Australia’s retirement income system is very good, but it could be better, at least that’s the view retirement and investment specialist Mercer.
The group has released its annual Global Pension Index and Australia is in sixth position of the 43 retirement income systems that are compared around the world.
Overall, though, Australia’s retirement income system received a B+ grade, while the world’s top three systems (Iceland, the Netherlands and Denmark) were found to be sustainable and well-governed systems and all received an A grade.
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Senior partner at Mercer and lead author of the study Dr David Knox said that there were opportunities for Australia to develop solutions that would contribute to better retirement outcomes for a greater proportion of Australians.
“Governments across the world responded to COVID-19 with significant levels of economic stimulus, which has added to government debt, reducing the future opportunity for governments to support their aged population,” Dr Knox said.
“Despite these challenges, now is not the time to put the brakes on pension reform – in fact, it’s time to accelerate the process.
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“Superannuation and retirement income has been at the forefront of regulatory reform in Australia, with the Retirement Income Covenant aiming to shift the focus of the superannuation industry away from the accumulation phase, towards retirement income.”
Dr Knox said this approach was a step in the right direction, but he explained that any reform would need to be a collaborative process involving government, employers and the superannuation industry.
“Individuals are having to take more and more responsibility for their own retirement income, and they need strong regulation and governance to be supported and protected,” he said.
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“Ultimately, with the right products, they will be empowered and confident to view their superannuation as an income for consumption, rather than a nest egg.”
The analysis contained in the index also highlighted that there was no single cause of the gender gap in super, with all countries experiencing significant differences in the level of retirement income across genders.
“The causes of the gender pension gap are mixed and varied,” Dr Knox said. “Every country and region, including Australia, has employment-related, pension design and socio-cultural issues contributing to women being disadvantaged compared to men when it comes to retirement income.”
The study found that pension design flaws were exacerbating well known employment issues such as more female part-time workers and lower average salaries.
Some of the design flaws they found included:
- non-mandatory accrual of superannuation benefits during parental leave;
- the absence in most systems of superannuation credits while caring for young children or elderly parents; and,
- differing annuity rates for men and women.
“We know that closing the gender pension gap is an enormous challenge given the close link of the pension to employment and income patterns,” Dr Knox said. “But, with poverty among the aged more common for women, we can’t afford to sit idle.
“If we want to encourage self-reliance, and for Australians to save their money while they’re working for their retirement, our system must be inclusive for all.
“There are a number of initiatives that Australia could introduce, including removing eligibility restrictions for individuals to join employment-related pension arrangements.
“Regardless of how much you earn, how much you work, or for how long you’ve been working, every person in the paid workforce should have the ability to participate in a superannuation scheme that provides adequate benefits.
“Paying superannuation on parental leave is a first step, but there is an opportunity to go further to introduce superannuation credits for those caring for the young and old.
“Carers provide a valuable service to the community and shouldn’t be penalised in their retirement years for taking time out of the formal workforce,” he said.
What do you think should be done to address the gender superannuation gap? What do you think about the idea of superannuation credits for those caring for elderly relatives? Why not share your thoughts in the comments section below?
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