U.S. drops one spot in global retirement rankings: Here's what that means
In benchmarking global retirement income systems, annual study from Mercer identifies shortcomings in U.S. retirement security.
The U.S. retirement system slipped in global rankings this year despite an increase in its index value. It now ranks 19th among retirement income systems, down from 18th a year ago. That’s according to the 13th annual Mercer CFA Institute Global Pension Index, which benchmarks retirement income systems around the world.
The U.S. index value increased from 60.3 in 2020 to 61.4 in 2021, primarily due to an increase in individuals’ net replacement rates, higher household savings and an increase in the value of the assets held in private pension arrangements.
But, although COVID-19-related legislation passed by Congress provided some relief to individuals and employers in 2020 and 2021, the resulting increases in government debt and retirement asset leakage caused by providing individuals access to funds before retirement were negative side effects.
These results, coupled with the projected depletion of Social Security by 2034, will have a significant impact on the ability of the U.S. pension system to adequately provide for its retirees in the future.
While the U.S. fell to 19th place, Iceland took the top spot in its debut in the index. The Netherlands and Denmark finished second and third respectively after a decade of competing for the top spot. The top three systems, all receiving an A-grade, were sustainable and well-governed, providing strong benefits to individuals.
The index is a comprehensive study of global pension systems, accounting for two-thirds of the world’s population. It benchmarks retirement income systems around the world, highlights shortcomings in each system and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits.
The study also reveals that there is much that pension systems can do to reduce the gender pension gap, an issue inherent in every system.
The United States could increase its score by raising the minimum pension for low-income pensioners, improving the vesting of benefits for all retirement plan members and maintaining the real value of retained benefits through to retirement.
Another strategy is to introduce a requirement that part of the retirement benefit must be taken as an income stream, which ultimately will reduce preretirement leakage by limiting access to funds before retirement.
“Congress has acknowledged the retirement hurdles Americans face,” said Katie Hockenmaier, U.S. defined contribution investments research director for Mercer. “In 2019, the SECURE Act was passed and focuses on expanding coverage and retirement income, which will have a particular impact on DC plans. Since its passage, there have been a number of legislative proposals from Congress commonly dubbed ‘SECURE 2.0’ that span from enhancing retirement savings through mandated auto-enrollment to providing provisions for debt management with student loan matching payments.
“It is yet to be seen if these proposals will turn into law and whether they’re enough to move the needle.”
READ MORE: