Stock Money exchange dirhams currency
UAE's pension regime has undergone multiple reforms in the recent past, which has helped with finding a place in the global rankings. Image Credit: Virendra Saklani/Gulf News

Dubai: The UAE has found a place in a closely tracked index that measures the adequacy and integrity of global pension systems. The country’s retirement income system ranked 22nd among countries with long-standing pension systems such as the US, France and Spain.

Globally, Iceland’s was ranked number one followed by the Netherlands, and Thailand’s ranked last, according to the Mercer CFA Institute Global Pension Index (MCGPI), which benchmarks retirement income systems and highlights shortcomings, if any, in each. The findings also suggest areas of reform that would provide more adequate and sustainable retirement benefits.

The UAE system scored among global peers across three key areas of focus: adequacy, sustainability and integrity. “The UAE has a robust pension system in place for Emiratis,” said Hazem Abdel-Rahman, Mercer’s Retirement Business Leader for the Middle East. “As life expectancy continues to rise, the UAE may benefit from increasing the retirement age; this is a step many countries have already taken to ensure the ability to provide for aging and future generations.”

Pensions of Emiratis are governed by different agencies such as the Abu Dhabi Pension Fund (ADPF), Sharjah Social Security Fund (SSSF) and the General Pensions and Social Security Authority (GPSSA). UAE’s pension adequacy rankings are supported by retirement benefits that ensure a continued income to sustain a good quality of life with a suitable minimum pension relative to earnings, said the report.

The UAE also scored well in terms of sustainability given its high labor force participation rate, especially for individuals over 55. The report found that UAE’s retirement income system enacts a “sound structure” to develop a funded pension system for Emiratis with both the public and private sector setting aside mandatory contributions during an employee’s tenure.

“Moreover, the robust governance structure around the national pension system in the UAE afforded it a strong ranking in terms of integrity,” it added.

Numbers tell the story

The UAE had an overall index score of 59.6. The Index used a weighted average of the sub-indices of adequacy, sustainability and integrity, and the country demonstrated positive results across all. The country scored 59.7 in adequacy, due to the generous retirement benefits with suitable minimum pensions relative to earnings. Driven by the labor force participation rate, especially for individuals over the age of 55, the country scored 50.2 in sustainability.

The score in this sub-index was bolstered by the sound structure of a funded pension system with mandatory contributions set aside for retirement benefits.

The country scored the highest, 72.6, in integrity, owing to the strong governance structure around the pension system.