Amsterdam, Netherlands.
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Moving to another country to eventually retire requires careful research and planning with social security, healthcare, and finances in mind.
US consulting firm Mercer releases a widely-watched annual report analyzing 47 different retirement income systems around the world – with European countries often coming out on top.
In fact, as of 2021, three countries dominate the Mercer CFA Institute global index. Namely Iceland (average 84.6), the Netherlands (average 84.4) and Denmark (average 81.8) are considered countries with the best pension systems in the last three years.
“All three have large industrial funds with defined contributions from employees and employers. They have compulsory or quasi-compulsory systems. These countries benefit from good economies of scale compared to more fragmented markets such as the UK for corporate pensions,” Eimear Walsh, head of Mercer investments and wealth, told CNBC.
The Netherlands achieved the highest overall index score (85.0) this year thanks to good performance, a strong asset base and solid regulation, while popular European destinations such as Spain, Italy and Croatia faced some shortcomings.
The Mercer Index consists of three subcategories in which it evaluates a pension system: adequacy, sustainability and integrity.
Adequacy of income
A primary goal of any pension system should be to provide retirees with an adequate income, essentially a safety net. The ability of governments to incentivize average earners to save for retirement plays an important role in the health of any system.
The design of the payment plan is also crucial, according to Mercer's ranking, and the question of whether employees can continue to receive benefits if they are temporarily out of work, e.g. B. due to childcare or illness.
Thanks to its income-based public pension system, Portugal ranked top on this metric in Mercer's latest report, with a score of 86.7. The Netherlands came in a close second with a score of 85.6. In both systems there is a minimum pension rate that creates a net pension even for the lowest income groups. The lowest rating in Europe was received by Poland, which ranked 31st in the world with a score of 59.8.
Portugal was also named the best European country to retire by Moving to Spain, a moving company. A June report ranked European countries based on various factors such as visas, beaches, security and property prices.
Another list from asset management firm Blacktower, released back in 2021, lists a much higher number of European nations and places Belarus last based on several key factors.
integrity
Private sector funded pension plans also play an important role in the stability of a country's pension system. The Mercer Index examines whether private pension plans in countries create sufficient value for members and whether there is enough public trust in these programs.
Finland had the best integrity rating in 2023 with a rate of 90.9. Belgium came second with a score of 88.2 and the Netherlands came third with a score of 87.7. France performed worst in Europe with a score of 54.4. It is also noteworthy that the USA, with 59.5 points in this category, is well below the global average.
According to the report, Finland's happiness score is well above all other countries.
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Finland is also ranked as a “happy place” to retire according to the Natixis Index. While Finland didn't make the top 10 in the overall Natixis rating, it did take first place in the investment bank's quality of life category for the fifth year in a row. A high level of satisfaction, high air quality, water and sanitation and biodiversity are the main reasons for Finland's top position, it said.
Norway was the top performer in the Natixis Index for 2023, retaining its place from last year and posting an overall score of 83%. Switzerland takes second place in the overall index and leads the “Finances in Retirement” category.
Sustainability of the system
According to Mercer, a country's economic growth also plays a crucial role in the long term, as this directly affects the number of people in work and the amount of money saved for retirement. In addition, the amount of debt a country has and the amount of public money it spends on pensions affect the sustainability of its pension system.
Based on these factors, Iceland has the most sustainable system in Europe with a score of 83.8. Denmark and the Netherlands follow closely behind with 82.5 and 82.4 respectively. Italy has the lowest value in Europe at 23.7, followed by Spain with a value of 28.5.
However, Mercer's Walsh pointed out that there are some soft factors that the index doesn't take into account that could still make countries like Italy and Spain popular retirement destinations for many people.
“We are very focused on the pension system, but that is not the only thing we need to consider. It's an important balance. A lot also depends on the country's tax system, climate and culture, and whether people there can actually be happy,” she said.