How Social Security ranks against retirement systems in other countries

Mercer and the CFA Institute have issued a report card grading retirement systems across the world.

(Photo: Iryna Volina/Adobe Stock)

In their paper, Pension Reform in Challenging Times, Mercer and the CFA Institute compared 43 government retirement systems (often call pensions outside the U.S.) and graded each country.

This year is especially important as the effects from the pandemic, the paper notes, “with reduced wage growth, historically low interest rates and reduced investment returns in many asset classes, are placing additional financial pressures on existing retirement income systems.”

Using its Mercer CFA Institute Global Pension Index, each country’s system is graded using three sub-indexes, measuring adequacy, sustainability and integrity. Mercer/CFA Institute acknowledges the various systems can be expansive and different.

David Knox, senior partner of Mercer, notes in the paper that the grade indicates:

This year’s report also takes into consideration for the first time gender differences in pension outcomes, and found that “the average female pension is lower, and in some situations, much lower than the average male pension.”

The report states that this gap can be due to three broad areas: employment, pension design and socio-cultural issues. Of 34 selected Organization for Economic Cooperation and Development countries, the most extreme gap was in Japan, followed by Mexico, Austria, the United Kingdom and Luxembourg. The United States had the seventh-largest gender gap.

The smallest gender gaps were in Estonia, Denmark, Slovak Republic, Iceland and the Czech Republic.

Grading scale

The three sub-indexes that make up the overall index cover certain areas that have different weights:

Here are the grades, index level and countries:

Grade A

Grade B+

Grade B

Grade C+

Grade C 

Grade D

Breaking it down

Averages across the index and sub-indexes were key. For example, the average of all countries in the general index was 61.0, whereas the United States received a 61.4 ranking.

A closer look shows the following:

Uruguay, which received the same grade as the United States, had a much higher Integrity ranking, 74.4, whereas its sustainability was much lower, 49.2.

Overall, it appears most countries did better in 2021 than in 2020. The United States’ score climbed to 61.4 in 2021 from 60.3 in 2020. Peru, New Zealand, South Korea, Indonesia, India and Argentina all dropped almost a point or more in total index ranking.

Recommendations

The study examines each country’s pension/Social Security issues, but overall it provides some recommendations, including: