Australia has the world's third best pension | retirement system
Australia is home to the world’s third best pension system, according to research by HR consulting firm Mercer and Monash Business School.
The analysis, which looked at the strength, quality and fairness of retirement income systems of 37 countries (representing more than 63% of the world's population), found that Australia has regained its third spot from Finland, having been displaced by the Scandinavian country last year.
The world’s best pension systems are typically found in Europe, with the Netherlands (a $1.5 trillion pension industry) once again named the globe’s leading system. The Netherlands has now held first or second place in the Mercer and Monash Business School ranking for ten out of the last eleven editions.
Denmark ranks hot on the heels of the Dutch, with the three other Nordic countries of Finland, Sweden and Norway ranking behind Australia but ahead of pension giant such as Germany, the UK, China and the US.
Australia’s $2.9 trillion superannuation industry scores consistently well on most dimensions studied, but at the same time, a number of flaws have been exposed. One of those is Australia’s relatively tough assets test on the age pension.
On 1 January 2017 a new test (‘Age Pension’) came into effect which outlined that the part-pension of Australians reduces more quickly as their assets increase. In previous rules, retirees lost $1.50 of pension per $1000 of assets, under the new 2017 regulation this has been bumped up to $3.00 of pension per $1000 of assets. “Although people are saving during their career, the stronger assets test means they are getting reductions to their Age Pension,” said David Knox, a senior partner and lead author of the report.
He added that Australia would benefit from “better integration between the age pension and superannuation”, because currently, “there are not enough incentives” for individuals to contribute. “The overall system needs to provide clear additional benefits from making extra contributions.”
In addition, the report highlighted the need to look beyond just pension and superannuation. “When we’re talking about retirement incomes, to get the full picture, we need to also look at household savings and home ownership. To this end, Australia faces a significant household debt, meaning that some retirees will use superannuation savings to pay off their debt, and as a result this will nibble of their disposable income during retirement.
“Policymakers need to make sure that the various pillars of a pension system work together to provide the right incentives for people to save for the future,” advised Knox.
The Melbourne Mercer Global Pension Index benchmarks retirement income system across more than 40 indicators, including how generous systems are in their pension benefits, the quality of the country's public and private sector pensions, the length of expected retirement benefits, pension communication and governance, and how pension plans and retirees are protected.
