Saudi Arabia demonstrates consistent result for fourth consecutive year in Global Pension Index


  • Government efforts to enhance the retirement income system in the Kingdom of Saudi Arabia are noticeable 
  • Index compares 43 retirement income systems, covering two-thirds of world’s population

Riyadh, KSA, October 19, 2021 – The Kingdom of Saudi Arabia recorded a fourth consecutive year of consistent results in the 2021 Mercer CFA Institute Global Pension Index (MCGPI). With an overall score of 58.1, the marginal increase from last year is attributed to the increase in net pension replacement rate for a range of income earners in the kingdom (i.e., the percentage of an individual’s pre-retirement income that is paid out by a pension program after retirement). Globally, Iceland ranked number one followed by the Netherlands, while Thailand ranked last.

 

The MCGPI is a comprehensive study of global pension systems, accounting for almost two-thirds (65 per cent) of the world’s population. It benchmarks retirement income systems around the world highlighting some shortcomings in each system and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits. The Saudi retirement income system was benchmarked against global peers across three key areas of focus: adequacy, sustainability and integrity.

 

The adequacy score in Saudi Arabia is driven by the Kingdom’s healthy net household savings rate and high net pension replacement ratio; it can be further increased by increasing the minimum level of support provided to the poorest aged individuals. In terms of sustainability, the Kingdom maintained a consistent range over the past four years mainly attributed to the mandatory contributions set aside for retirement benefits; the sustainability score can be positively impacted by achieving a higher labor force participation rate, especially for those individuals over the age of 55.

 

The report also acknowledges Saudi’s efforts in integrity with regards to the regulated pension systems which are continuously being monitored by the government and audited by external auditors. Finally, the integrity index could be further elevated by enhancing the required level of communication with pensioners and building awareness among employees on the need to save toward retirement.

 

Commenting on the results, Hazem Abdel-Rahman, Mercer's Retirement Business Leader for the Middle East, stated: “Despite a marginal increase in ranking from 2020, the Saudi Arabia pension system continues to demonstrate positive signs in its fourth year in our annual MCGPI survey. The government is taking measures to improve the retirement income system in the Kingdom; for example, in 2021, the Saudi cabinet approved merging the Public Pension Agency into the General Organization for Social Insurance; a move to enhance and strengthen the position the pension systems in the kingdom. Also, introducing private pension plans as a complementary retirement program in the Kingdom will reduce the pressure on the existing social security programs and enhance the overall retirement income.”

 

The study revealed a few key areas that require development in the country’s pension system, including increasing the minimum level of support provided to the poorest aged individuals, further increasing the state pension age over time and increasing the labor force participation rate at older ages as life expectancies rise.

 

The Kingdom of Saudi Arabia claiming a place in the top 26 ranking globally testifies the Government’s commitment to ensuring long-term financial planning and well-being for its citizens,” said William Tohme, CFA, Senior Regional Head of Middle East and Northern Africa (MENA) at CFA Institute. “The concerted efforts by the KSA Government over the past few years demonstrate a robust pension system in place in the country which is underpinned by strong governance and international best practices. We are confident that the recent merger of the general insurance and public pension funds, premised on socio-economic transformation, will further act as a catalyst for pension reforms both in public and private sectors. In order for KSA to improve they need to implement reforms and more compensation measures to incentivise its pension system to balance its aging and retirement ratio. At CFA Institute, we look forward to continue our engagement and collaboration with policymakers and key stakeholders representing the Kingdom of Saudi Arabia.”

 

By the numbers

Saudi Arabia had an overall index score of 58.1, ranking 26th on the list. The Index uses a weighted average of the sub-indices of adequacy, sustainability and integrity, and the country demonstrated positive results across all.

 

The country scored 61.7 in adequacy, due to the country’s high pension replacement ration and high net household savings. Driven by mandatory contributions set aside for retirement benefit, Saudi Arabia scored 50.9 in sustainability. The country scored the highest, 62.5, in integrity, owing to the strong governance structure around the pension system.

 

Global Results

Globally, Iceland had the highest overall index value (84.2), closely followed by the Netherlands (83.5). Thailand had the lowest index value (40.6). For each sub-index, the systems with the highest values were Iceland for adequacy (82.7), Iceland for sustainability (84.6) and Finland for integrity (93.1). The systems with the lowest values across the sub-indices were India for adequacy (33.5), Italy for sustainability (21.3) and the Philippines for integrity (35.0).

 

In comparison to 2020, China and the UK showed the most improvement as a result of significant pension reform, which improved outcomes for individuals and pension regulation.

