Australia’s retirement income system has been ranked third in the world, just weeks after the government announced a major review into the Age Pension, superannuation and home ownership across the country.
Despite how pensioners may feel, Australia’s current practices have earned praised, receiving a B+ grade in the Melbourne Mercer Global Pension Index. Australia’s system was found to be better than 34 other countries around the globe – having jumped up 2.7 points since last year from 72.6 to 75.3 – however it wasn’t good enough to claim the top spot which went to the Netherlands, with Denmark claiming second place.
While Australia trumped the likes of New Zealand, the United Kingdom, Canada and the United States, the report still handed down a selection of recommendations to further improve the retirement income system and how it serves older Australians. The major suggestions included raising the pension age as life expectancy rises, as well as encouraging people to hold off on retiring to boost their own savings.
Lead author of the report Dr David Knox said the increasing ageing population is putting a strain on the public purse, as more must be spent on health and welfare. Knox claimed in order to receive an A-grade rating, Australia must make changes when it comes to both the Age Pension and super contributions.
“In Australia, we need better integration between the Age Pension and superannuation, which doesn’t currently provide enough incentive for individuals to contribute,” Knox explained. “In particular, the overall system needs to provide clear additional benefits from making extra contributions.
“There are recommendations that have been put forward for some time now, such as raising the pension age as life expectancy increases and making adjustments to the assets test to improve retirement income for average earners. We’re on the cusp of strengthening our retirement system to receive the coveted A-grade.”
The report comes just weeks after Josh Frydenberg confirmed a sweeping review into Australia’s retirement income system, focusing on how the Age Pension and superannuation support Aussies in retirement. The review, which will be the first of its kind in three decades, was initially recommended by the Productivity Commission after a damming analysis of the country’s poorly performing super funds earlier this year.
It will focus on three key pillars, a means-tested Age Pension, compulsory super and voluntary savings, “including home ownership”. The independent review will be chaired by former senior Treasury official Mike Callaghan, alongside chair of the Self-Managed Super Fund Association Deborah Ralston and Future Fund board member Carolyn Kay. It will be the first inquiry into the compulsory superannuation scheme since the 1993 inquiry, led by Vince Fitzgerald, which was carried out a year after former PM Paul Keating’s compulsory savings system was introduced in 1992.
According to Frydenberg and assistant minister for superannuation, Jane Hume, the year-long review will look at “the impact of current policy settings on public finances”. It will also “cover the current state of the system and how it will perform in the future as Australians live longer and the population ages”.
Frydenberg added: “The review will establish a fact base of the current retirement income system that will improve understanding of its operation and the outcomes it is delivering for Australians.” A consultation paper will be released in November this year and the final report must be provided to the government by June 2020.
Meanwhile, the treasurer also promised a rise in the pension age is not on the cards. According to multiple reports, he confirmed the ever increasing age in which a person can receive the pension will not skyrocket to 70, explaining that part of the retirement income will not be examined.
“No, it’s not, what we’re focusing on is, again, developing an evidence-based approach to future policy decision,” he reportedly said. “We haven’t changed our position, the position still remains.”