According to the Mercer and CFA Institute Global Pension Index, Peru significantly reduced its rating in the financial sustainability subindex due to the continued withdrawals of AFP funds approved by Congress.
According to the 16th Mercer and CFA Institute Global Pension Index, the Netherlands' retirement income system maintained its top spot on the list, with Iceland and Denmark in second and third place, respectively. In Latin America, Mexico's significant improvement stemming from its pension reform stands out, as does Chile, which has improved its replacement rates; and Uruguay, which remains unchanged as the second best system in Latin America.
The other side of the coin is Argentina and Peru, the two Latin American countries with the worst pension systems. Although Peru recently approved the pension reform, under Law 32123, this reform was not evaluated by Mercer's Global Pension Index, and for this reason, the rating of the most recent edition of the index focused on the evaluation of the pension system prior to the reform.
According to the analysis, Peru is at the bottom of the table with a C rating, which places it in 37th position, slightly ahead of countries such as Turkey, Indonesia and Argentina. The Andean country significantly reduced its rating in the financial sustainability subindex from 50.4 to 46.9 due to demographic changes in Peru and the continued withdrawals of AFP funds approved by Congress.
In this regard, David Cuervo, Managing Director of Mercer in Peru, says that “by reducing the withdrawal options that had turned the Private System into a short-term savings system rather than a true pension system, Peru is able to have a more promising future in these aspects.”
Among the other Latin American countries, Chile, Colombia and Argentina improved their scores compared to the 2023 survey, while Uruguay and Brazil kept their scores essentially stable in a challenging environment. Uruguay led the region – and ranked in the top 3 globally – for its adequacy score of 84.0, while Chile led in sustainability (70.9) and integrity (86.5).
In Latin America, the sustainability sub-index represents the greatest opportunity for improvement for most systems. “Globally, pensions that score highest in this area are demonstrating several key elements,” said David Knox, lead author of the report and Senior Partner at Mercer. “They have a high percentage of the working-age population covered by the pension system; they have a significant pool of assets to fund future liabilities; and their labor force participation rates remain high even for people approaching retirement age (such as those between 55-64 years old). Policymakers who want to have a significant impact on the sustainability of their organization should focus on these areas.”
