The ranking of Australia’s superannuation system has moved from third to second best system in the world largely due to the recent increase in superannuation guarantee payments to 9.5 per cent.
The shift in the Melbourne Mercer Global Pension Index puts Australia ahead of Netherlands for the first time in five years, but falls short of Denmark which remains in first place.
The rankings, which follow a month ahead of the Financial System Inquiry’s (FSI) final report, serves in part as a riposte to the Grattan Institute’s criticisms of the global competitiveness of Australian superannuation, criticisms that fed into the FSI’s interim report.
Dr David Knox, senior partner at Mercer and author of the report and index, said that in comparison to the Grattan Institute’s report the analysis did not just look at private pensions, but the age pension, savings outside of superannuation, the governance of superannuation schemes and demographic issues that will effect the system in the future.
He said one of superannuation’s strengths compared to systems such as in the USA, Canada and the UK, was that it was compulsory system that ensured much wider coverage.
Knox listed four areas Australia could improve upon.
1) Introducing a mechanism to increase the pension age as life expectancy continues to increase.
2) Increasing the minimum access age to receive benefits from private pension plans, so access to retirement benefits is restricted to no more than five years before age pension eligibility.
3) Removing legislative barriers to encourage more effective retirement income products.
4) Labour force participation at older ages.
Denmark was ranked the best system in the world for being a well-funded pension system with good coverage, high contributions, the provision of adequate benefits and a private pension system with developed regulations.
The index measured 25 retirement income systems against more than 50 indicators under the sub-indices of adequacy, sustainability and integrity.