2021 Mercer CFA Institute Global Pension Index

System

Overall index value

Sub-index values

Adequacy

Sustainability

Integrity

 Argentina (42)

41.5

52.7

27.7

43.0

 Australia (6)

75.0

67.4

75.7

86.3

 Austria (33)

53.0

65.3

23.5

74.5

 Belgium (17)

64.5

74.9

36.3

87.4

 Brazil (30)

54.7

71.2

24.1

71.2

 Canada (12)

69.8

69.0

65.7

76.7

 Chile (16)

67.0

57.6

68.8

79.3

 China (28)

55.1

62.6

43.5

59.4

 Colombia (25)

58.4

62.0

46.2

69.8

 Denmark (3)

82.0

81.1

83.5

81.4

 Finland (7)

73.3

71.4

61.5

93.1

 France (21)

60.5

79.1

41.8

56.8

 Germany (14)

67.9

79.3

45.4

81.2

 Hong Kong SAR (18)

61.8

55.1

51.1

87.7

 Iceland (1)

84.2

82.7

84.6

86.0

 India (40)

43.3

33.5

41.8

61.0

 Indonesia (35)

50.4

44.7

43.6

69.2

 Ireland (13)

68.3

78.0

47.4

82.1

 Israel (4)

77.1

73.6

76.1

83.9

 Italy (32)

53.4

68.2

21.3

74.9

 Japan (36)

49.8

52.9

37.5

61.9

 Korea (38)

48.3

43.4

52.7

50.0

 Malaysia (23)

59.6

50.6

57.5

76.8

 Mexico (37)

49.0

47.3

54.7

43.8

 Netherlands (2)

83.5

82.3

81.6

87.9

 New Zealand (15)

67.4

61.8

62.5

83.2

 Norway (5)

75.2

81.2

57.4

90.2

 Peru (29)

55.0

58.8

44.2

64.1

 Philippines (41)

42.7

38.9

52.5

35.0

 Poland (27)

55.2

60.9

41.3

65.6

 Saudi Arabia (26)

58.1

61.7

50.9

62.5

 Singapore (10)

70.7

73.5

59.8

81.5

 South Africa (31)

53.6

44.3

46.5

78.5

 Spain (24)

58.6

72.9

28.1

78.3

 Sweden (8)

72.9

67.8

73.7

80.0

 Switzerland (11)

70.0

65.4

67.2

81.3

 Taiwan (34)

51.8

40.8

51.9

69.3

 Thailand (43)

40.6

35.2

40.0

50.0

 Turkey (39)

45.8

47.7

28.6

66.7

 UAE (22)

59.6

59.7

50.2

72.6

 UK (9)

71.6

73.9

59.8

84.4

 Uruguay (20)

60.7

62.1

49.2

74.4

 USA (19)

61.4

60.9

63.6

59.2

Average

61.0

62.2

51.7

72.1

 


About the Mercer CFA Institute Global Pension Index

The Global Pension Index benchmarks retirement income systems around the world highlighting some shortcomings in each system and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits.

 

The Global Pension Index is a collaborative research project sponsored by CFA Institute, the global association of investment professionals, in collaboration with the Monash Centre for Financial Studies (MCFS), part of Monash Business School at Monash University, and Mercer, a global leader in redefining the world of work and reshaping retirement and investment outcomes.

 

This year, the Global Pension Index compares 43 retirement income systems across the globe and covers two-thirds (65 per cent) of the world’s population. The 2021 Global Pension Index includes four new systems – Iceland, Taiwan, UAE and Uruguay.

 

The Global Pension Index uses the weighted average of the sub-indices of adequacy, sustainability and integrity to measure each retirement system against more than 50 indicators.

 

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

About Mercer

Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s approximately 25,000 employees are based in 43 countries and the firm operates in 130 countries. Mercer is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 78,000 colleagues and annual revenue of over $18 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.

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 behavior 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 175,000 CFA® charterholders worldwide in more than 160 markets. CFA Institute has nine offices worldwide and there are 160 local societies. For more information, visit www.cfainstitute.org or follow us on Linkedin and Twitter at @CFAInstitute

About the Monash Centre for Financial Studies (MCFS)

A research centre based within Monash University's Monash Business School, Australia, the MCFS aims to bring academic rigour into researching issues of practical relevance to the financial industry. Additionally, through its engagement programs, it facilitates two-way exchange of knowledge between academics and practitioners. The Centre’s developing research agenda is broad but has a current concentration on issues relevant to the asset management industry, including retirement savings, sustainable finance and technological disruption. 

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