U.S. Retains ‘C’ Ranking in Global Retirement Index

The United States maintained an overall grade of ‘C’ in a global study of retirement systems around the world, but there were some overall improvements in the score.

Now in its 10^th year, the Melbourne Mercer Global Pension Index (MMGPI) examines the retirement income systems in 34 countries, confirming that there is a wide range of diversity between the systems. Based on a score from zero to 100, the Netherlands and Denmark received top rankings with scores of 80.3 and 80.2, respectively, while Argentina and India came in at the bottom end with scores of 39.2 and 44.6. The overall average score for all the systems measured inched up to 60.5 from 59.9.

The U.S. index value increased from 57.8 in 2017 to 58.8 in 2018 due to a number of small changes in the adequacy sub-index. As a so-called ‘C’ grade, the report submits that the U.S. system has some good features, but says it also has major risks or shortcomings that should be addressed, and without improvements, its long-term sustainability can be questioned.

Nevertheless, a recent State Street Global Advisors report notes that, just because some countries consistently receive high rankings for their retirement systems, it does not mean they also have the happiest participants. 

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 addition to adequacy and sustainability, an emerging dimension to the debate about what constitutes a world class system is “coverage” and the proportion of the adult population participating in the system, the report explains.

“In some countries, broad coverage has been successfully accomplished through compulsory workplace pension systems or, in some cases, auto-enrolment arrangements,” explains Dr. David Knox, Senior Partner at Mercer Australia and author of the study. “However, with changes in the way people are working around the world, we need to ensure these schemes include everyone so that the whole workforce is saving for the future. This includes contractors, self-employed, and anyone on any income support, be that parental leave, disability income or unemployed benefits.”

The study suggests that the overall index value for the American system 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.