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Netherlands, Denmark, Australia Rated World’s Top Pension Systems

Thailand, Argentina, and Turkey were ranked as having the worst pension systems in the world by Visual Capitalist.
By Michael Katz


The Netherlands, Denmark, and Australia were ranked as the top three pension systems by country, according to a report from Visual Capitalist. Meanwhile, Thailand, Argentina, and Turkey were ranked the worst.

Rounding out the top 10 systems were Finland, Sweden, Norway, Singapore, New Zealand, Canada, and Chile. The United States ranked 17th.

The report culled data from the Melbourne Mercer Global Pension Index (MMGPI) to determine which countries’ pension systems are best equipped to take care of their elderly citizens and which are the worst. And while it can be difficult to compare one country’s pension system with another, Visual Capitalist noted that there are certain universal elements that can lead to adequate and stable support for pensioners.

The universal elements are broken down into three sub-indexes: adequacy, sustainability, and integrity. Adequacy refers to the base-level of income, as well as the design of a country’s private pension system. Sustainability refers to the state pension age, the level of advanced government funding, and the level of government debt. And integrity refers to regulations and governance set in place to protect plan members. The three measures were used to rank 37 countries’ pension systems, which represent more than 63% of the world’s population.

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The report said that although it’s important to consider all three sub-indexes, sustainability is particularly significant because of the world’s aging population. It said that, because the world’s population is increasingly skewing older, there will soon be an influx of people cashing in their retirement funds.

“As a consequence, countries need to ensure their pension systems are sustainable over the long-term,” said the report, which cited several factors that affect a pension system’s sustainability, including a country’s private pension system, the state pension age, and the balance between the numbers of workers and retirees.

Based on the report’s criteria, Denmark was ranked as the country with the most sustainable pension, as it not only has a strong basic pension plan, but it also has mandatory workplace pensions, which means employers are required by law to provide pension plans for their workers.

Several countries ranked high on the adequacy part of the scoring, but ranked low in sustainability. For example, while Ireland had the highest rank for adequacy, it had a relatively low sustainability ranking. This is partially attributed to Ireland’s low level of occupational coverage and its rapidly aging population, as the country’s worker to retiree ratio is expected to fall to 2:1 from 5:1 by 2050. Likewise, Spain had a high adequacy rating but ranked very low in sustainability due to its low occupational pension participation and low fertility rate, which means its worker-to-retiree ratio is also expected to decrease.

The report provided some general recommendations from MMGPI on how countries can improve their pension systems. These include increasing the retirement age to help balance the worker-to-retiree ratio; enforcing mandatory occupational plans; limiting access to benefits by prohibiting people from dipping into their savings pre-emptively, and establishing strong pension assets to fund future liabilities.

“Pension systems across the globe are under an increasing amount of pressure,” the report stated. “It’s time for countries to take a hard look at their pension systems to make sure they’re ready to support their aging population.”

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Home > News > Asset Allocation > Study: Endowments Have Underperformed Passive Portfolios for 58 Years
Asset Allocation

Study: Endowments Have Underperformed Passive Portfolios for 58 Years

New research finds a 60/40 passive benchmark has outperformed the average endowment over nearly six decades.
By Michael Katz


The average university endowment has underperformed a simple 60/40 stock/bond portfolio over the past nearly six decades, according to a new report from registered investment adviser (RIA) Veriti Management.

The research covers a 58-fiscal-year period ending June 2019, and uses the compendium of annual endowment data extending back to July 1961 from the National Association of College and University Business Officers (NACUBO).

The report said that, over the period, a traditional 60/40 US stock/bond mix portfolio outperformed the average endowment by 1% annually, which it said is approximately the same as the difference between the costs of active and passive investing strategies. And, in addition to underperforming a 60-40 portfolio, the average endowment also underperformed its annual return need and its typical long-term return objective.

“The fact that the average endowment has failed to meet both its internal goals and the traditional 60/40 external benchmark in so many extended periods—both recently and over the long-term—should be a serious cause for concern for most trustees and their stakeholders,” Dennis Hammond, author of the report and Veriti Management’s head of institutional investments, said in a statement.

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Hammond also said that rising pressures on budgets, increasingly low bond yields, and historically high equity valuations over the past decade have led many endowments to seek out higher returns with increased exposures to alternative investments such as private equity, private real estate, and hedge funds.

“Rather than shifting allocations to sometimes riskier, and more expensive alternative investments, the average endowment, and especially the smaller endowments, would have significantly improved performance and been better served by simply replicating passive benchmarks,” Hammond said.

As of the end of fiscal 2019, 774 reporting endowments held more than $600 billion of assets, according to the report. The average endowment asset size was approximately $800 million, although the median asset size was only $144 million.

Over the 58-year period, the average endowment return had compounded 2.1% below its long-term return objective, and, over the most recent 46-year period, endowments underperformed the long-term return objective by 0.7% annually.

The report also found that over the 10-year period spanning from fiscal years 2009 to 2018, the average endowment did not earn its long-term return objective once. And, during the same 10-year period, the long-term annual return objective for the average endowment was reduced to 7.1% from 10%.

The only time the average endowment outperformed a 60/40 mix was during the trailing 20-year period, in which it outperformed by 50 basis points (bps) annualized on a gross basis. Meanwhile, the average endowment return underperformed the 60/40 benchmark in each of the last 58-, 50-, 40-, 30-, and 10-year periods.

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