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Christine Mahoney: What the Mercer CFA Institute Global Pension Index Says About the Health of Retirement Systems
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Mercer Senior Partner Christine Mahoney joins host Mike Wallberg, CFA, to unpack key findings from the Mercer CFA Institute Global Pension Index 2025. She explains how 52 retirement income systems are evaluated on adequacy, sustainability, and...
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A
12 trillion. That's how much private equity is projected to manage by 2029. It's a staggering number. But the real story is what's behind it. Firms expanding into infrastructure, secondaries, private credit and redefining how they build teams, structure the deals and create value. If you work in or around private equity, this is a moment to pay attention. Explore our private equity content hub for insights, research and tools to keep you sharp. Visit cfainstitute.org pe to browse the collection.
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B
Hello and welcome to the Enterprising Investor, the flagship investment podcast for CFA Institute. I'm Mike Wahlberg and I'm joined today by Chris Mahoney, a senior partner at Mercer, who is responsible for the firm's defined benefit and defined contribution pension consulting businesses. With over 30 years of experience at the firm, she's led various divisions and service offerings, including strategy, plan design, administration and investment strategies. So we're going to talk today about the 2025 Global Pension Index Report, which is produced annually and is just out now. It's a joint effort of Mercer and CFA Institute. So welcome to the show, Chris.
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A
Thanks for having me, Mike. I appreciate it.
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B
So, for those unfamiliar what exactly is the Global Pension Index Report and what are its goals?
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A
So it's actually started 17 years ago and the purpose of it is really to accumulate information about pension systems around the globe to inform pension legislation and reforms. And so the, the start of it was really to educate policymakers on what systems we have, what works, what doesn't work. And it's up to 52 countries now, which covers about 65% of the world population. And we add countries almost every year. It's as getting larger and larger over time and we basically look at the, the whole entire pension system in those countries and we give them relative rankings and ratings. And I can go into lots of details about how we do that, but we look at over 50 indicators of different systems, we rate them and then we give comparative scores for each country.
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B
So that would include national pension schemes plus whatever the sort of the industry is providing to individuals in each of those countries.
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A
Correct. So it would be public, it would be private, it could even be other assets that you might not even think of as retirement assets, like home ownership as an example. So you really look at the financial security of retirement in each of the countries across all sorts of, of different kinds of arrangements people have. And look, there are also formal arrangements and we'll take that into account. The more formal and the clearer the numbers are. It's a more objective data score. But we do take into account more subjective things as well. So it's really quite comprehensive in each country.
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B
Now, I, I don't know all of them personally, but I would guess that our listeners are generally competitive people. A lot of type A people out there. So I know there's some people that want to know they're listening, they're like, what is my I, how did my country do there? And highlights are that in general the Nordic countries did well. It's maybe not a big surprise there. Plus Singapore, new entrant this year. You mentioned that it's covering a bunch of the world. You get new, new countries every year. Singapore came in with an A rating along with Israel, Australia and well, Israel, Australia, Chile and the Nordics all had an either A or B plus in there. So good, good job for them as a Canadian here, proud Canadian recording. On Thanksgiving Monday, it's Canada had a B, US had a C plus. And at the bottom of the list, I'm sorry, Turkey, Philippines, Argentina and India all came in with a D. So if you want to see where your country landed, you can find that report on the CFA Institute and Mercer site. So go, go check that out.
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A
So maybe Mike, it's funny, it's funny that you mentioned that because I've played different roles at Mercer. Now I'm in a global role, but for a very long time I ran US based businesses and I immediately would go right to the United States. Now, now I try to have a little bit broader pers. But it is interesting how the human brain works.
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B
Yeah, yeah. You just, you want to know how you're doing? Absolutely.
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A
Yeah, for sure.
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B
So maybe Chris, could you just explain a bit. Index is kind of a broad term, so how is it constructed? And then maybe you could get in a little bit. I know there are three parts to it. I didn't read the report here, but maybe you can talk about those. Adequacy, sustainability, integrity and, and how they are sort of the foundation of the index.
