Finnish pension system sixth in international pension comparison; tops the integrity sub-index
This year, Finland ranked sixth in the international Global Pension Index comparison. For the tenth time in a row, Finland received the highest index value in the integrity sub-index (reliable and transparent governance).
The Finnish pension system ranked sixth in the annual Mercer CFA Institute Global Index comparison, down by one place from 2022. This year, the international comparison included 47 countries.
“Finland came in sixth because Australia passed us. The Australian pension system scored additional points for its financial sustainability. At the same time, Finland’s score dropped slightly in our traditional area of strength, that is reliable and transparent governance. The score for this sub-index was reduced for most other countries, as well, following Mercer’s reform of the indicators”, says Liaison Manager Mika Vidlund (Finnish Centre for Pensions).
Despite the changes, the Finnish pension system was ranked the most transparent and reliable pension system in the world. In assessing the integrity of a pension scheme, Mercer emphasizes, among other things, that the pension scheme is well-governed, that customer communication is clear and that the administrative expenses are reasonable.
Finland pension system outranks Sweden and Norway
From a Nordic perspective, Finland lies behind Iceland and Denmark but ahead of Sweden and Norway.
“In Mercer’s comparison, Iceland and Denmark are strong both in terms of pension adequacy and financial sustainability. Sweden performed well only in sustainability. As for Norway, it is interesting to note that the massive oil fund does not help the country’s score in financial sustainability since the fund is used not only for pensions but also for many other public expenses”, explains Vidlund.
In its recommendations for improvements, Mercer suggests that all Nordic countries introduce arrangements to protect the interests of both parties in a divorce. In addition, Finland is encouraged to take action to raise the level of household savings and to reduce the level of household debt. Other areas of development for Finland listed by the Global Pension Index include increasing the funded component of pension contributions and the minimum level of support.
Older people outnumber children aged five or younger
One of the megatrends highlighted in Mercer’s 2023 report is demographics. According to UN statistics, people aged 65 and over outnumber children aged 5 or younger. Ageing popoulations generate cost pressure for the pension systems of many countries.
Inflation and rising interest rates also add to the pressure. Mercer further points out that geopolitical tension adds to investment risks. Near-future positive trends include artificial intelligence, which is likely to strengthen pension investors’ decision-making and risk management.
What is the Mercer comparison?
The Mercer CFA Institute Global Pension Index assesses pension schemes of various countries in terms of their pension adequacy, financial sustainability and integrity as sub-indices.
The comparison is conducted by Mercer, an international consultancy agency, that benchmarks the countries included in the comparison using more than 50 indicators. The countries’ total scores are calculated using a weighted average. The weightings used are 40% for the adequacy sub-index, 35% for the sustainability sub-index and 25% for the integrity sub-index.
The 2023 comparison includes 47 countries. Their pension systems cover 64 per cent of the world’s population.
Three new countries joined the comparison this year: Botswana, Croatia and Kazakhstan.
The Global Pension Index report has been published since 2009.