If national pension programs were like high school students, the U.S. retirement system would be that kid with a whole lot of potential, spaced out in the back of the class.
The 2014 Melbourne Mercer Global Pensions Index, which compares and ranks the public and private pension components of 25 nations, gives the U.S. just an average grade and a global ranking of 13 on the list of 25.
As an average student (five other countries' systems received a C grade, including France and Brazil), the survey's authors classify the U.S. pension system as having "some good features, but also major risks and shortcomings that should be addressed."
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Without addressing its systemic inadequacies, the study said that the long-term sustainability of the U.S. retirement system "can be questioned."
The overall index of ranking is a composite of three sub-indices: adequacy, sustainability and integrity.
In the adequacy sub-index, the U.S. ranked 19th of 25, spurring Emily Eaton, a consultant with Mercer's International Consulting Group and contributor to the study, to conclude the obvious: "adequacy remains a major concern in the U.S. system."
In order to gauge a system's adequacy, researchers consider the base level of income provided as well as the net replacement rate for median-income workers only, according to the report.
The U.S. also ranked 19th—well below average–on the integrity sub-index, which gauges the role of regulation, the protection provided to participants from risks to the system, and the quality of communication to participants.
The study notes that the U.S.'s overall score in 2014 dropped slightly from 2013, and suggests improvements in several areas, including raising Social Security payments for low-income earners, raising mandatory contributions to private plans, addressing plan leakage, and requiring that at least some portion of retirement savings be annuitized to guarantee income into retirement.
Demark, the top-rated country and the only one to score an A, improved its rating in all three sub-indices, largely from improved savings rates. Denmark's population is about 5.5 million, roughly that of Minnesota's.
Australia improved its overall rating to a B+ after the government passed an increase in minimum contribution rates to defined contribution plans from 9 percent to 12 percent annually.
The U.K. improved its overall score and moved up to 9th place on the heels of mandatory auto-enrollment for employers, with minimum contribution rates of 8 percent for participants starting in 2016.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
