Norwegians are promised too much pension

 

Norway has the world’s eighth best pension system, according the Mercer CFA Institute Global Pension Index study. But it is becoming less sustainable every year.

 

Norway drops to eighth place in the 12th Mercer CFA Institute Global Pension Index. The Norwegian pension system scores 71.2 out of a possible 100 points, which is below The Netherlands (82.6 points), Denmark (81.4 points) and Finland (72.9 points).

 

The index compares pension systems in 39 countries according to three criteria: adequacy, which is if it provides enough money to each person; integrity, if rules protect future pensioners; and sustainability, if the state will have the money future pensioners are entitled to.

 

The Norwegian pension system scores high on adequacy (73.4 points) and integrity (90.3 points), but low on sustainability (55.1 points). Norway continues to score lower for sustainability dropping from 11th place in 2017 to 16th place in 2020. This could mean the state will not be able to pay its pension commitments in the future.

 

“Despite the 2011 pension reform, designed to encourage more Norwegians to work longer and make the retirement age more flexible, the Norwegian pension system is becoming less sustainable every year. Norwegians have a high trust in the system and that they will get the pension they have been promised. But there is a gap between people’s perceptions and economic realities, says Annabell Siem Mathiesen, CEO of Mercer Norway.

 

The widespread economic impact of COVID-19 globally is also heightening the financial pressure which retirees face, both now and in the future.

 

More control over own pension

Next year Norway will introduce personal pension accounts for everyone with a defined contribution pension. This means that 1.5 million Norwegians will have all their pension savings gathered in one account, which they manage themselves.

 

“Personal pension accounts will lead to lower fees and more choice for individuals and hopefully more competition between pension providers. Individuals will have more control over their pension savings. But that means both more opportunity and future financial risks,” says Tor Olsen, Client Advisor at Mercer Marsh Benefits Norway.

 

“Employers will now also have a greater responsibility to ensure that their employees understand the consequences of their pension choices, and to help them secure their future financial security. Only a 1 percent change in returns or fees could result in a 20 to 30 percent higher pension,” Olsen says.

 

This year the index is sponsored by CFA Institute and CFA Society Norway. “CFA Society Norway is pleased to support the Mercer CFA Institute Global Pension Index and looks forward to engaging with business leaders and policymakers on the Norwegian pension system for the future and to enhance investors’ knowledge of pension issues,” said Isabelle Thompsen, President of CFA Society Norway.

 

Global Changes in Pensions

Dr David Knox, Senior Partner at Mercer and lead author of the study, said: “The economic recession caused by the global health crisis has led to reduced pension contributions, lower investment returns and higher government debt in most countries. Inevitably, this will impact future pensions, meaning some people will have to work longer while others will have to settle for a lower standard of living in retirement.

 

“It is critical that governments reflect on the strengths and weaknesses of their systems to ensure better long-term outcomes for retirees.”

 

“Even before COVID-19, many public and private pension systems around the world were under increasing pressure to maintain benefits,” said Margaret Franklin, CFA, President and CEO at CFA Institute.

 

“We have learned a lot about the effectiveness of pension systems over the years, and while there is no single pension system model that will work for every country, the Global Pension Index provides comparative information to differentiate what is possible and practical in each market. CFA Institute is thrilled to be sponsoring this year’s Global Pension Index and we look forward to expanding its impact even further through this collaborative effort.”

 

For more information about the Mercer CFA Institute Global Pension Index, click here.

 

The 10 best national pension systems

1.        The Netherlands (82.6)

2.       Denmark (81.4)

3.       Israel (74.7)

4.       Australia (74.2)

5.       Finland (72.9)

6.       Sweden (71.2)

7.       Singapore (71.2)

8.       Norway (71.2)

9.       Canada (69.3)

10.    New Zealand (68.3)

 

2020 Mercer CFA Institute Global Pension Index

System

Overall 2020 index value

Sub-index values

Adequacy

Sustainability

Integrity

 Argentina

42.5

54.5

27.6

44.4

 Australia

74.2

66.8

74.6

85.5

 Austria

52.1

64.4

22.1

74.6

 Belgium

63.4

74.6

32.4

88.9

 Brazil

54.5

72.6

22.3

70.7

 Canada

69.3

68.2

64.4

77.8

 Chile

67.0

56.5

70.0

79.6

 China (mainland)

47.3

57.4

36.2

46.7

 Colombia

58.5

62.5

45.5

70.5

 Denmark

81.4

79.8

82.6

82.4

 Finland

72.9

71.0

60.5

93.5

 France

60.0

78.7

40.9

57.0

 Germany

67.3

78.8

44.1

81.4

 Hong Kong SAR

61.1

54.5

50.0

87.1

 India

45.7

38.8

43.1

60.3

 Indonesia

51.4

45.7

45.6

68.7

 Ireland

65.0

74.7

45.6

76.5

 Israel

74.7

70.7

72.4

84.2

 Italy

51.9

66.7

18.8

74.4

 Japan

48.5

52.9

35.9

59.2

 Korea

50.5

48.0

53.4

50.3

 Malaysia

60.1

50.1

58.6

78.0

 Mexico

44.7

36.5

55.8

42.2

 Netherlands

82.6

81.5

79.3

88.9

 New Zealand

68.9

65.5

62.9

82.9

 Norway

71.2

73.4

55.1

90.3

 Peru

57.2

59.5

49.2

64.6

 Philippines

43.0

38.9

53.4

34.8

 Poland

54.7

59.9

40.7

65.9

 Saudi Arabia

57.5

59.6

51.6

62.4

 Singapore

71.2

74.1

59.9

82.5

 South Africa

52.8

43.0

45.7

78.3

 Spain

57.7

71.0

27.5

78.5

 Sweden

71.2

65.2

72.0

79.8

 Switzerland

67.0

59.5

64.2

83.1

 Thailand

40.8

36.8

40.8

47.3

 Turkey

42.7

44.2

24.9

65.3

 UK

64.9

59.2

58.0

83.7

 USA

60.3

58.9

62.1

59.9

Average

59.7

60.9

50.0

71.3

 

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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 behaviour 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 178,000 CFA charter holders worldwide in 162 markets. CFA Institute has nine offices worldwide and there are 159 local member societies. For more information, visit www.cfainstitute.org or follow us on Twitter at @CFAInstitute and on Facebook.com/CFAInstitute.

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