Australia’s retirement income system has been given a B+ grade in the 14th annual Mercer CFA Institute Global Pension Index (MCGPI), ranking sixth out of the 44 countries studied.
With an overall score of 76.8, Australia received a score of 70.2 for the measure of adequacy, 77.2 for sustainability and 86.8 for integrity.
“Our system has again ranked very strongly and the policy reforms and reviews that are in flight should continue to improve financial outcomes for retirees and their access to financial advice,” said CFA Institute board of governors and MCGPI Advisory board member, Maria Wilton.
“The increase in the SGC rate to 10.5 per cent, and the Retirement Income Covenant partially address our weak link with respect to our adequacy score and will help improve our ranking over time.”
Iceland had the highest overall index value of 84.7 followed by the Netherlands (84.6) and Denmark (82.0), all of which were given an A grade. Thailand had the lowest index value of 41.7 and received a D grade.
In light of the study’s findings, Mercer senior partner and lead author, David Knox, called for increased collaboration and engagement between government, super funds and employers.
“Individuals have been assuming more responsibility for their retirement savings for some time; amidst high levels of inflation and rising cost-of-living pressures, they are doing so in an increasingly complex and volatile environment,” he said.
“While the necessary industry reforms may take time and careful consideration, policymakers must do all they can to ensure retirement schemes are supported, developed and well-regulated so that they are able to serve retirees at an individual level.”
Dr Knox said that the Australian super system now needed to shift its culture and focus from accumulation to management and spending of super balances in retirement.
“The primary purpose of compulsory superannuation has been, for the past 30 years, focused on accumulation of savings for a healthy retirement,” he said.
“Australia has done this well, and the system continues to perform strongly against global pension systems. But there are opportunities for further improvement, particularly when it comes to retirement income. There needs to be a mindset shift so that members perceive superannuation as less of a nest egg and more of an income for consumption.”
AMP recently found that three in five Aussies were concerned they wouldn’t have enough to retire, with a gap of $200,000 between how much workers think they will need and how much they actually expect to have.
“Heightened by increasing cost-of-living pressures, this fear of running out stems from a basic lack of understanding — an awareness gap — of their finances and the retirement system. Many pre-retirees also feel like they’ve left their retirement planning too late,” said AMP’s general manager retirement solutions, Ben Hillier.
“Consequently, many of us underspend in retirement, passing away with as much as 90 per cent of our super savings untouched, according to Treasury’s Retirement Income Review.”
According to Dr Knox, the necessary mindset shift will require time and an investment in education across the community and industry at large.
“Superannuation fund trustees have published their funds’ retirement strategies which is a step in the right direction. We now need to educate and empower Australians to play a proactive role in managing their super and ensuring that the system supports their transition to retirement,” he said.
“At the end of the day, it comes back to the objective of super — that is, a system that is fair and equitable to all, and which provides Australians with the income to maintain their lifestyle in the decades ahead.”
