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The U.S. retirement system has some ‘major shortcomings,’ one report says. Artificial intelligence could help.

The U.S. retirement system has some ‘major shortcomings,’ one report says. Artificial intelligence could help.

By Alessandra Malito

The worldwide index is in its 15th year

Maybe it’s time to let the machine take over when it comes to managing the United States retirement system.

That’s one takeaway from the Mercer and CFA Institute’s 15th annual Global Pension Index, which gave the United States a C+ grade — good for 22nd place in a ranking of 47 countries.

The United States will have to deal with the looming problems in Social Security — inflation, rising interest rates and falling birth rates, for example — while having its hands full with other spending priorities.

Read more: It’s risky to bet Social Security’s solvency on the stock market

The Netherlands ranked first, followed closely by Iceland and then Denmark, according to the survey. Israel was the only other country to score an A. Other countries with a C+ grade included Kazakhstan, Hong Kong, the United Arab Emirates, Colombia, France, Spain and Croatia.

As for the U.S., the CFA warned that people will be on their own when it comes to retirement.

“More and more often, individuals will have an increasingly important role to play as it relates to their own retirement,” said Margaret Franklin, president and chief executive officer of the CFA Institute. “Each year, this index serves as a critical reminder that there is a long way to go in many jurisdictions to make pension plans function at their best and for the long-term financial security of beneficiaries.”

See: This 72-year-old hopes to retire one day — as soon as she raises enough money on GoFundMe

But artificial intelligence may be one way to improve pension systems, according to the report. In a CFA Institute survey of its members, the group found AI and big data can help investment professionals use their time more productively, provide additional insight and facilitate “better decision-making through enhanced modeling.”

Within pension plans, AI could streamline repetitive processes, assess future risks with increased data analysis, detect identity fraud and create models of investor behaviors, such as how they contribute, withdraw and experience tax changes, the report said.

Such an endeavor is not without risks, however, such as having the right data to work with, the report said. “In short, pension plans can potentially obtain a much-improved understanding of their operations, risks and opportunities through AI, over both the short and longer terms, and so deliver better outcomes for their active and retired members. However, these developments will only be beneficial if the pension systems have accurate and complete data to train and deploy AI models.”

The Mercer CFA Institute Global Pension Index weighs the average of “adequacy, sustainability and integrity,” according to the organizations. Adequacy relates to the benefits provided, sustainability refers to the likelihood of continuing to provide those benefits in the future and integrity pertains to the legislation and governance over the system.

The U.S. saw a slight decline in scoring across all subindexes, as well as the overall score, from last year to this year. The country scored a B in adequacy, a C+ in sustainability and a C in integrity, according to the report.

-Alessandra Malito

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.


(END) Dow Jones Newswires

10-17-23 1448ET

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