The U.S. pension system slipped to 11th place in Mercer's annual global retirement rankings, which rates 20 countries with major retirement systems.
This is the first time America's pension system did not rank among the top 10 in the five years that the Melbourne Mercer Global Pension Index has been evaluating pension systems. In 2012, the U.S. system ranked ninth.
“We took the biggest hit in our adequacy metric,” said Scott Pollack, a principal and consultant in Mercer's retirement, risk and finance business. According to the Organization for Economic Co-operation and Development, America's “net replacement rate continues to decline, which negatively impacts our score,” Mr. Pollack said.
Mercer rates nations on 40 indicators that measure their pension system's adequacy, sustainability and integrity.
The U.S. scored 58.2 in 2013 — down slightly from 59 the previous year — which falls under the category of “a system that has some good features, but also has major risks and/or shortcomings,” according to Mercer.
“The secondary driver (of America's declining score) would be inactivity by the U.S. government compared to other countries in the index who have made proactive changes to their retirement program, which has improved their scores,” Mr. Pollack said.
Denmark's pension system once again ranked the highest with 80.2 in 2013, down from 82.9 the previous year. Countries that score above 80 points are considered to have “a first-class and robust retirement system that delivers good benefits and has a high level of integrity,” according to the Mercer report.
Netherlands and Australia had the next-best retirement systems, earning 78.3 and 77.8 points, respectively. In 2012, Netherlands scored 78.8 and Australia scored 75.7.
“The countries ranking above us are doing so because they have a more sustainable approach to how they deliver retirement benefits,” Mr. Pollack said. “They also are providing better communication to participants and have a more informed population.”
America's ranking can be improved by raising the minimum pension for low-income retirees, adjusting the level of mandatory contributions, limiting access to funds prior to retirement, and improving the vesting benefits for all plan members, according to Mr. Pollack.
The Melbourne Mercer Global Pension Index is produced by Mercer for the Australian Centre for Financial Studies, a non-profit research consortium of several academic institutions.