Australia’s retirement system, which is among the best in the world, will be further improved by an extension of the superannuation guarantee (SG) to 12 per cent, according to the second Melbourne Mercer Global Pension Index.
The index is produced by Mercer and the Australian Centre for Financial Studies and ranks pension systems based on adequacy, sustainability and integrity.
No countries received an A grade rating but Australia received a B rating behind the Netherlands, Switzerland and Sweden, and ahead of Canada, meaning those five countries had a sound structure but with areas for improvement.
Australia’s index value fell slightly from 74.0 last year to 72.9, partly due to the inclusion of new indicators relating to the cost of the retirement income system.
Dr David Knox, a senior partner in Mercer’s Retirement, Risk and Finance business, said the drop was a reminder that Australia cannot afford to take its eye off the ball when it comes to improving the adequacy and efficiency of our system.
Action is underway to address areas where improvements can be made, and an increase in the SG to 12 per cent would go a long way in addressing the issue of adequacy and putting Australia in reach of an A-grade classification, he said.
“Reducing the costs to members was also highlighted as an area that needs to be addressed in Australia. This can be achieved by encouraging greater efficiency, a factor which was addressed in the Cooper Review.”
Australia’s system could be improved by raising the level of mandatory contributions; requiring part of the retirement benefit to be taken as an income stream; increasing labour rates amongst older workers; raising the pension age with life expectancy and improving the cost efficiency of the retirement system.
Fallout from the GFC had impacted most pension systems in the latest report, and increasing life expectancy was a common theme putting pressure on public pension systems, Knox said.
