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New study gives the US a C+ for how it handles retirement

Countries like the Netherlands, Iceland and Denmark received an A for the way they handle retirement for their citizens.
Senior couple looking at their bills with worried expressions
Posted at 5:21 PM, Oct 18, 2023

The U.S. retirement system is not great. That’s according to the new Mercer CFA Institute Global Pension Index released Tuesday. 

The study gave the U.S. a C+ rating for its approach to retirement, putting it on par with other nations like Croatia, Colombia, Kazakhstan and France. Countries like the Netherlands, Iceland and Denmark received an A for the way they handle retirement for their citizens. 

Mercer’s study compared the retirement income systems of 47 nations on adequacy, sustainability and integrity. The U.S. ranked 22 out of the 47. 

The C+ grading ultimately means the system has some good features but also has major risks and shortcomings that should be addressed, Mercer explained. 

The U.S. retirement income system combines social security with a progressive benefit formula based on lifetime earnings.

Mercer said the U.S. can improve its system with several solutions: 

- Raising the minimum pension for low-income pensioners

- Improving the vesting of benefits for all plan members and maintaining the real value of retained benefits through to retirement

- Reducing pre-retirement leakage by further limiting access to funds before retirement

- Introducing a requirement that part of the retirement benefit be taken as an income stream

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Mercer said retirement income systems around the world are under pressure like never before. 

“Mounting inflation and rising interest rates have created a new market dynamic that poses significant challenges to pension plans,” said CFA Institute CEO and President Margaret Franklin. “More and more often, it is becoming evident that individuals will have an increasingly important role to play regarding their own retirement.”

Mercer said with the added uncertainties and long-term challenges, comparing different systems from around the world can be invaluable for policymakers and governments. 

This year’s report from Mercer also addresses the emergence of artificial intelligence and its impact on pension systems.