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2017 Global Retirement Study Reveals That U.S. Retirement System Is Only Average As Compared To Other Countries

For the ninth year in a row, Mercer (a global consulting firm with expertise in pensions and investments) and the Australian Centre for Financial Studies have collaborated on research studying the retirement systems of 30 countries and published their findings in the 2017 Melbourne Mercer Global Pension Index (2017 Study). The main objectives of the Study were to (i) benchmark each country's retirement system using more than 40 different factors, (ii) determine the primary shortcomings of each country's retirement system, and (iii) suggest reforms for improvement.

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Each country was ultimately given an overall index value ranging from 0-100 and a letter grade ranging from A to E based on the weighted average of three sub-indices: (i) adequacy [i.e., the benefits currently provided]; (ii) sustainability [i.e., the likelihood that the current system will be able to continue to provide those benefits]; and (iii) integrity [i.e., the overall governance and operations of the system and their affect on citizens confidence].

No country received an A [index value greater than 80] or E [index value less than 35]. However, several countries received a "B+" [index value 75-80: Denmark, Netherlands, and Australia)], while others received a "D" [index value 35-50: Indonesia, S. Africa, S. Korea, China, Mexico, India, Japan, and Argentina]. The United States received only a "C" [index value 50-60], along with France Malaysia, Poland, Brazil, Austria, and Italy. In case you are wondering, our neighbor, Canada, received a "B" [index value 65-75].

The Study notes that our U.S. retirement system is comprised of mainly Social Security retirement benefits and voluntary private-sector pension benefits, which not all employers provide. To improve our overall index score [57.8 in the 2017 Study], the Study suggests a number of reforms, including--

* increasing the minimum pension for low-income persons,

* requiring that at least part of the retirement benefits be received as an income stream (e.g., as a monthly annuity) rather than a lump sum,

* providing incentives to delay retirement and encourage working longer, and

* creating access to retirement plans on an institutional group basis for workers who do not have access to an employer-provided pension plan.

Although the overall U.S. score improved from 56.4 in 2016 to 57.8 in 2018, this was due mainly to the allowance in the Study for voluntary occupational pension plans rather than any pension reforms. Therefore, I do not expect to see a major improvement in our score or grade anytime soon. Indeed, the U.S. has been in the "C" grade range since the first Study in 2009.

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