The best — and worst — countries for pensions and retirement in Europe

Moving to another country to eventually retire requires a lot of careful research and planning, taking into account social security, health care, and finances.

U.S. consultancy Mercer issues a closely-watched annual report that analyzes 47 different retirement income systems around the world — with European nations often coming out on top.

In fact, three countries have dominated the Mercer CFA Institute’s global index since 2021. Namely, Iceland (a 84.6 average), the Netherlands (a 84.4 average) and Denmark (a 81.8 average) have been considered to have the best pension systems over these past three years.

“All three have large industry funds with defined contributions from workers and employers. They have mandatory or quasi-mandatory schemes. These countries benefit from good economies of scale versus more fragmented markets like the U.K. for occupational pensions,” Eimear Walsh, Mercer’s head of investments and wealth, told CNBC.

The Netherlands got the highest overall index value (85.0) this year thanks to good benefits, a strong asset base and sound regulation, while popular European destinations such as Spain, Italy and Croatia have faced some shortcomings.  

The Mercer index is made up of three sub-categories where it rates a pension system: adequacy, sustainability and integrity.

A key aim of any pension system should be to provide adequate income for retired people, essentially a safety net. The ability of governments to create incentives for average-income earners to save for retirement plays an important role for the health of any system.

The design of the payment plan is also key, according to Mercer’s ranking, and whether workers can continue to accrue benefits when they are temporarily out of the workforce, for childcare or illness.

Portugal took the top spot on this metric with a score of 86.7 in Mercer’s latest report, due to its earnings-based public pension system. Netherlands was a close second, with a score of 85.6. Both systems have a minimum pension rate, creating a net for even the lowest-income groups. The lowest rating in Europe was Poland which came 31^st globally with a 59.8 score.

Portugal was also named the best European country for retirement by Moving to Spain, a relocation company. In a June report, it ranked European countries on several factors like visas, beaches, safety and home prices.

Another list from wealth management firm Blacktower, released back in 2021, ranks a much higher number of European nations and placed Belarus last using several key factors.

Funded pension plans provided by the private sector also play an important role in the stability of a country’s retirement system. The Mercer index looks at whether private pension plans in countries generate enough value for members and if there’s enough confidence in the public for these programs.

Finland had the best score on integrity with a 90.9 rate in 2023. Belgium came in second with an 88.2 score and Netherlands ranked in third place with a score of 87.7. France was the worst performer in Europe, with a score of 54.4. Notably, the U.S. is also placed well below the global average with 59.5 points in this category.

Finland is also classed as a “happy place” to retire by a Natixis Index. Despite not making it into Natixis’ top 10 in overall scores, Finland has led the investment bank’s “quality of life” category for five consecutive year. A high happiness score, high air quality, water and sanitation, and biodiversity are the main drivers of Finland’s number one position, it said.

Norway was the top performer in the Natixis index for 2023, retaining its place from last year and boasting an overall score of 83%. Switzerland ranks second in the overall index and tops the “finances in retirement category.”

Mercer believes the economic growth of a country in the long term also plays a crucial role, as this directly affects the number of people in the workforce and the amount of money saved for retirement. Additionally, the amount of debt a country has and the amount of public money it spends on pensions, affect the sustainability of its retirement system.

Based on these factors, Iceland has the most sustainable system in Europe with a rating of 83.8. Denmark and Netherlands come right after, with 82.5 and 82.4 respectively. Italy has the lowest score in Europe with 23.7, followed by Spain with a score of 28.5.

However, Mercer’s Walsh noted that there are some soft factors that the index doesn’t take into account which could still make countries like Italy and Spain popular retirement destinations for many people.

“We focus a lot on the pensions system but that’s not the only thing to consider. It’s an important balance. A lot of it also depends on the tax system, the climate and culture of the country, and whether people can actually be happy there,” she said.