Australia’s pension system has been ranked at number six and graded as a B+ in the latest release of an annual study of the world’s retirement income systems by Mercer CFA Institute Global Pension Index (MCGPI). The study also called out Australia for being slow to act on the gender-superannuation gap with poverty among the aged more common for women, meaning as a country, we can’t afford to sit idle.
The top-ranked pension system in the world was awarded to Iceland who was praised for having prepared their older generations exceptionally well for retirement, offering them a generous state pension. The Netherlands and Denmark took out second and third place on the list respectively, each of the three systems being awarded an A-grade. Each of these three countries has held onto the top spots for more than ten years.
Australia’s retirement income system received a B+ grade, with Mercer judges saying the decision was based on Australia’s sound structure with many positive features. But they also highlighted areas for improvement.
The rankings of eleven nations including Korea, India and more, fell backwards, largely due to the impact of Covid-19.
“The current economic environment with reduced wage growth, historically low-interest rates and shrinking returns in many asset classes, is placing additional financial pressures on existing retirement income systems,” said the report.
Thailand was ranked in the final position with acknowledgement that there was “major weaknesses and/or omissions that need to be addressed.”
The Mercer Global Pension Index is a comprehensive study of global pension systems, benchmarking 43 retirement income systems around the world highlighting strengths and shortcomings in each system, and suggesting possible areas of reform to provide more adequate and sustainable retirement benefits.
This year the study revealed the scope for pension systems around the world, including Australia’s, to reduce the gender pension gap.
Senior Partner at Mercer and lead author of the study, Dr David Knox stressed the importance of stakeholders working together to develop solutions that will contribute to better retirement outcomes for a greater proportion of Australians.
“Superannuation and retirement income have 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. This, and the Your Future, Your Super reforms are a step in the right direction but there is an opportunity to take this further.
“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. 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.”
CFA Institute Board of Governors and MCGPI Advisory Board member Maria Wilton said the investment industry has an important role to play in improving financial outcomes.
“Australia’s system rates very strongly – particularly the integrity and sustainability of our system – and continuing to build member confidence and engagement will lead to further improvement. We need to help people understand that superannuation is a long-term investment and not get caught up in short-term market volatility and switching.
The report called out the gender gap in superannuation as an important area for reform.
“The causes of the gender pension gap are mixed and varied. 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,” Dr Knox said.
“Despite the Age Pension safety net, older women are at greater risk of homelessness and poverty. Specific measures [need to be taken] to level the gender playing field with respect to retirement outcomes will require a concerted effort by policymakers and industry stakeholders,” Ms Wilton added.
While employment issues are major contributors and are well known, including more female part-time workers, periods out of the workforce due to primary care responsibilities, and lower average salaries, the study found that pension design flaws were aggravating the issue. These include:
“We know that closing the gender pension gap is an enormous challenge given the close link of the pension to employment and income patterns. 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,” Dr Knox said.
“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.
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