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Why Denmark has the 'world’s best pensions system'

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Why Denmark has the 'world’s best pensions system'
Photo: Mads Claus Rasmussen/Ritzau Scanpix
17:01 CEST+02:00
An international analysis has concluded that Denmark’s pensions system is one of the two best in the world.

The annual Melbourne Mercer Global Pension Index placed the Danish system in the highest possible category in its analysis.

The index is a collaboration between the government, industry and academia in the Australian state of Victoria.

In the analysis, three sub-indices – adequacy, sustainability and integrity – are used to measure each country’s retirement income system against more than 40 indicators, Melbourne Mercer Global Pension Index writes in a report released Monday.

These indicators include systems design, savings, tax support, contributions, governance, protection and operating costs.

The study looked at 37 different international retirement income systems.

Denmark and the Netherlands were the only two countries to receive an ‘A’ grade in the index.

That means those two countries alone have pensions systems described as a “first class and robust retirement income system that delivers good benefits, is sustainable and has a high level of integrity”.

Nordic neighbours Norway and Sweden received B grades, and the UK and United States were both graded C+.

Denmark’s overall index value was 80.3, just lower than the Netherlands’ score, 81.0. But Denmark scored higher than the Netherlands on two of the three sub-indices, sustainability and integrity.

For sustainability, although several indicators influence the index score, the level of coverage of private pension plans, projected demographic factors and the level of pension assets as a proportion of GDP are the most important, the report notes.

The integrity sub-index considers three broad areas of the pension system, Melbourne Mercer Global Pension writes. These are regulation and governance; protection and communication for members; and operating costs.

“Denmark’s retirement income system comprises a public basic pension scheme, a means-tested supplementary pension benefit, a fully funded defined contribution scheme and mandatory occupational schemes,” the Melbourne Mercer Global Pension Index report states.

Despite its high score, there are still ways the pensions system in Denmark could achieve a higher index rating.

Raising the level of household saving and reducing household debt; introducing arrangements to protect the interests of both parties in a divorce; and increasing the labour force participation rate at older ages as life expectancies rise were all cited in this regard.

You can read the Melbourne Mercer Global Pension Index report in full here.

READ ALSO: Working in Denmark? Here's what you need to know about pensions

 
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