News Middle East21 Oct 2020

Saudi Arabia:Retirement income system seen as improved marginally this year

| 21 Oct 2020

The overall value for the Saudi Arabian pension system improved marginally to 57.5 on the 2020 Mercer CFA Institute Global Pension Index (MCGPI) from 57.1 in 2019, primarily due to life expectancy changes, according to the Index report.

Saudi Arabia's retirement income system comprises an earnings related pension or an earnings related lump sum retirement benefit for individuals who do not fulfil any of the retirement conditions.

The 2020 MCGPI benchmarks 39 retirement income system using more than 50 indicators and covers almost two-thirds of the world's population. The Index is an annual international comparison of pension systems conducted for the 12th year running. For the first time, the CFA Institute is the main sponsor of the Mercer Global Pension Index.

The Index consists of three components, which are the Adequacy, Sustainability and Integrity of the pension system. In the index calculation, the highest weight is given to adequacy (40%), followed by sustainability (35%) and integrity (25%).

The values for the three components of the Index for Saudi Arabia are:

Adequacy

Sustainability

Integrity

2019

2020

2019

2020

2019

2020

59.6

59.6

50.5

51.6

62.2

62.4

 

Saudi Arabia's pension system is ranked 23rd on the overall index. The system was was placed in 21st position for Adequacy; 19th for Sustainability and 29th for Integrity this year. It is graded “C” which means that the system has some good features but is also exposed to major risks and/or shortcomings that should be addressed. Without these improvements, its efficiency and/or long term sustainability can be questioned, says the report.

To improve the Saudi Arabian system, the report recommends:

  • further increasing the state pension age

  • increasing the labour force participation rate at older ages as life expectancies rise

  • improving the required level of communication to members of pension arrangements.

The Netherlands had the highest score in the Index this year, the third year in a row that it has won the distinction. Denmark came second, Israel third and Australia fourth this year.


 

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