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Pension systems in the UAE and Saudi Arabia improved their scores, ranking 25th and 27th respectively out of 44 retirement systems in the 14th Mercer CFA Institute Global Pension Index (MCGPI).
Globally, Iceland ranks first, followed by the Netherlands and Thailand. This year’s MCGPI also added Portugal.
The MCGPI is a comprehensive study of 44 global pension systems representing 65% of the world’s population. It benchmarks retirement income systems around the world, highlights some of the flaws in each system, and suggests areas for possible reforms to help deliver more adequate and sustainable retirement benefits. The retirement income systems in the UAE and Saudi Arabia are compared with their global counterparts in three key focus areas: adequacy, sustainability and integrity.
United Arab Emirates
The UAE’s overall index value improves from 59.6 in 2021 to 61.8 in 2022, jumping from C to C+. This is mainly due to its improved scores for adequacy and sustainability. The UAE’s pension adequacy ranking is supported by the country’s generous retirement benefits, which ensure consistent income to maintain a good quality of life, and an appropriate minimum income-related pension. The improvement in its sustainability can be attributed to the UAE’s high labor force participation rate, especially for individuals over the age of 55. The robust governance structure of the UAE’s national pension system also contributes to its strong ranking in integrity.
Overall, the UAE has established a robust pension system for Emiratis, with mandatory contributions set aside by both the public and private sectors for employees’ tenure. Progress is being made to implement a new retirement savings plan designed to support private sector employers and expatriate employees in planning for their financial futures, the study said.
The UAE’s retirement income system includes a minimum state pension and a national employment scheme administered by the Abu Dhabi Pension Fund (ADPF), the Sharjah Social Security Fund (SSSF) and the General Pension and Social Security Authority (GPSSA) for the rest of the UAE. Emiratis pay 5% of their wages, employers pay 12.5-15% of their employees’ wages, and benefits are guaranteed by the government.
As the country continues to ramp up its efforts to attract and retain talent, the UAE also recently announced the launch of a new mandatory unemployment insurance scheme for employees in both the public and private sectors, with a mission to help UAE and foreign employees if they If they lose their jobs, they will be compensated for up to 60% of their previous wages within three months. In addition, the recently launched “Golden Pension” scheme aims to help foreign employees in the private sector invest in their end-of-service benefits and support employers in funding their end-of-service financial commitments.
However, the MCGPI has identified key areas for improvement to continue to maintain and consolidate the UAE’s ranking. Factors include the introduction of a minimum age of use to ensure pension scheme benefits are retained for retirement purposes. Raising the state pension age may also help relieve some of the burden on state pensions as life expectancy increases, leading more people to retire. In addition, increasing investment to educate locals and promote a saving culture in the UAE will help address the lack of planning for retirement.
The UAE has an adequacy score of 63.8 (27th globally), thanks to the country’s generous retirement benefits and a modest minimum pension relative to income. A high labor force participation rate drives a positive score for sustainability, especially for individuals over 55, and a score of 51.9 due to the well-structured funded pension system with mandatory contributions set aside for retirement benefits (25th) Global). The country has the highest score for the integrity of its pension system, at 72.6 (26th globally), supported by an overall high level of governance.
Saudi Arabia
Saudi Arabia’s overall index value improved from 58.1 in 2021 to 59.2 in 2022, mainly due to an improvement in its sustainability score from 50.9 to 54.3. In recent years, the sustainability of the Kingdom’s pension system has been strengthened due to higher labor force participation rates, a nearly doubling of female employment over the past five years, and a percentage of mandatory contributions set aside for retirement benefits. Annual compensation of employees and employers.
Despite the improvement, the study recommends further raising the state pension age over time to strengthen its sustainability.
The 2021 merger of the Public Pensions Agency (PPA) and the General Organization of Social Insurance (GOSI) helped consolidate $29 billion in funding. The move strengthens the pension system’s position in terms of financial health, investment returns and opportunities for strategic diversification.
Saudi Arabia’s adequacy score fell slightly this year from 61.7 to 61.4, which could be improved by raising the minimum level of support provided to the poorest elderly.
While the Kingdom also achieves a positive integrity score, driven by the overall high governance structure of the pension system, it can be further improved by improving the level of communication between private pension arrangements and pensioners and increasing the workforce as life expectancy increases increase in the participation rate of older adults.
Robert Ansari, Head of Investments and Retirement at Mercer IMETA, said: “For the fifth year in a row, Saudi Arabia’s index score has risen again in 2022, outperforming many of its more established global peers. With two-thirds of the Saudi population under the age of 30, and the population continuing to grow, the introduction of a private pension scheme in the kingdom as a supplemental retirement scheme will reduce pressure on existing social security schemes and boost overall retirement income. It will also serve as a means of Further mechanisms to attract and retain talent in a vibrant job market and provide overall financial well-being to its citizens.”
The research revealed several key areas where the country’s pension system needs to develop, including raising the minimum level of support provided to the poorest elderly, further raising the state pension age over time, and increasing the labor force participation rate of older people. The study calls for encouraging higher levels of private saving within and outside the pension system to reduce future reliance on public pensions, while adjusting the expectations of many workers.
by number
Saudi Arabia ranks 27th with a composite index score of 59.2. The index uses a weighted average of the adequacy, sustainability and integrity sub-indices.
The country’s adequacy ratio score is 61.4 (30th globally), driven by the kingdom’s healthy pension replacement rate and household net savings rate. Strong mandatory contributions set aside for retirement benefits contribute to the sustainability of the system, with a score of 54.3 (20th globally). The country has the highest integrity score at 62.5 (36th globally), thanks to the country’s overall high governance structure around the pension system.
global result
Globally, Iceland has the highest overall index value (84.7), followed by the Netherlands (84.6) and Denmark (82.0). Thailand had the lowest index value (41.7). For each sub-index, the systems with the highest values were Iceland’s adequacy (85.8) and sustainability (83.8), and Finland’s completeness (93.3). The systems with the lowest scores in each sub-index are India’s adequacy (37.6), Austria’s sustainability (22.7), and the Philippines’ completeness (30).
Compared to 2021, Mexico showed the greatest progress due to pension reforms, which improved outcomes for individuals and pension regulation. –arab trade news agency
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