RIYADH: Saudi Arabia’s Global Pension Index score has risen to 60.5 in 2024, up from 59.5 in the previous year, reflecting the impact of ongoing reforms, according to a recent analysis.
The latest Mercer CFA Institute Global Pension Index report shows that the Kingdom’s pension system has been upgraded from a C to a C+, placing it in the company of countries like the US, the UAE, and Spain. The index categorizes a C+ rating as a system with commendable attributes but also significant risks that require attention.
Saudi Arabia’s retirement system comprises an earnings-based pension and a lump-sum payment. Individuals who do not qualify for monthly payouts receive only the one-time benefit.
In July, the Kingdom increased the retirement age from 60 to 65 for both public and private sector employees, aligning with Vision 2030 reforms aimed at ensuring system sustainability and enhancing retirees’ living standards. Additionally, the required contribution period for early retirement was extended from 25 to 30 years, encouraging longer workforce participation and alleviating financial pressure on the pension system.
Tarek Lofty, president of Mercer in India, the Middle East, and Africa, noted that Saudi Arabia is steadily advancing in reforming and enhancing its pension system, particularly as more private pension options are introduced to complement existing programs.
Saudi Arabia maintained its 28th position in the global index, which evaluates 48 pension systems worldwide. Its sustainability score improved to 58 from 54.9, driven by factors such as increased female workforce participation, updated demographic data, and clearer retirement arrangements.
While the Kingdom ranked 20th in the sustainability sub-index, it placed lower in adequacy (32nd) and integrity (42nd). Mercer suggested that increasing support for low-income retirees and boosting labor participation among older workers could further enhance the Kingdom’s score.
Mercer’s ranking assesses system design, government support, and home ownership for the adequacy sub-index, while the sustainability index considers pension coverage, government debt, and economic growth. The integrity sub-index evaluates regulation, governance, protection, and communication and operating costs.
Claudia Maldonado, head of savings and pensions at Mercer Middle East, emphasized that Saudi Arabia, with its youthful population and rising labor force participation, is well-positioned to address the challenges faced by its global counterparts and guide its pension system development accordingly.
Mercer recommended several measures to improve the Kingdom’s overall index score, including increasing minimum support for low-income seniors and raising the labor force participation rate among older individuals as life expectancies increase. Enhancing communication with members about private pension arrangements could also significantly boost the Kingdom’s score in the coming years.
A World Bank report in July commended Saudi Arabia’s pension reforms, calling it a groundbreaking development for the Middle East and North Africa region. The report highlighted the need for further measures such as diversifying pension funds, designing adjustment mechanisms, and enhancing private savings options to achieve a robust system.
The Mercer report revealed that most global retirement systems are transitioning from defined benefit plans to defined contribution arrangements. Margaret Franklin, president and CEO of CFA Institute, noted that this shift introduces significant financial planning challenges for future retirees.
Despite these challenges, the report underscored that the increased flexibility and personalization offered by DC programs will be crucial as people live longer. Mercer also highlighted the evolving concept of retirement, with many individuals gradually transitioning into retirement or re-entering the workforce in different capacities.
David Knox, lead author of the study and senior partner at Mercer, emphasized the need for collaborative efforts among governments, policymakers, the pension industry, and employers to ensure that older populations are treated with dignity and can maintain their lifestyle post-retirement.
The analysis noted that increasing longevity, high interest rates, and rising care costs have placed additional pressure on government budgets to support pension programs, resulting in slightly lower overall scores this year.
According to Mercer, the Netherlands retained the top spot in the index with an overall score of 84.8 and a grade of A, followed by Iceland and Denmark. Israel secured the fourth position, while Singapore, Australia, and Finland ranked fifth, sixth, and seventh, respectively. Norway placed eighth, followed by Chile and Sweden. China ranked 31st on the list, while India and Japan were positioned at 48th and 36th, respectively.
