In recent personal finance news, Allianz Group, a global insurer and leading asset manager, released the Allianz Global Pension Report 2023, which ranked the world’s best pension systems as one of the best in the world. In the report, Denmark tops, the USA is ranked fifth while the top 10 includes Taiwan and New Zealand.
Notable takeaways also included forecasts for the global old age dependency ratio to rise significantly after Covid 19, war and energy crisis. Another key highlight was that an estimated 17% of the global population could be 65 years or older by 2050.
US pension system 5th best in the world
The Allianz Global Pension Report 2023 looks at 75 pension systems based on an index that takes into account an analysis of a country’s basic demographics and fiscal conditions. Apart from savings, also in focus is a retirement system’s funding, contribution periods and adequacy.
In the second edition of the retirement systems report, the United States’ pension system ranked fifth overall with a score of 2.9. The score means the US ranks behind the best country Denmark that had 2.2, while The Netherlands (2.6), Sweden (2.6) and New Zealand (2.8) completed the top four.
In the top 10 best pension schemes in the world are also Taiwan, Israel and Belgium. The countries ranked 8th, 9th and 10th with a score of 2.9, 2.9 and 3.0 respectively.
Old age dependency ratio estimated to rise to 26.3% by 2050 globally, and 38.9% in the US
Per the Allianz Pension Indicator (API), the old-age dependency ratio in the 75 countries will jump from 15.1% today to 26.3% by 2050. In the US, the ratio is poised to rise to 38.9%. Although it will remain below levels across Europe, the report states the US cannot afford complacency around this.
According to the report, Social Security, for instance, could “run out of money” if pension systems’ status quo is maintained. The coffers running dry could happen in the early 2030s, the report stated, with the US pension system’s biggest challenge likely to be the shrinking middle class and growing social inequality.
17% of world population to be 65 years or older by 2050
The Alliance Group report estimates 10% of the world population today is aged 65 or older. That percentage is projected to rise to 17% by 2050, meaning country’s looking to stabilise their pension systems have to adjust the retirement age to fit with future life expectancy. It’s this reason that has seen 33 countries plan to continue raising the retirement age over the next 25 years or so.
Report points to challenges facing pension systems
While many of the 75 countries are making adjustments to their pension systems after Covid 19, war and energy crisis, challenges abound. According to the report, most pension systems around the world “resemble a large construction site with no prospect of completion.” Societies also continue to age at a relentless pace even amid a predicted short term baby boom following Covid 19.
The demographic changes are however seeing a rethink across several countries. This is mainly in terms of the strategic adjustments being implemented around pension systems. For instance, Allianz says France and China have shown significant reforms in their retirement systems in reaction to prevailing challenges.
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