US Retirement System Slips in Global Ranking, According to Mercer CFA Institute Global Pension Index

• Mercer CFA Institute Global Pension Index sees new entrant Iceland top the list
• Index compares 43 retirement income systems, covering two-thirds of world’s population
• US increases index value score, but slips in ranking from 18^th to 19^th place
• Causes of gender pension gap mixed, with all systems carrying weaknesses

Iceland’s retirement income system has been named the world’s best in its debut in the 13^th annual Mercer CFA Institute Global Pension Index (MCGPI). The Netherlands and Denmark have taken second and third places respectively in the rankings, after a decade of competing for the top spot. 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 causes of the gender gap in US retirement savings vary, but this year’s Global Pension Index found that retirement system design flaws were aggravating the issue”

The US index value increased from 60.3 in 2020 to 61.4 in 2021, primarily due to an increase in individual’s net replacement rates, higher household savings, and an increase in the value of the assets held in private pension arrangements. While 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 for the US pension system to adequately provide for its retirees in the future.

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The MCGPI is a comprehensive study of global pension systems, accounting for two-thirds (65 per cent) of the world’s population. It benchmarks retirement income systems around the world highlighting some shortcomings in each system and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits. The top three systems, all receiving an A-grade, were sustainable and well-governed systems, providing strong benefits to individuals.

President and CEO at CFA Institute, Margaret Franklin, CFA, said it was more important than ever to understand how retirement benefits could be improved.

“The pandemic has exacerbated socio-economic inequality in many parts of the world. And, from a long-term investment perspective, we’re operating in an extremely challenging environment with historically low interest rates and, in some cases, negative yields clearly impacting returns,” Franklin said.

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“Compounding the issue, the gender pension gap presents additional and urgent challenges, with women facing their retirement years with fewer benefits. With these concerns in mind, the promise of a secure retirement depends on policymakers and industry stakeholders taking collective action to examine the strengths and weaknesses of pension systems, with the purpose of delivering better retirement benefits to every individual,” she said.

Katie Hockenmaier, US Defined Contribution (DC) Investments Research Director, Mercer, added, “From a US perspective, Congress has acknowledged the retirement hurdles Americans face. In 2019, the Setting Every Community Up for Retirement Enhancement Act (SECURE) 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.”

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