US Retirement System Ranking Falls to 10th in Global Pension Index

The United States ranking fell to 10th in the world’s best retirement savings and income system while Netherlands ranked the best for the second year running according to the Melbourne Mercer Global Pension Index 2010.

Produced by Mercer and the Australian Centre for Financial Studies, the second Melbourne Mercer Global Pension Index is based on more than 40 indicators which reflect features that are desirable in all retirement savings and income systems.  These indicators are grouped into three sub-indices: adequacy, sustainability and integrity.

This year the index was expanded to cover 14 countries, with the addition of Brazil, France and Switzerland, making it the only study in the world that compares and ranks these retirement income systems in their entirety, covering the public and private components of the system as well as savings outside of the pension system.

Netherlands obtained top ranking with a score of 78.3 out of a maximum of 100, followed by newcomer Switzerland (75.3) in second place; Sweden (74.5), which maintained third position; and Australia (72.9) which fell from second to fourth position, due to the inclusion of new countries and a decline in its score.

The remaining country to obtain a B-grade classification was Canada, ranking fifth with a score of 69.9. Canada also fell in the rankings due to a decline in its asset values as a result of the global financial crisis.

The United states received a C-Classification, which means the system has some good features, but also has major risks and/or shortcomings that should be addressed. Without these improvements, its efficacy and/or long-term sustainability can be questioned.

Dr David Knox, a Senior Partner in Mercer’s Retirement, Risk and Finance business, who oversaw the study, said the changes in this year’s index were characterized by global trends and events such as the impact of the global financial crisis and increasing life expectancy.

“Not surprisingly, the global financial crisis has threatened the sustainability of public and private pension systems in several countries through the decline in asset values and an increase in government debt. This was reflected most acutely in the scores for Canada, the United Kingdom and the United States.

“Increased life expectancy is a theme that is common to all of the countries in the index. As the gap between pension age and life expectancy widens, pressure on public pension systems is increasing. This highlights the need for governments to continue to review their state pension or retirement age and focus on increasing the adequacy of the private system.”

Professor Deborah Ralston, Director of the Australian Centre for Financial Studies said the Index had already demonstrated its value to government, industry and academia.

“The Melbourne Mercer Global Pension Index has already made a meaningful contribution to the debate on how to best provide for the ageing population and the need to achieve a balance between adequacy and the cost of retirement income systems. With this second edition, the 2010 Index will offer even greater insight into this complex discussion, with the inclusion of new countries and broader terms of reference.”

To view the rankings, see here.

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