This retirement index gave the U.S. a 'C+’—here's why Canada got a 'B'

The U.S. retirement system isn’t the world’s worst, but it has room for improvement compared to other developed economies.

In the Mercer CFA Institute Global Pension Index, America got a C+ rating this year, with a score of 63.0 out of 100. By contrast, Canada received a score of 70.2 for a B grade.

The index ranks retirement systems based on three criteria: adequacy (benefits, system design, savings, government support), sustainability (pension coverage, demographics, public expenditure, government debt, economic growth), and integrity (regulation, governance, protection, operating costs).

Although a C is not the end of the word, the New York City-based consulting firm says that C-rated retirement systems may be not sustainable in the long run.

“A system that has some good features but also has major risks and/or shortcomings that should be addressed; without these improvements, its efficacy and/or long-term sustainability can be questioned,” Mercer said.

By Mercer’s estimation, pensioners have a better time in the Great White North, but is that really true?

Is Canada a better place to retire than the U.S.?

The U.S. retirement system pays retirees progressive benefits based on lifetime earnings. That could be a problem in the distant future with younger Americans saving less.

Here’s what Canada’s retirement system does differently: Instead of a progressive benefits plan based on earnings, Canada has “a universal flat-rate pension supported by a means-tested income supplement.”

This base plan is supplemented by “enhanced earnings-related pensions based on revalued lifetime earnings,” Mercer explained.

The more generous pension system in Canada has led to a poverty rate of 4.7% for seniors over the age of 65. Meanwhile, Americans aged 65 and older have a poverty rate of 10.3%.

The Social Security Administration recently sounded the alarm about the use of artificial intelligence (AI) to commit pension fraud. But AI can also be channeled for good causes.

Mercer’s 2023 retirement index report says AI can improve pension systems by “analyzing data more quickly, improving accuracy, highlighting future risks, reducing costs, improving outcomes and communication, and helping members in a more personalized way.”

What country has the best retirement system?

The Netherlands, Iceland, Denmark, and Israel all received an A grade, with a score of 80 or above on Mercer’s 2023 retirement assessment.

Countries that scored high have adequate and reliable flat-rate public pensions supplemented by mandatory or quasi-mandatory income-based pension plans, as well as voluntary personal pensions.

The Netherlands is in the midst of a major pension reform that will make its retirement system more income-based, like America’s. But Mercer gave it an A rating because “a strong asset base and very sound regulation” will continue to provide Dutch retirees with world-class benefits.

Despite being the wealthiest nation of all, America can’t compete with other advanced countries on the retirement front. According to Katie Hockenmaier, a research director at Mercer, the wealth gap is making the problem worse.

“Retirement savings coverage and institutional quality retirement vehicles remain out of reach for many Americans, creating a significant adequacy gap that needs to be addressed,” she said.