Denmark held the top spot for the third year running in Mercer's annual global retirement rankings, while the U.K. improved its score but remained in 9th place and the U.S. dropped two spots to 13th.
The Victorian Government of Australia and The Australian Centre for Financial Studies’ sixth annual Melbourne Mercer Global Pensions Index compared the public and private components of 25 of the world’s retirement systems. Each country was awarded a score out of a possible 100, based on three factors: adequacy, sustainability and integrity. Last year’s report only covered 20 countries.
The U.K.’s score improved to 67.6 in 2014, up from 65.4 in 2013, keeping it in ninth position. The report said the increase was due to several factors, “including higher contributions through the continued introduction of auto-enrollment.”
Denmark came out top with a score of 82.4, up from 80.2 last year. Part of that increase could be attributed to a higher savings rate, said the report.
Following Denmark, the top-five ranked countries are Australia, the Netherlands, Finland and Switzerland, according to the report.
The U.S. dropped to 13th place from 11th a year ago, and its score fell to 57.9 from 58.2. The report cited “a number of small changes” for the drop. The U.S. remained 11th out of the 20 countries studied last year, but was surpassed by new entrants Ireland and Finland.
In addition, the report cited changes that each of the 25 countries could make to improve their score. For the U.K., changes included raising the minimum pension for low-income pensioners and increasing the level of contributions to occupational plans.
“The U.K. has previously struggled with issues around sustainability, mainly due to the numbers of people covered by our pensions system,” said Deborah Cooper, partner at Mercer, in a statement accompanying the report. “The introduction of auto-enrolment, which is currently being phased in, has helped improve the sustainability rating in this year’s MMGPI index. This will continue to improve over the next 5 years as the level of contributions increases and auto-enrolment completes.”
However, plans by the government to scrap the requirement for U.K. DC participants to purchase an annuity could have a negative effect on next year’s score, Mercer warned.
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 the report.
