Top 10 Countries With Best Retirement Systems

United States ranking disappoints, survey offers fixes

Brazilians have another reason to be happy during Carnival. (Photo: AP) Brazilians have another reason to be happy during Carnival. (Photo: AP)

When it comes to global surveys, the United States can’t catch a break. We’ve known for some time that we can’t educate our kids. Apparently, our economic freedom has recently been downgraded, and now comes news that our retirement system ranks 10th worldwide.

A survey released Friday from Mercer and the Australian Centre for Financial Studies, titled “Melbourne Mercer Global Pension Index,” ranks 16 countries that account for 50% of the world population.

Each country was given a score between zero and 100. The overall index value represents the weighted average of the three sub-indices–adequacy, sustainability and integrity.

As for the dismal appearance of the Unites States in the ranking’s bottom half, the authors suggest methods for improving the system, which include:

  • Raising the minimum pension for low-income pensioners;
  • Adjusting the level of mandatory contributions to increase the net replacement for median income earners;
  • Improving the vesting of benefits for all plan members and maintaining the real value of retained benefits through to retirement;
  • Reducing pre-retirement leakage by further limiting the access to funds before retirement;
  • Introducing a requirement that part of the retirement benefit must be taken as an income stream.

Click through to find what other countries are doing right.

American Flag Balloon (Photo: AP)No. 10: United States

A silver lining to our somewhat embarrassing showing is that, according to the report, our “index value” increased slightly from 57.3 in 2010 to 58.1in 2011 due to an increase in the “adequacy” sub-index. This was partly offset by a decline in the sustainability sub-index due to a fall in asset values and a rise in government debt.

Copacabana, BrazilNo. 9: Brazil

According to the report, “Brazil’s retirement income system comprises a pay-as-you-go social security system with higher replacement rates for lower income earners; and voluntary occupational corporate and individual pension plans which may be offered by insurance companies or employers.”

WarsawNo. 8: Poland

Tired xenophobic jokes aside, Poland is faring well compared with its Eastern European counterparts and other industrialized countries. As the authors note, Poland’s retirement income system was reformed in 1999.

“The new system, which applies to people born after 1968, comprises a minimum pension and an earnings-related system with notional accounts. The overall system is in transition from a pay-as-you-go system to a funded approach. There are also voluntary employer sponsored pension plans.”

Santiago, ChileNo. 7: Chile

Chile’s retirement income system in best described with one word—Gooooaaallll! The survey says it includes “means-tested social assistance; a mandatory privately managed defined contribution system based on employee contributions with individual accounts managed by a small number of Administradoras de Fondos de Pensiones (AFPs); and a framework for supplementary plans sponsored by employers (the APVC schemes).”

British soccer fans (Photo: AP)No. 6: United Kingdom

Given all we’ve heard recently about the travails of Prime Minister David Cameron and recent riots in London, we’re surprised by so high a ranking.

“The United Kingdom’s retirement income system comprises a flat-rate basic pension supported by an income-tested pension credit; an earnings-related pension based on revalued average lifetime salary; and voluntary private pensions, which may be occupational or personal,” the report explains. “Most of the larger voluntary occupational pensions are currently contracted-out of the earnings related social security benefit.”

Skiing in CanadaNo. 5: Canada

Our friends to the north have a retirement income system that also comprises a universal flat-rate pension, supported by a means-tested income supplement; an earnings-related pension based on revalued lifetime earnings; voluntary occupational pension plans (many of which are defined benefit plans); and voluntary individual retirement savings plans.

Stockholm, SwedenNo. 4: Sweden

Like Poland, Sweden also reformed its retirement income system in 1999.

“The new system, which applies to people born after 1953, is an earnings-related system with notional accounts. The overall system is in transition from a pay-as-you-go system to a funded approach. There is also an income-tested, top-up benefit which provides a minimum guaranteed pension.”

Geneva harborNo. 3: Switzerland

Apparently, neutrality pays. Switzerland’s retirement income system “comprises an earnings-related public pension with a minimum pension; a mandatory occupational pension system where the contribution rates increase with age; and voluntary pension plans which are offered by insurance companies and authorized banking foundations.”

Park in SydneyNo. 2: Australia

Gee, no conflict-of-interest here; it is, after all, called the “Melbourne Mercer Global Pension Index.” At least they didn’t get greedy and declare it No. 1. 

Australia’s retirement income system “comprises a means-tested age pension (paid from general government revenue); a mandatory employer contribution paid into private sector arrangements (mainly DC plans); and additional voluntary contributions from employers or employees paid into these private sector plans.”

Skating on Amsterdam canal (Photo: AP)No. 1: The Netherlands

Great art, licit drugs and a first rate retirement income system; The Netherlands is the “it” country for 2011.

“The Netherlands’ retirement income system comprises a flat-rate public pension and a quasi-mandatory earnings-related occupational pension linked to industrial agreements. Most employees belong to these occupational schemes which are industry-wide defined benefit plans with the earnings measure based on lifetime average earnings.”

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Top 10 lists from AdvisorOne:

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