Australia’s retirement system has lost its top rank in the Asia-Pacific, with a new report by Mercer and the CFA Institute suggesting it “must do more” to keep its system world class.
Australia received a score of 76.7 and a B+ grade in the 15th annual Mercer CFA Institute Global Pension Index (MCGPI), slipping to sixth place out of 48 countries.
Meanwhile, Singapore’s retirement system moved up to fifth spot to become the best ranked in the Asia-Pacific, with a score of 78.7.
The Netherlands retained the pole position with a score of 84.8, followed by Iceland (83.4), Denmark (81.6), and Israel (80.2), all of which received A grades.
The rest of the top 10 comprised Finland, Norway, Chile, and Sweden.
Dr David Knox AM, lead author of the report and senior partner at Mercer, observed Australia needs to encourage more older Australians to make the best use of their retirement savings by taking out long-term retirement income streams.
The report highlighted that Australia is one of two countries where there are no requirements to take an income stream.
“All but one retirement system in the Global Pension Index’s top 10 has a focus on income in retirement. Australia is the exception,” Dr Knox said. “Greater encouragement of retirement income streams will give ageing Australians more confidence to plan, spend, and, in turn, improve their wellbeing in their golden years.”
He explained that while Australia’s system is celebrated for being among the best in the world at securing and growing retirement savings, “a focus on retirement income is the most significant improvement we can make to our system and the lives of Australian retirees as they live longer”.
Moreover, Maria Wilton AM, member of the CFA Institute board of governors, said that while Australia boasts strong governance and regulation, the challenge remains in improving pension adequacy.
“The government’s initiatives, such as paying superannuation to government-funded parental leave and increasing compulsory contributions to 12 per cent from 2025, are important steps towards addressing this gap,” she said.
However, she cautioned that future policy proposals need to avoid “leakage”, which, she said, can undermine pension savings by reducing the benefits of compounding and increasing reliance on the Age Pension.
The report makes four recommendations for Australia, including the introduction of a requirement that part of the retirement benefit be taken as an income stream in most circumstances.
Moreover, the report recommends that a requirement be introduced to show retirement income projections on members’ annual statements.
It also suggested a government superannuation contribution to primary carers of young children and moderating the assets test on the means-tested age pension to increase the net replacement rate for average income earners.
Globally, Dr Knox said, significant reforms still need to be made to meet the financial needs of retirees and their evolving work expectations.
“There is no single solution to getting retirement systems onto more solid ground,” he said.
“Now is the time for governments, policymakers, the pension industry and employers to work together to ensure that older populations are treated with dignity and can maintain a lifestyle similar to what they experienced through their working years.”
Commenting on the results, Mary Delahunty, chief executive of the Association of Superannuation Funds of Australia, observed Australia’s latest ranking “underscores the need for continuous refinement”.
She noted that some of the recommendations, like the introduction of a compulsory income stream for retirees, would require deeper consultation.
“While such a move might positively impact Australia’s ranking in the index, it’s essential that we thoroughly evaluate the potential implications for Australian retirees,” Delahunty said.
“Flexibility in the system remains key, and we believe members should be empowered to make the right decisions for their circumstances, with the support and advice of their super funds.
“As always, we must ensure that any proposed changes to the system prioritise the best outcomes for all Australians to achieve a comfortable and dignified retirement.”
