U.S. Receives ‘C’ Grade in Global Retirement Study

In a new global study of retirement systems around the world, the U.S. received an overall grade of ‘C,’ meaning the country’s system has some good features, but also has major risks and/or shortcomings that should be addressed, according to the classification.

The 2017 Melbourne Mercer Global Pension Index (MMGPI) published by the Australian Centre for Financial Studies examines the retirement income systems in 30 countries, confirming that there is “great diversity” between the systems, with Argentina at the bottom end of the scoring to Denmark receiving the top ranking.

While no country received an ‘A’ ranking, the Netherlands and Australia joined Denmark with a ‘B+’ ranking, meaning the countries’ systems were found to have sound structures, with many good features, but some areas for improvement. Meanwhile, France, Malaysia, Poland, Brazil, Austria and Italy joined the U.S. with ‘C’ rankings.

The MMGPI uses three sub-indices – adequacy, sustainability and integrity – to measure each country’s retirement income system against more than 40 indicators, with the primary objective to benchmark each country’s retirement income system. The authors note that the comparisons may be controversial as each system has evolved from that country’s particular economic, social, cultural, political and historical circumstances, but the analysis looks to certain features and characteristics across the range of systems that can lead to improved outcomes.

In looking at the so-called three-legged stool of the U.S. system, the report suggests that the overall index value for the U.S. could be increased by:

  • raising the minimum pension for low-income pensioners;
  • adjusting the level of mandatory contributions to increase the net replacement for median-income earners;
  • improving the vesting of benefits for all plan members and maintaining the real value of retained benefits through to retirement;
  • reducing pre-retirement leakage by further limiting the access to funds before retirement;
  • introducing a requirement that part of the retirement benefit must be taken as an income stream;
  • increasing the funding level of the social security program;
  • raising the state pension age and the minimum access age to receive benefits from private pension plans;
  • providing incentives to delay retirement and increase labor force participation at older ages; and
  • providing access to retirement plans on an institutional group basis for workers who don’t have access to an employer-sponsored plan.

Based on the historical data in the report, it appears the U.S. has hovered in the ‘C’ range since the report’s inception in 2009.

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