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A
Sure. So we look at three core principles and as I mentioned, there are 50 different we look at, but we group them together in three topic areas. The first and perhaps the most important, and then we weight those three areas and I'll talk a little bit about what's subjective and what's objective within the report because the, the point of it is to begin a conversation and I know people are competitive, so you want it to be exact. And we do work very hard to make it as objective as possible, but the point of it is to get into the details of the system in your particular country and think about what improvements you might make. So the, the most important is adequacy. And that's to say that a retiree would have enough money to have a dignified retirement. That is the core of what a retirement system should deliver. Sustainability means that the system can actually withstand demographic and economic pressures over time. And if you think about it, the amount of demographic pressure that these systems are under in many of the OECD countries in particular, but in many of the countries. So we to whether or not over time it will be resilient in the face of those kinds of pressure. And then the last is integrity, which is to say there's a regulatory framework in each country that surrounds these programs. How stable is it and how comprehensive is it? And therefore can you rely that the system will be there for the long term? And so those are the three core things we rate each country on. And when you look at the report, you'll see we try to be very transparent. We what did, what was the rating in each of those categories? But then even if you want to dive into the details in each of the, the 50 plus areas that we look into, you can go see what was your score in a particular country. And then of course there are recommendations for each country about what they could do that would improve the scores in all three of the areas.
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B
That's interesting. So yeah, that sustainability piece is, is a bit of a tough one, right, because you're looking at the ability, you know, basically it sounds like you're sort of looking at the GDP growth trajectory for, or the ability for them to continue growing and funding these things over time. Is that so do you get higher rankings then basically for funds that are, you know, quote, fully funded? I'm thinking from a pension index or from a pension management perspective. When I, when I used to manage clients there, we would do say, liability driven investment, a process where you've kind of matching off your liabilities against the assets that you have over time. And you can kind of have if you're a little bit more refined in your approach in those cases, oftentimes you're matching up long bonds against those liabilities. But in this case, how do you do that? How do you, is it just forecasts for, you know, is it going off a demographic cliff? Is the economy likely to have some type of disruption in 10 years or 15 years? Or how does that work?
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A
So there are a few things we look at. The first is like what percentage of your population would be covered by a funded pension plan? So much like you described that you're accumulating assets against a commitment. It could be a defined benefit commitment. And then your, your liability driven investment would be an example of how you might manage the risk of that funded. But actually, just let's start with how many people are in funded arrangements. That would be something that we would look as a percentage of the country. How big are your pension assets as a percentage of gdp? So how much other resources does the country have aside from their pension system? And then exactly what you said. How fast are they getting hit with a demographic change? And you know, it's very different across the world. Which countries are aging, which countries are aging faster, whether or not it's a fertility change versus just a longevity issue, or both crashing together. And how fast are they crashing together? Do they have mandatory contributions so that there's an ongoing revenue stream that is just accumulating as opposed to relying on past or funding streams that are vulnerable in some way? The other thing is how much of your labor force participates, at what age? In other words, do they work later? Do you have the capacity to maybe take on more people working later? So we'll look at what the population statistics are about working to older ages and then we'll look at the, the real economic growth in the particular country. So sustainability is sort of a big group of things that we look at to determine whether or not. And those are mostly hard data things for stability. There are some judgment things in there, but that is largely a hard number that statistics that we look at in making that judgment.
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B
So one of the themes that you and I have both seen in our careers, the especially over the last 25 years plus is a decline certainly in Canada and the U.S. i'm actually not sure about the rest of the world is a decline in DB relative to DC private, you know, plans converting their members or closing them. Do, do countries get more credit for DB than DC in the.
