That overtly obvious statement comes courtesy of Arthur Noonan, a senior consultant and actuary in Mercer’s retirement, risk and finance business, in reference to new Mercer data that show the U.S. retirement income system ranks sixth among 11 countries in a global pension index comparing private and public pension systems based on adequacy, sustainability and integrity.

The index, produced by Mercer and funded by the Victorian State Government of Australia, represents the first time that the world’s retirement income systems have been compared and ranked on a basis that considers a retirement income system in its entirety. 

“Clearly, U.S. policymakers and the private sector are grappling with the challenge of balancing the adequacy of benefits with the sustainability of public and private pension plans a matter of special concern during a difficult global financial and economic environment,” says Noonan. “Thus, even though the sustainability of U.S. pension plans is greater than in countries with a more rapidly aging population or more generous benefits, the funded status of defined benefit plans remains a concern.”
 
A concern, indeed. The United States ranked ninth in the adequacy of benefits, or how much income is available to a retiree. Among the factors making up the index, this is given the greatest weight. The U.S. scored 49.2, compared with lowest-ranking Japan’s score of 39.2. The Netherlands (80.5) and Canada (76.2) scored highest in this index because of the level of minimum public pension and a relatively high net replacement rate of income for median income earners.

The overall index value for the US 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.
* Introducing a minimum access age so that it is clear that benefits are preserved for retirement purposes.
* Introducing a requirement that part of the retirement benefit must be taken as an income stream.

The States ranked higher in the category of sustainability of its retirement system, with a score of 69.4, placing it third among the 11 countries in the index. Only Sweden, with a score of 75.2 and Australia with 71.0, ranked higher. In measuring sustainability, the index considers such factors as the demographics of the population (ratio of productive workers to retirees), the funding status of pension plans relative to pension liabilities and level of government debt.

The index also measured the integrity of private pension provisions, key to maintaining a community’s confidence in the system. Based on an assessment of prudential regulation, governance, risk protection and communication, the highest-rated countries for the integrity sub-index were the Netherlands (88.2), Australia (87.8) and the UK (86.3). The United States ranked seventh (63.4).

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