U.S. Gets C+ For Retirement System: Why It's Time For Major Reform, According To Global Pension Experts

The U.S. retirement system recently received a C+ grade in the 2024 Mercer CFA Institute Global Pension Index – the second year in a row it has earned this score. The index ranks the U.S. 29th out of 46 countries. 

The index describes the retirement systems that receive this score as systems that have "some good features but also have major risks and/or shortcomings that should be addressed; without these improvements, their efficacy and/or long-term sustainability can be questioned."

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By comparison, the Netherlands, Iceland and Denmark dominate the top spots, with systems that receive constant praise for their adequacy, sustainability and integrity. Mercer describes these countries as having "first-class and robust retirement income systems."

Why Is the U.S. Falling Behind? 

The U.S. scored 60.4 (out of 100), broken down into three key areas: 

1. Adequacy (scored 63.9): This measures the system’s benefits and the likelihood that retirees will receive enough income. 
2. Sustainability (scored 58.4): This examines factors like government debt, public expenditures and demographic challenges. 
3. Integrity (scored 57.5): This score reviews the regulations, governance and communication that guide the system. 

The U.S.'s declining scores highlight critical areas that need reform. As fewer people enter the workforce and longevity increases, it's becoming more difficult for the current retirement system – heavily reliant on individual retirement accounts and Social Security – to keep up with growing demands. 

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The Call for Major Reform

Global pension experts are sounding the alarm and urging the U.S. to reevaluate its retirement system. One of the most pressing concerns is preretirement leakage, where people withdraw funds before retirement. 

The SECURE Act 2.0 of 2022 offered more flexibility in allowing penalty-free withdrawals for hardships, but experts worry this could deplete retirees’ funds before they are needed. 

Another area of reform involves income streams. Unlike countries with more structured retirement plans, the U.S. doesn't require annuitizing retirement savings. This leaves many retirees managing lump-sum distributions without a guaranteed steady income, which can create financial instability.

Mercer suggests reforms should focus on encouraging employees to continue contributing to their retirement plans while also introducing options for participants to convert their savings into consistent income streams. While features like this are growing, experts argue that change isn't happening fast enough. 

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What Can the U.S. Learn from the Top Systems? 

Countries like the Netherlands and Denmark are the gold standard for retirement systems. They emphasize mandatory participation in retirement plans, higher levels of employer and employee contributions and the implementation of robust financial education early in life to help citizens understand the importance of saving. 

Only 52% of the working-age population in the U.S. currently has a retirement account and gig and contract workers are often excluded from these systems. 

Experts also stress the importance of financial education. Many Americans struggle with the complexities of retirement planning and it's not always easy to find high-quality financial advice. 

Graham Pearce, Mercer's Global Defined Benefit Segment Leader, says the U.S. needs to boost financial education starting in schools and "provide universal access to good quality, sound advice and guidance. At the moment, good-quality independent financial advice is out of the reach of most plan participants."

Expanding access to financial literacy programs in schools and through employer-sponsored initiatives could help alleviate some of these issues. 

The Road Ahead

The U.S. retirement system is under strain due to an aging population, increasing life expectancy and fewer workers entering the workforce. Global experts, including Mercer, are calling for reform to ensure people can retire with financial security and dignity. 

By improving access to retirement plans and enhancing financial education, the U.S. can move away from its lackluster C+ grade and create a more sustainable retirement future for its citizens and the country. 

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