A recent analysis has positioned the Netherlands as the global leader in pension systems, even as artificial intelligence (AI) makes its mark in shaping the future of retirement benefits.

According to Mercer CFA Institute’s annual global pensions report, the Netherlands stands at the top among 47 pension systems reviewed, which represent 64% of the world’s population. The report utilised more than 50 indicators, assessing factors like private and public sector pension benefits, the system’s long-term sustainability, and the quality of governance.

Iceland and Denmark followed closely, ranking second and third in the 2023 index, respectively. Overall, European countries performed well. Among them, Finland, Norway, Sweden, the UK, Switzerland, Ireland, Belgium, Portugal, and Germany require only minor enhancements. Conversely, France, Spain, Italy, Poland, Austria, Croatia, and the US have glaring weaknesses that must be addressed.

The report has stressed that retirement income systems worldwide are “under pressure as never before” due to persistent inflation, escalating interest rates, and geopolitical uncertainty affecting investment returns. Given the ageing population, these challenges are bound to multiply.

Margaret Franklin, president and CEO at the CFA Institute, highlighted: “These are just a few of the increasingly complex challenges that pension funds face that impact retirees in significant ways.”

Artificial intelligence is cited as a tool that could help mitigate some of these challenges by reducing operational costs and alerting to forthcoming risks. The report suggests that AI could also help in building customised investment portfolios. However, it is cautioned that AI cannot reliably predict market movements.

David Knox, senior partner at Mercer, stated: “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.”

Yet, the report also points out the risks of AI in generating false information and vulnerability to cyber attacks, necessitating robust governance measures.

While the Netherlands has regained its position at the top, the Mercer CFA Institute is optimistic that the integration of AI in pension systems could bring about efficiencies and advantages. Yet, it is imperative that AI applications have stringent governance protocols to minimise risks and ensure data privacy.

Countries at the lower end of the ranking, like India, the Philippines, and Argentina, could particularly benefit from AI’s efficiencies to uplift their pension systems’ efficacy and sustainability.