge between academics and practitioners. The Centre’s developing research agenda is broad but has a current concentration on issues relevant to the asset management industry, including retirement savings, sustainable finance and technological disruption.
Moses ThomasSenior Account Executive
moses.thomas@hkstrategies.com
