Australia’s superannuation system ranked 6th for the second year running in the Mercer CFA Institute Global Pension Index – the highest among Asia Pacific countries – underscoring the strength and sustainability of the country’s $3.4 trillion retirement savings pool.
Australia received a B+ grade for adequacy, sustainability and integrity. Adequacy considers the system as a whole and measures the level of benefits from both the public pension and private superannuation. Sustainability measures whether the system will continue providing these benefits for decades to come, and integrity examines how well governed the system is.
Dr David Knox, senior partner at Mercer and lead author of the study, said while Australia’s superannuation system ranked well, super funds need to improve the retirement outcomes for their members.
“We’ve done well in accumulating our assets through compulsory superannuation, what we’re now doing is needing to focus on retirement income,” Knox said.
“We’ve had the retirement income covenant legislation passed in February earlier this year and super funds have had to develop their strategy and publish it from July 1. That is a good step, but it is only step one.”
Knox suggested the government should introduce a requirement for funds to show retirement income projections in the member’s annual statement.
“That [would be] a very helpful development, because instead of focusing on the accumulation, let’s focus on our future income,” he said.
“It’s time to change the orientation, the focus and even the language, so that retirees start spending in a confident way.”
The Mercer CFA Institute Global Pension Index is a comprehensive study of global pension systems, accounting for almost two-thirds or around 65 per cent of the world’s population. It benchmarks 44 retirement income systems around the world, highlighting strengths and shortcomings in each system, and suggesting possible areas of reform to provide more adequate and sustainable retirement benefits.
Iceland, the Netherlands and Denmark topped the index overall for the second consecutive year, each earning an A grade for their sustainable and well-government pension systems.
All three countries provide generous minimum age pensions as a percentage of the average wage. “They have got both pillars working well, they have got a generous minimum pension and most people are in a private pension system,” said Knox.