When “C” Does Not Equal “Cool”
There’s light at the other end of this tunnel. Photo credit: Christian Lambert, October 2023
We’re a fan of good news around here. We love celebrating! But when Mercer gives the US retirement savings system a “C” on the global scale we have to admit we feel a bit meh.
It’s one thing to be beaten by the Netherlands and Australia. Things start to hurt a bit when you’re beaten out of the top 20 by Canada … and even Kazakhstan.
So, what have the Kazakhs and the Canucks got right that we don’t? Let’s take a closer look.
We’ll begin with a quick note on methodology. The Mercer CFA Institute Global Pension Index 2023 report currently evaluates 47 country-level retirement income regimes across three dimensions: adequacy, sustainability, and integrity. With a quick nod to the fact that there is no one perfect system, the report highlights features that are likely to lead to better financial outcomes overall.
Top systems in the Index often incorporate elements of all the pillars available, including:
A public pension element (think Social Security),
Mandatory occupational private pension schemes with contributions from both employers and employees (Denmark, Australia, Belgium, and a host of others), and
Voluntary personal pensions (Iceland, our friends in Kazakhstan, and many others)
And they have high levels of system integrity (Canada, Finland, the UK)
Lower ranked systems in the Index often rely on only one or two pillars. They often have sustainability issues driven by lower levels of coverage and participation. In some cases they are also receiving lower than average system integrity scores.
And those of us in the middle? We could do better.
Mercer’s report captures seven ways countries can improve their outcomes. We’ll share two of our favorites, and we quote:
Increasing coverage of employees (including nonstandard workers) and the self-employed in the private pension system, recognizing that many individuals will not save for the future without an element of compulsion or automatic enrollment
Introducing measures to reduce the gender pension gap and gaps that exist for minority groups in many retirement income systems
Our thanks to Dr. David Knox, lead author and senior partner with Mercer, and to Marg Franklin and the CFA Institute, and to their team members, for this important work.
This piece was also featured in the October 19, 2023, edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.