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A
On this measure, they do get more credit. It depends. It depends because there's no. You could get just as high a score in a D.C. world as you get in a DB world. But one of the things we do look at is do you have a reliable income stream in retirement? So you can have a defined contribution plan that is well designed to establish an income stream in retirement, or you could have a defined contribution plan that doesn't, and so that will affect your score, but you can design a defined contribution plan. And I would point to the Netherlands and the transition the Netherlands is going through right now moving from DB to DC over time. But the DC arrangements that they will have will have the. Will have lifetime income guarantees embedded in them. And so you don't have to just design. But in Canada and in the US you could take it all as a lump sum and spend it in the first year. That's permissible. And so that's going to get you a lower score because that's not as sustainable and not as adequate either.
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B
Potentially interesting. So. So the Netherlands. Netherlands would do well for that. Their score might go up. Are there any other sort of reforms or policy trends that you've seen across countries that have helped them move their scores upward over the last 17 years? Anything that comes to mind?
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A
Governance. So having independent boards decreasing. And this was the special chapter that was in the report this year, decreasing limitations on investments that allow your investments to perform better over time or increasing so that you're protecting participants from risky asset classes that you think would not help them in retirement. So I would say that, that the combination of mandatory contributions, income in retirement and governments are the things that people have added that have really improved scores.
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B
So let's talk about that special chapter. So every year you do have a focus for it. This year you focus on government influence over private pension investments. What drove the decision to make that? Do you know, internally there.
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A
I think there are two reasons. The first is that the amount of pension assets as we've aged is just a tremendous amount. Right. Over 63 trillion in assets just in the OECD countries. So they are a big part of the investable assets that we have. And so they're attracting policy makers attention. And you've seen things in the us in the uk, but there have been others very specifically looking at whether or not we should be using those pension assets country by country to not only grow them for the retirees, but to influence other policy things, whether it's investment in infrastructure or only domestic infrastructure that you're investing in. There have been a lot of conversations in the last couple of years about directing those assets in a specific way, taking into account additional needs for a particular country beyond just the retirees needs. And I think it's important to say that's not bad necessarily. Right. Because it's important if you're a retiree to live in a country that has a strong economy. Right. Like it's. That's not an unreasonable thing to take into consideration. But we wanted to highlight that how you do it matters and. And the importance of the way that you do it.
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B
Yeah. And so depending on how big the pension is, as A percentage of the country that can actually be quite a large lever that government can pull. So before we get into the recommendations of the reporter in this special chapter, there talk a little bit about the government intervention specifically and how directly or indirectly, sometimes intentionally, sometimes unintentionally influence the investment decisions that pension portfolios can make.
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A
So I think there are lots of, of different ways you can approach it. I would say the most common is to say to have like high level rules, things like you have to invest for the best interest of the plan participants. You need to have fiduciaries running your investment decisions, just as an example. So that's like the most common type where you give concept rules. I think that governments can restrict or define how investments are made with pension assets. And then you can get very prescriptive beyond that into very detail. Some of them will be you, you can only invest in our country, period, full stop. You, the government has to approve every investment. It can go all the way to that level of, of government involvement. And then I think you see lots in between things like very specific asset allocations. You mentioned liability driven investments. There are countries that mandate you may not have more than X percent in this kind of asset and maybe it's risky assets. And then they define the risky assets. So you can get quite specific and limiting in how you legislate around investment decisions. I will say that one of the things the report found is that the lower your restrictions, the higher the returns of the system. And so I don't believe there is any country that has zero restrictions, but the lower ones are the ones that get the highest scores for sustainability.
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B
So in the report it introduces eight guiding principles to balance that fiduciary duty with the national interest. Some of them are perhaps expected ideals. So as you mentioned, like focusing on your fiduciary duty to existing members exercising robust governance, it also gets into ways in which the government can balance its own social and economic goals. So let's talk about those with, you know, these are the pensions and their members. So what did the report find in terms of that finding that balance and finding ways to achieve both the goals of the pension and, and also national imperatives.
