Australia is capable of achieving the elusive A-grading in the Melbourne Mercer Global Pension Index, according to its author, David Knox, if the country adopts a number of regulatory reforms. Knox, who is senior partner at Mercer, says the biggest reform that will improve Australia’s ranking will be an increase in the superannuation guarantee. This will have the effect of increasing retirement income, as well as the value of assets in the system, and so improving sustainability. If Australia combines this with increased labour force participation, and introduces some “integrity measures”, it would be “pretty close to A-grade”, Knox says. He says Australian superannuation fund member statements show what a member’s account balance currently is, but not what it is projected to be when the member retires. “This ‘integrity measure’ has been adopted as regulation in some countries and it serves to engage people,” Knox says. Australia has moved back into second position in the index, from fourth last year, thanks to an increase in the age pension and an increase in the household savings rate. An increase in the age pension was announced a few years ago, but it has taken a while to be reflected in the latest rankings. “It has increased income for Australia’s poorest but has also increased retirement income for the average earner,” Knox says. In addition, an increase in the household savings rate has contributed to the financial security of people in retirement, and served to improve the country’s rating. The Netherlands is ranked first in the index for the third year in a row, and Knox says Australia’s index fell short of being the best in the world because of lower levels of adequacy. “The Netherlands does a couple of things very well,” he says. “They have a good base pension, and a good replacement rate for the median earner.

They also have high coverage of the workforce and level of assets proportionate to GDP is high.” But overall the index findings reveal that many of the world’s retirement systems are under significant stress and even the world’s most advanced retirement income systems require ongoing reform to ensure they remain robust. Knox says there are a couple of common reform agendas that would improve the systems around the globe. “There needs to be recognition of the aging population; and an increase in the state pension age or retirement age,” he says. “If people are working longer, then adequacy is increased and they are drawing down for fewer years.” The US, the UK and Australia have all indicated a move to encourage greater labour force participation, he says.

White is responsible for the content across all Conexus Financial’s institutional media and events. In addition to being the editor of top1000funds.com, she is responsible for directing the bi-annual Fiduciary Investors Symposium.
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