A global report from Mercer shows that pension systems with no or limited restrictions tend to perform better, while sharing recommendations on how Australia can improve its ranking.
The Mercer Global Pension Index showed Australia’s pension system ranked in seventh place in 2025, behind the Netherlands, Iceland, Denmark, Singapore, Israel, and Sweden and recommended four areas for improvement, including introducing a government superannuation contribution to primary carers of young children.
Tim Jenkins, lead author of the report and partner at Mercer, said the report also suggests that instead of imposing mandates, governments should focus on making investment options attractive, promoting transparency and sound governance, and fostering collaboration with the private sector to support sustainable retirement systems and economic growth.
Margaret Franklin, president and CEO at CFA Institute, which collaborated on the report, said as debate grows around whether governments should direct pension investments toward national priorities, the responsibilities of those who design and manage pension funds take on even greater significance.
“Proposals in this space raise difficult questions about how to balance national interests with fiduciary duty and underscore how such shifts would require robust frameworks to protect retirement security,” Franklin said.
“The 2025 index makes one thing very clear: the core purpose of pensions is to secure retirement income for beneficiaries, guided by fiduciary duty above all else. Regulations and government actions, from tax policy to investment mandates, directly shape how funds allocate capital.”
She added that as more public systems turn to private markets for returns, investment professionals must be well-prepared to evaluate, integrate, and respond as well as explain how policy decisions can impact long-term outcomes.
The report found that as global uncertainty rises alongside the increasing size of pension fund assets, some governments are now encouraging more domestic investment by pension funds in areas of national priority for the longer-term benefit of society.
“Governments worldwide have long played a role in shaping how private pension funds invest, by imposing guidelines to protect retirees or encouraging the pension sector to support domestic economic goals,” the report stated.
“Countries including the UK, Canada, Australia, and Malaysia have recently encouraged pension funds to support domestic infrastructure and innovation. Meanwhile, in other countries, debates continue around whether pension funds should be forced to consider environmental, social and governance factors instead of focusing solely on financial performance in investment decisions.”
Australia scored a B+ on the index this year, indicating it is a system that has a sound structure, with many good features, but has some areas for improvement that differentiate it.
Its total ranking was hampered over the adequacy of the system.
The report stated that the overall index value for the Australian system could potentially be increased by firstly focusing on retirement income as the primary purpose of superannuation.
It also suggested moderating the assets test on the means-tested age pension to increase the net replacement rate for average-income earners and raising the level of household savings and reducing the level of household debt ̶.
Furthermore, it recommended introducing a government superannuation contribution to primary carers of young children.
The Australian index value increased slightly from 76.7 in 2024 to 77.6 in 2025, primarily
due to an increase in the mandatory contributions set aside for future retirement benefits and updated economic growth data published by the IMF.
