Mercer has called for the implementation of the proposed increase in the superannuation guarantee (SG) from 9 to 12 per cent, after a new survey showed Australia's retirement system had declined in adequacy and efficiency over the past year.

The Melbourne Mercer Global Pension Index 2010 showed Australia has fallen from second to fourth place in the world's most efficient pension systems.

The index ranks the pension and retirement systems of 14 countries based on adequacy, sustainability and integrity.

The decline was partly due to the inclusion of three new countries including Switzerland, which ranked in second place.

But Australia's index value also fell slightly from 74.0 in 2009 to 72.9 in 2010.

Australia's index score rates its retirement system as B-grade, since an A-grade requires a score of more than 80 points.

"We will go a long way in addressing the issue of adequacy, and putting Australia in reach of an A-grade classification, if the proposed increase to the SG from 9 per cent  to 12 per cent is implemented," Mercer retirement, risk and finance senior partner David Knox said.

"Reducing the costs to members was also highlighted as an area that needs to be addressed in Australia. This can be achieved by encouraging greater efficiency, a factor which was addressed in the Cooper review of the superannuation system," Knox said.

Australia's system can be further improved by introducing a requirement that part of the retirement benefit must be taken as an income stream.

Mercer also highlighted the benefits of increasing the labour force participation rate among older workers, introducing a mechanism to increase the pension age as life expectancy continues to increase, and reducing the costs of the system by encouraging greater efficiency.

None of the 14 countries surveyed achieved an A-grade rating.

The best index score was achieved by the Dutch system, which achieved a score of 78.1 points.

The Chinese system had the worst rating, scoring only 40.3 points.