Australia amongst world’s best for providing for ageing population
Global health, wealth and career consulting firm Mercer have teamed up with the Victorian state government and Monash University’s Australian Centre for Financial Studies to release the tenth Melbourne Mercer Global Pension Index.
An ageing population is not an issue endemic to Australia. All around the world – and especially in the Western world – existing populations are living longer and having less children. As a direct result of these two factors combined, there is a large strain being placed on countries’ pension systems and governments are scrambling to catch up.
“It’s a challenge that policymakers are grappling with,” says David Knox, Senior Partner of Mercer. “For example, a system providing very generous benefits in the short-term is unlikely to be sustainable, whereas a system that is sustainable over many years could be providing very modest benefits. The question is – what’s an appropriate trade-off?”
“Pension systems around the world, including social security systems and private sector arrangements, are now under more pressure than ever before. Significant ageing of the population in many countries is a fact of life. Yet this is not the only pressure point on our pension systems,” said Knox.
As there is no precedent for best practice in this regard, Mercer along with a consortium of public and academic partners from Melbourne have created the Index. The study states that judging a country’s system is difficult due to different levels of socio-economic development and political stability, yet it is increasingly clear what a good practice looks like, and where it stems from.
“In some countries, broad coverage has been successfully accomplished through compulsory workplace pension systems or, in some cases, auto-enrolment arrangements,” Knox says. “However, with changes in the way people are working around the world, we need to ensure these schemes include everyone so that the whole workforce is saving for the future. This includes contractors, self-employed, and anyone on any income support, be that parental leave, disability income or unemployed benefits.”
The top of the list is dominated by Northern European and Anglo states – besides the UK and the US – as well as Chile and Singapore emerging in the top ten. Australia sits fourth on the Index and is down on previous years, the drop attributed to changes which Scott Morrison pushed through parliament during his time as Minister for Social Services. The United States meanwhile features below Saudi Arabia and Colombia.
Whilst Australia may have dropped down one spot over the past year, the Lucky Country still appears firmly in the the upper quartile of the list. Australia’s aged pension system consists of a means-tested age pension – paid through tax-payer funds – as well as a mandatory employer contribution paid into private sector arrangements (superannuation) and additional voluntary contributions from employers, employees or the self-employed paid into private sector plans.
Whilst the Australian system is said to be a good global model, there are still a number of improvements which the report recommends. These include moderating the asset test on the means-tested age pension, raising the level of household saving and reducing the level of household debt – Australia currently has one of the highest level of household debt in the world – introducing a requirement that part of the retirement benefit must be taken as an income stream, increasing the labour force participation rate at older ages as life expectancies rise, and introducing a mechanism to increase the pension age as life expectancy continues to increase.
“Ageing populations, high sovereign debt levels in some countries [including Australia] and the global competition to lower taxes constrain the ability of some jurisdictions to improve retirement income security. With a decade of unique data, the MMGPI and associated research can provide valuable global comparative insights to planners and policymakers on the way forward,” said Professor Deep Kapur, Director of Australian Centre for Financial Studies.
“The Index is an important reference for policymakers around the world to learn from the most adequate and sustainable systems,” Knox concludes. “We know there is no perfect system that can be applied universally, but there are many common features that can be shared for better outcomes.”
According to the report, Melbourne is home to six out of Australia’s top 12 pension funds and the state is a thought leader and supporter of building a world-class, robust retirement system in Australia. The city joined forces with Mercer to strengthen the understanding of best global practice of retirement funds and pension systems. The forward thinking consortium aim to tackle an issue which will continue to grow in the future.
