Which nation offers the world’s best pension system?and What role does AI play in this?

The increasing influence of AI on pension systems has been highlighted by a recent report that ranks 47 pension systems worldwide.

According to the global pensions study by the Mercer CFA Institute, the Netherlands is the best country in the world when it comes to pension systems.

The rating analyzed 47 retirement income systems, accounting for 64% of the global population, and examined more than 50 indicators.

The amount of pension benefits offered by the public and private sectors, the system’s potential to be sustained for many years to come, and the standard of its governance were the most important metrics.

In the 2023 index, Denmark ranked third, and Iceland emerged in second place, having lost its top position from the previous year.

Most of the European nations that were part of the report received good grades. The report states that Finland, Norway, Sweden, the UK, Switzerland, Ireland, Belgium, Portugal, and Germany only require minor adjustments.

However, the report also identifies significant dangers and/or weaknesses in the US, France, Spain, Italy, Poland, Austria, and Croatia that need to be addressed.

Argentina, the Philippines, and India are at the bottom of the list. They receive the lowest rating, D, along with Turkey and Thailand, indicating that these nations’ pension systems’ viability and effectiveness are in question in the absence of reforms.

RISKS IN THE SYSTEM

According to the research, “retirement income systems around the world are under pressure as never before” because of the geopolitical unpredictability that impacts investment returns, the ongoing inflation that is currently occurring, and rising interest rates.

President and CEO of the CFA Institute Margaret Franklin stated, “The average age of populations around the world continues to rise in many markets, mainly more mature markets.”

A new market dynamic brought forth by inflation and rising interest rates presents serious obstacles for pension schemes. We also observe ongoing division in relation to globalization,” she concluded. “These are just a handful of the progressively intricate issues that pension funds deal with, which have a big influence on retirees.”

In spite of the current financial and economic instability, policymakers worldwide should proceed with the essential reforms to ensure the well-being of present and future retirees, according to the OECD’s most recent Pensions Outlook from 2022, which is cited in the report.

In addition, the research suggests that asset-backed pensions be strengthened rather than pay-as-you-go, since this might help diversify the sources of retirement funding and increase the resilience of pension systems.

Artificial intelligence’s effects on pension systems

According to the paper, artificial intelligence has the potential to enhance pension performance by reducing expenses and identifying potential hazards.

Building customized portfolios and spotting market abnormalities are two further potential applications for AI, but the paper noted that since AI is unlikely to be able to accurately predict market moves, uncertainty would persist.

“The ongoing expansion of AI within the operations and decisions of investment managers could lead to more efficient and better-informed decision-making processes, which could potentially lead to higher real investment returns to pension plan members,” said David Knox, a senior partner at Mercer.

The yearly report also highlighted the dangers of cyberattacks targeting the data of pension members and AI models producing false information when applied in unfamiliar contexts.