U.S. Ranked in the Middle of Global Pension Index

October 15, 2009 (PLANSPONSOR.com) - The U.S. retirement income system ranks sixth in what Mercer says is the world's first global pension index that compares private and public pension systems of 11 countries across five continents.

The Melbourne Mercer Global Pension Index ranks the retirement income systems of these countries based upon adequacy, sustainability and integrity. According to a Mercer press release, the index, produced by Mercer and funded by the Victorian State Government of Australia, represents the first time that the world’s retirement income systems – some of which are held up as best practice – have been compared and ranked on a basis that considers a retirement income system in its entirety.

The U.S. ranked ninth in the adequacy of benefits – or how much income is available to a retiree – which is given the greatest weight among the factors making up the index. The U.S. score of 49.2 in this sub-index compared with Japan’s score of 39.2, at the bottom of the ranking. The Netherlands (80.5) and Canada (76.2) scored highest in this sub-index because of the level of minimum public pension and a relatively high net replacement rate of income for median income earners, the press release said.

The U.S. ranked higher in the category of sustainability of its retirement system, with a score of 69.4, placing it third among the 11 countries in the Index. Sweden, with a score of 75.2, and Australia, with 71.0, ranked higher. In measuring sustainability, the index considers such factors as the demographics of the population (ratio of productive workers to retirees), the funding status of pension plans relative to pension liabilities, and level of government debt.

The Melbourne Mercer Global Pension Index also took into consideration the integrity of private pension provisions – important in maintaining the community’s confidence in the system. Based on an assessment of four key areas – prudential regulation, governance, risk protection, and communication – the highest-rated countries for the integrity sub-index were the Netherlands (88.2), Australia (87.8) and the UK (86.3). The U.S. ranked seventh with a score of 63.4.

Mercer said the overall index value for the U.S. pension system could be increased by:

  • raising the minimum pension for low-income pensioners;
  • adjusting the level of mandatory contributions to increase the net replacement for median-income earners;
  • introducing a minimum access age so that it is clear that benefits are preserved for retirement purposes; and
  • introducing a requirement that part of the retirement benefit must be taken as an income stream.

No country in the Melbourne Mercer Global Pension Index was classed as having an A-grade system (obtaining a score greater than 80), which Mercer said indicated even the world's most advanced pension and superannuation models still need refinement to ensure they are robust enough to support the world's rapidly ageing population.

"The fact that no country achieved an A-grade classification confirms that no one system is perfect or currently robust enough to withstand the challenges presented by an ageing population," David Knox, worldwide partner in Mercer's retirement, risk and finance consulting business, who oversaw the study, said in a press release.

The countries with the lowest-ranking retirement income systems were Japan (with a score of 41.5), China (48.0) and Germany (48.2). The lowest grade-E category corresponds to a score below 35.

Melbourne Mercer Global Pension Index 2009

The following table shows the overall index value for each country, together with the index value for each of the three sub-indices; namely adequacy, sustainability and integrity. Each index value represents a score between 0 and 100.


align="center"> Overall

align="center"> index value

align="center"> Sub-index values

align="center"> Adequacy

align="center"> Sustainability

align="center"> Integrity

align="center"> 40%

align="center"> 35%

align="center"> 25%


align="center"> 76.1

align="center"> 80.5

align="center"> 62.5

align="center"> 88.2


align="center"> 74.0

align="center"> 68.1

align="center"> 71.0

align="center"> 87.8


align="center"> 73.5

align="center"> 68.5

align="center"> 75.2

align="center"> 79.1


align="center"> 73.2

align="center"> 76.2

align="center"> 64.2

align="center"> 80.9


align="center"> 63.9

align="center"> 56.6

align="center"> 56.4

align="center"> 86.3


align="center"> 59.8

align="center"> 49.2

align="center"> 69.4

align="center"> 63.4


align="center"> 59.6

align="center"> 48.9

align="center"> 54.1

align="center"> 84.5


align="center"> 57.0

align="center"> 51.7

align="center"> 68.9

align="center"> 49.1


align="center"> 48.2

align="center"> 60.8

align="center"> 44.3

align="center"> 33.7


align="center"> 48.0

align="center"> 64.7

align="center"> 38.5

align="center"> 34.7


align="center"> 41.5

align="center"> 39.2

align="center"> 34.4

align="center"> 55.2


align="center"> 61.4

align="center"> 60.4

align="center"> 58.1

align="center"> 67.5