Australia has the world’s second best pension system, but still needs hefty reforms to lock in adequate retirement savings for its ageing population, Mercer’s Global Pension Index shows.
Mercer senior partner David Knox said Australia was a stone’s throw from having the world’s best superannuation system, but needed to increase contribution levels, among other things.
“The best pension systems adopt a multi-pillar approach to spread these long-term risks between governments, employers and individuals,” Knox said.
Knox wrote the report on the annual index, which covers 16 countries and half the world’s population. It is produced by Mercer and the Australian Centre for Financial Studies, and funded by the Victorian government.
In the latest index, Australia’s reading rose to 75 this year from 72.9 in 2010, behind the Netherlands with 77.9. Switzerland, with 72.7, rounded out the top three.
Knox said Australia’s improvement stemmed from a real, or net of inflation, increase in the size of the age pension and higher net household savings rate. However, it fell short of the top ranking due to lower levels of adequacy.
“Australia is very much in reach of becoming the first in the world to receive an A-grade score if we can address the issue of adequacy by raising the level of compulsory savings via superannuation and continue reforms to reduce costs,” he said.
He said other reforms could include requiring retirees to take part of their benefits as income streams, encouraging older people to remain in the workforce, increasing the age at which people can tap their superannuation in accord with longer life expectancies, and improving efficiency to reduce super-system costs.
“Our superannuation system is in the middle of significant reform, some of which is likely to boost our score in the index in the future, but our current B grade is an important reminder that our world-class retirement savings system is in danger of failing us unless we take action now,” he said.
