Australia’s $2.9 trillion superannuation industry has resumed its third-place ranking among the world’s best pension systems but needs to do more work in encouraging individual contributions, according to Mercer’s annual global study.
Australia was given a B+ grade after achieving a total index value of 75.3. The Netherlands and Denmark both held onto first and second place with their A- grade and overall scores of 81 and 80.3, respectively. Finland came in at fourth place while Thailand had the lowest value of 39.4.
Australia “needs better integration between the age pension and superannuation, which doesn’t currently provide enough incentive for individuals to contribute,” said David Knox, author of the report. “The overall system needs to provide clear additional benefits from making extra contributions.”
Last year, Australia dropped to fourth place, weighed down by a decline in household savings and the tougher age pension assets tests. Knox said raising the pension age as life expectancy increases, adjusting the asset test to improve retirement income for average earners and raise the superannuation guarantee to 12 per cent from 9.5 per cent would improve the system. He said Australia was on the “cusp” of receiving the A-grade.
The Australian government last month announced a long-awaited review of the country’s retirement income system which will examine the so-called three pillars of age pension, superannuation and voluntary savings including home ownership.
The Melbourne Mercer Global Pension index compares 37 retirement systems that cover almost two thirds of the world’s population. It uses the weighted average of the sub-indices of adequacy, sustainability and integrity to measure each system against more than 40 indicators. This year the index also included the Philippines, Thailand and Turkey for the first time.
“Systems around the world are facing unprecedented life expectancy and rising pressure on public resources to support the health and welfare of older citizens,” said Knox. “It’s imperative that policy makers reflect on the strengths and weaknesses of their systems to ensure stronger long-term outcomes for the retirees of the future.”
The average index value among the 37 retirement income systems was 59.3.