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A
I think the first principle of retirement first is it was first for a reason. Like that's the most important thing if you are putting national interest ahead of retirement. In other words, you know, there is a direct cost to what you're doing and you're deprioritizing, accumulating that retirement income stability for the participants. That should be a red flag. If on the other hand, there are times when it's difficult. Right. For a lot of reasons, retirement systems cover a wide variety of people. More wealthy, less wealthy, young, old, right near the end of their life, just beginning. Like all of those people are covered. And so how you balance who's getting the benefit is also important. An example would be you're 25, you want a lot of risky assets, right? You've got a long retirement ahead of you and a lot of time to recover. You're 85, you don't want a lot of risky assets. So how do you make that, that balance happen is complicated. But if you're starting with, I know this hurts the retirement system, but it's better for X, that's, that's, that's not a great place to be. That would be that retirement first mindset is probably the most important. But in fairness, you want to have a robust economy for retirees too. You want to encourage working into older ages. Right. But you might do that by making it less attractive to retire early. Right. So like there are going to be times it's hard to balance and that's.
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B
Not always very politically feasible. I mean, I think about the, the protests in France a few years ago when they tried to increase the age there and that, that, that did not land very well.
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That's right. That's right. Or I'm in the U.S. you look at Social Security retirement ages, right? We increased those in the 80s, which was a long time ago and we haven't, it's difficult to do politically to do any sort of changes to those.
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Yeah, yeah, for sure. So one of the things I wanted to talk about was just this idea of public private partnerships so as a way for pensions to participate in sort of nation building. I know that, I mean, I just, I, in, I know in the US there's a lot of infrastructure building that has to happen. Canada's is no different. We're looking at doing a lot of new projects now to build out the infrastructure here and finding that capital from, from pensions can be an important source of capital for that. So how can pension funds collaborate effectively with governments to scale investments in national infrastructure while still maintaining that governance? Because it has to be a balance.
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A
And I also think that infrastructure and the bonds that governments issue in order to fund them can be very good investments for a pension trust. And actually remember the idea of liability driven investments, right? They, they can be great products in a pension fund. And so I, I think the way that you balance those and you think about how the actual Investment vehicle is structured that could be the partnership between private and public, too. And by the way, not just with pension funds, but with financial services companies that are building different kinds of products. In order to be able to invest in all of those infrastructure, you then have to go back to retirement first. It has to be a good product for the system that you're putting it in. But it just so happens that infrastructure, real estate, these are actually very good investments for retirement funds. And you've picked, you picked two countries that are aging. They're particularly good in an aging situation just because of the structure of the way those bonds tend to pay out. They fit inside plans. And if you go and look at the investment policies in an awful lot of private pension plans, you'll see they, they have some. And the only question is, can it can more be done to build more of those products with the thought in mind that it has to fit inside a pension plan or into a retirement plan and make sure that it's being governed in a way that would make you comfortable putting it inside of a pension trust.
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B
One of the things I thought was interesting is one of the eight principles that the report suggests is policy incentives, not mandates. So basically more carrot, less stick. Can you talk about how that, how that works? Like why, why does that, what, how have you found that to work better? And what do you recommend that in real life?
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A
Well, when the world is changing fast, and I know everyone wants to talk about AI these days as the indicator of the speed of change, but, but the more the world is variable and changing rapidly, it is very hard for regulatory frameworks that are very inflexible and with clear rules and with absolute behaviors that you need to do. Because as the world changes, the more experimentation you have, the more opportunity you give systems to actually run to what makes the most sense. You get better outcomes. And so that idea of encouraging doing the right thing without being very specific and saying exactly how to do the right thing will just get you a better outcome in the end. I think a good example of that is actually investment strategies. Private investments would be in defined contribution plans would be a good example of this. You can, can ban it, you can say no, but when a certain percentage of your GDP or your economy is in the private markets you've now closed off. And that happens over time, right? It, it builds, it doesn't happen on a day. And suddenly you find yourself in a situation where you're saying you can't participate in a huge chunk of the economy of a country. So, so the idea that you, you give good guidance for how to make decisions, but you don't prescribe each of the decisions very carefully. I think you get a better outcome.
