Which country has the best retirement system? Hint: It’s not the US.

The U.S. retirement system received a C+ grade again this year, but its score dropped for a second year in a row in a new ranking of global retirement systems.

The U.S. system, which is funded mostly by individual retirement accounts (IRA), 401(k)s and Social Security, came in 29th out of 48 countries, according to the Mercer CFA Institute Global Pension Index, released Monday. Its overall score dipped to 60.4 out of 100, down from 63.0 last year and 63.9 in 2022. It was also below the overall average of 63.6.

U.S, scores declined in every subcategory – adequacy, sustainability and integrity – that make up the overall score. But the largest drag was from adequacy, which includes benefits provided by the current pension systems, and design features that can potentially improve the likelihood that adequate retirement benefits are provided.

The U.S. adequacy score was 63.9, down from 66.7 last year and below the 64.9 average of all countries examined, putting it at number 30 out of the 48 countries examined. 

The U.S. provides a benefit of 15.6% of the average worker’s earnings for the lowest-income workers at retirement, according to the Organisation for Economic Co-operation and Development (OECD) data. “the better systems have a figure of at least 25% of the average wage,” said Dr. David Knox, lead author of the Mercer CFA Global Pension Index, Actuary and Senior Partner at Mercer.

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Why are retirement systems under stress?

As fewer people enter the workforce following decades of declining birth rates, the imbalance between the retired and working age population continues to grow, Knox said.

“This trend, coupled with increasing longevity and a prolonged cost of living crisis, will directly impact the future success of the U.S.’s retirement savings system,” he said.

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What steps can the US take to shore up its retirement system?

Better access to retirement plans and financial education are imperative, said Graham Pearce, Mercer’s Global Defined Benefit Segment Leader.

In the U.S., only 52% of the working age population have a retirement account, Knox said. “In the better systems, that figure is more than 80%,” he said. That means almost every employee, “whether temporary or full time, is putting money aside for their retirement, whether it be through an employee or employer contribution, or both,” he said.

The report also noted many U.S. gig and contract workers have been left out of traditional retirement plans.

The U.S. also needs to boost financial education, starting in schools, and “provide universal access to good quality sound advice and guidance,” Pearce said. “At the moment, good quality independent financial advice is out of the reach of most plan participants.”

What country has the best retirement system? 

The top three countries, according to the research, are the same as last year: 

No. 1 Netherlands (score of 84.8/100) 

No. 2 Iceland (83.4) 

No. 3 Denmark (81.6) 

What country has the worst retirement system? 

The bottom three countries, according to the report, are: 

No. 1 India (44.0/100)

No. 2 Argentina (45.5) 

No. 3 Philippines (45.8)