Denmark, Iceland and Netherlands have the top 3 pension systems. But among the 3, Iceland takes the day when it comes to the best pension systems in the world. This is according to the 2021 Mercer CFA Institute Global Pension Index, that compared 43 countries. It is noteworthy to mention, pension systems vary across the globe, because of different economic and historical context’s hence, it’s hard to draw direct comparisons.
Yet still, examining the strengths and weaknesses of pension systems with the aim of delivering better retirement benefits to each individual has never been more urgent! With the hope that the next generation of retirees will benefit a lot from the changes.
What makes their pension systems stand out? Here are a few pointers:
High contribution rate
Retirement contribution is a monetary contribution made to one’s retirement fund. Iceland has a high contribution rate which eventually results in a generous pension that retirees can access. The more one contributes, they increase their chances of creating a sizeable retirement fund. On the other hand, those who invest conservatively may find themselves not having enough money during retirement.
Mandatory Contributions
Iceland offers pension with two components: mandatory contributions from both employers and employees and optional contributions to state approved pension products. When pension contribution is mandatory for all citizens, we avoid a future crisis where a large segment of the elderly depend on government stipend. This kind of pension plan guarantees employees income for life when they retire.
Low Gender Pension Gap
Gender pension gap is the difference between the average retirement income of men and women in the most recent year. Iceland has a generally low gender pension gap. However, in most cases women receive lower pension than men worldwide. This is partly due to the fact that, women tend to have lower wages and shorter careers than men during their working lives. Due to such factors women may less likely receive a regular income from their nest egg hence increasing the gap.
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In Summary
Countries have continued to make improvements to their pension systems which is a step towards a better future and music to the ears of upcoming retirees. Some reforms may include: loosening age requirements to receive a pension, increasing pension benefits or expanding pension coverage. However even with such great features, the pension systems have some limitations. Recommendations like: boosting adequacy, raising integrity and increasing sustainability can help improve pension systems greatly.
