The United States retirement system earned a grade of “C+” in a ranking of 47 countries, coming in at No. 22, according to the Mercer/CFA Institute Global Pension Index results released on Tuesday.
The U.S. ranking was highlighted in a story published by the Wall Street Journal, saying that the predominant methods of funding retirement in the U.S. — through individual retirement accounts, 401Ks and Social Security — has major shortcomings particularly when it comes to long-term solvency.
“In the U.S., there’s good coverage of white-collar workers through employer systems,” said David Knox, senior partner at Mercer and a lead author of the report to WSJ. “But what about the gig workers? What about the blue-collar workers?”
While also true of many other countries in the rankings, in the U.S. retirement saving now has a greater reliance on the individual, with less external support coming from entities like the employer or the government, the report explained.
“Employers in the U.S. aren’t required to provide retirement plans to all workers. Automatic enrollment in 401K plans has helped improve participation and boosted total retirement savings,” the WSJ report reads. “But many Americans don’t have access to a 401K or choose not to put money into individual retirement accounts on their own.”
Americans also have the option to withdraw their retirement savings before completing their careers, which could create problems for their retirement security, the report explained.
The leader of the index this year is the Netherlands, where all workers have public and private pension accounts.
There is “a semi-mandatory requirement for employers to provide all workers with a pension,” the report reads. “Additionally, individuals can contribute to their eventual retirement income with their own investments.”
Broadly speaking, the U.S. falls into a roughly middle position on the full ranking.
“Argentina ranked last out of the 47 countries in the index, due to its limited public pension system and voluntary employer-based plans,” the report said.
Other countries ranking lower than the U.S. on the list include the United Arab Emirates, Colombia and France.
The report also makes recommendations on ways the U.S. system can be improved, including by “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.”
The report also recommended “reducing pre-retirement leakage by further limiting access to funds before retirement;” and “introducing a requirement that part of the retirement benefit be taken as an income stream.”