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B
That's awesome because I actually wanted to talk to you about that. This movement behind democratizing access to private assets for D.C. and private clients. So from the way you describe it, you're saying you set some ground rules for it. So how do you, how do you provide. Because historically, just for context, and I'm not telling you anything you don't know here, is that these private assets were made available specifically to qualified institutional buyers, generally some high net worth or ultra high net worth, again with the bar being sophistication, understanding of the risk, specifically a liquidity risk to protect them from buying something that isn't appropriate for, for their portfolio. So how do you, how do you, how do you explain that concept? Or you, you create an environment where, you know, the average investor who has a DC plan with their employer, you know, is a shop steward on a union in a union plan that doesn't spend a lot of time looking at the financial markets and doesn't get that he might not be able to cash in, you know, redeem his, his private real estate fund in his DC plan when it comes time for retirement. Like how do you create guardrails to safely roll this to, to sort of the mass affluent?
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A
I think that you use the fiduciary concept and that retirement first that we mentioned about the principles in terms of how governments should lean into private pension plans and have a fiduciary between the decision maker and the actual investor. Right. And so I think that that will help. You mentioned that mostly it's been available to either ultra high net worth people or institutions. And if you create an institutional product that would give access, I think then you get the benefit of participating in the market without having to do on an individual basis the due diligence in each private market investment. And so you would get the advantage of a fiduciary making that decision and doing the due diligence.
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B
So the fiduciary in between is determining suitability, like providing education to them. So this, and this could be a Sun Life platform or you know, one of these bigger platforms that acts as a distributor for these DC products. So they, they would be in between and helping you understand the risks before you, before you take on inappropriate risk.
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A
That's right. And balancing like everything you said, the liquidity of the fund. Right. And because it would be generally speaking that it's a blended fund, so you would have some public market stuff in there in addition to private market and you would be able to manage the liquidity risk and the overall risk of the investment decisions that you're making and still have access to what is becoming a large part of the investment markets and allowing that participation. So once again, it has to be to the advantage of the participant. Right. And not participating in a big chunk of investable opportunities in the marketplace, that's not to the advantage of the participant. Making sure that you have a fiduciary helping you make those decisions. That's, that takes away some of the risk. That was the original limitation.
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B
Gotcha. Well, unfortunately Chris, we're coming to the end of our time here. I do have my, my usual two parter for you at the end here. And that's what's, what was your first job in the industry. And if you could go back and take yourself for coffee on your first day, what key piece of advice would you offer yourself?
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A
Oh, that's great. My first job in the industry was working as an actuary and I was at Coopers and Ly Brand in New York. It doesn't exist anymore. Now it's part of PwC and, and it was fabulous. And by the way, I wasn't a math major. I just decided that actuary sounded interesting. You know what I loved about it as a profession is the combination of detailed numbers and communication. That's sort of, I love that. The idea that you get very expert in a, in a financial concept and then you explain it to people who are smart but have never spent any time on those numbers. And so I enjoyed that combination. What would I, if I was having coffee with myself? You know, it's very funny. I had coffee with a lot of actuaries before I made this decision. You know, one thing I would, I think I would say to myself, when they tell you the defined benefit and retirement systems are going away, don't listen like, yes, they're changing for sure, massive change is going to happen over your career. But there's a little bit of Chicken Little about the collapse of systems. And you just need to make progressive improvements in systems and not think that they disappear on a day. Because I recall in the 80s we weren't going to have pensions anymore. By the time I got to the age I am now, it's just not true.
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B
Turns out be your own counsel. That's good advice.
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Yeah.
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B
I've been speaking today with Chris Mahoney, a senior partner and the Global Pensions DB and DC leader with Mercer. Again, if you'd like to read that Mercer CFA Institute Global Pension Index 2025 report. Head to the CFA and Mercer websites. And thanks so much for coming on the show today, Chris.
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A
Thank you. I really enjoyed it.
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I'm Mike Wahlberg, and this is me, the enterprising investor, Sam.