When it comes to retirement, it’s good to go Dutch. American? Not so much.
The Netherlands, Iceland, Denmark and Israel got A grades from the index for scoring 80 or higher on a 100-point scale that measures whether a country’s public and private pension programs are sustainable and well-governed and if they pay out sufficient benefits.
The U.S. score of 63 was good for a C+, the same grade as Colombia, Croatia, France, Hong Kong, Kazakhstan, Spain and the United Arab Emirates.
“Those that rise to the top of the index have demonstrated that they have a robust and established retirement income system that has been designed to deliver good benefits for pension plan participants over the long term,” says Margaret Franklin, president and CEO of the CFA Institute.
The institute, an organization of investment professionals, produces the annual study with investment and retirement consulting firm Mercer and the Monash Centre for Financial Studies at Monash University in Australia.
U.S.: Plan access an issue
The middle-of-the-pack U.S. grade denotes a retirement income structure “that has some good features but also has major risks and/or shortcomings” that raise questions about its effectiveness and long-term viability, according to the index report.
“Individuals in the U.S. are grappling with a future where retirement planning and income distribution will largely be a personal responsibility should they lack guaranteed income from workplace pensions and the like, aside from Social Security,” Franklin says.
Cost-effective retirement plans that offer a wide range of investments “remain out of reach for many Americans,” says David Knox, a senior partner at Mercer and lead author of the index.
SECURE 2.0, a federal law enacted last year that aims to help Americans save more, takes “a step in the right direction by addressing access, particularly for part-time workers,” he says. Starting in 2025, the law loosens eligibility requirements for part-time employees to enroll in workplace retirement plans and requires newly created plans to automatically enroll all eligible staff.
“Employers can take this further by thoughtfully structuring matching and vesting requirements to help increase contributions and engagement with retirement plans,” Knox says.
The U.S. could also improve by doing more to ensure workers get “support and messaging very early in their earning years on the importance of retirement-planning participation such as 401(k)s,” Franklin says. “Gig economy workers and the self-employed are an example of a group that would greatly benefit from increased communications from both the government and employers.”
Netherlands back on top
The Netherlands also led the index in 2020 but fell to No. 2 behind Iceland in 2021 and 2022 before regaining the top spot this year.
The index considers both public parts of a country’s retirement system — government-funded benefits such as Social Security in the U.S. — and private elements like company pensions and “defined contribution” (DC) plans such as 401(k)s and some individual retirement accounts (IRAs).
The researchers measured how each system stacks up on a range of indicators grouped into three categories:
- Adequacy. How much do retirees receive relative to working wages in the country?
- Sustainability. Can the system weather demographic change and financial challenges?
- Integrity. Is the system, particularly its private providers, well-regulated and trustworthy?
The Netherlands’ system includes both a flat-rate state pension for all retirees and workplace pensions tied to earnings. The country is currently reforming its retirement system, “moving from a mostly collective benefit structure to a more individual DC approach,” the study says.
The Dutch system “performs well for several reasons,” Knox says, “including strong governance and regulations that enable a good minimum pension for the poor, coverage of all workers in the private pension system and a higher contribution rate that is invested for the future.”
Here are the top 10 countries in the 2023 rankings:
In the subcategories, Portugal ranked No. 1 in providing adequate benefits (but was 18th overall), Iceland topped the list for maintaining a sustainable system and Finland was rated the leader in integrity.
Argentina’s retirement system finished last among the 47 countries rated, with a 42.3 score and a D grade.
