Few would argue that Australia’s superannuation system isn’t world class, but is there room for improvement? Yes, if we are to pay heed to a new report ranking pension systems around the world.
Global financial services giant Mercer last week released its annual Global Pension Index, with Australia getting a very good score. But ‘very good’ is not quite ‘great’. As a result, Australia’s superannuation system was given a ‘B+’.
That places us just shy of the Netherlands, Iceland, Denmark and Israel, each of which received an ‘A’ on their report cards. Australia’s B+ puts us on level footing with Finland and Singapore.
Twelve countries received a ‘B’: New Zealand, the UK, Canada, Ireland, Norway, Sweden, Switzerland, Chile, Uruguay, Belgium, Portugal and Germany.
The USA, often viewed in the past as a gold standard financial performer, only managed a ‘C+’.
At the bottom of the table, which takes in 47 nations, are Thailand, Turkey, India, the Philippines and Argentina. All received a ‘D’. The good news is that none of the superannuation systems rated by Mercer’s pension index received an ‘E’.
Our superannuation system – it’s good, but could it be better?
A ‘B+’ is pretty good, isn’t it? Yes, but it also suggests there are things we could do better.
Would the teacher’s report card remark be, “Australia has made excellent progress. Keep up the good work”? Or would it more likely read, “Good work, but Australia is capable of even better”.
The good thing about Mercer’s Pension Index is that it drills down into performances to provide what it calls ‘sub-index’ scores.
In Australia’s case, we scored very highly in the measurement of ‘Integrity’. Our score of 86.1 was bettered only by Finland (90.9), Belgium (88.2), Norway (87.8), Netherlands (87.7) and Hong Kong (87.6).
On the sustainability front, we were less impressive but still good, scoring 78.4. Only Iceland (83.8), Israel (82.7), Denmark (82.5), and the Netherlands (82.4) outscored Australia in this area.
Australia’s weakness
The measurement which prevented Australia from joining the countries at the top of the table was ‘adequacy’.
Mercer’s report said taxation support, preservation, vesting and portability, retirement benefit design, separation, and continued accrual contributed to this finding.
Mercer’s report included four recommendations to take Australia’s superannuation system to the highest level. These are:
- Moderating the assets test on the means-tested age pension to increase the net replacement rate for average income earners
- Introducing a requirement that part of the retirement benefit be taken as an income stream in most circumstances
- Introducing a government superannuation contribution to primary carers of young children
- Introducing a requirement to show benefit projections on members’ annual statements
The final word
Mercer senior partner and lead author of the report David Knox says Australia needs to look at introducing incentives or rules that encourage ‘income streams’.
“Australia is being held back from achieving an A-grade status because there is no requirement that a portion of super savings be taken as an income stream,” he said.
Mercer’s report acknowledged an overall improvement over the past 12 months. Australia’s overall index rose from 76.8 in 2022 to 78.3 this year.
How do you think Australia’s superannuation system stacks up against others? What can be done to make it better? Let us know via the comments section below.
Also read: Age Pension payment rates: 20 September 2023 to 19 March 2024
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