Australia’s superannuation system has dropped from third to fourth place in the annual Melbourne Mercer Global Pensions Index, but the dip shouldn’t be a cause for concern.
The index, released on Monday, saw Australia’s score drop from 77.1 out of 100 in 2017, to 72.6 in 2018.
It was the largest drop in the top five ranked countries, and enough to put the nation behind the Netherlands, Denmark, and Finland respectively.
However, it’s not something Australians should be worried by, according to Mercer senior partner David Knox.
“Fourth out of 34 [nations in the index] is still a pretty good result,” he said.
“I wouldn’t be concerned.”
Dr Martin Fahy, the chief executive of superannuation industry research and advocacy group ASFA, told The New Daily that Australia’s system is “still right up there” with the world’s best.
“We shouldn’t be comparing ourselves with other countries,” Mr Fahy said. “We need to focus on offering Australians a dignified retirement instead.”
Questions about savings adequacy
Australia’s drop in the index scores was driven primarily by changes made to the asset test for the age pension, which were introduced in January 2017, Mr Knox said.
A report released by financial services firm AMP in October 2016 before the asset test changes said 50,000 more people would receive the pension as a result of the shift, but 100,000 would lose their entitlements and a further 300,000 would have their benefits reduced.
Mr Knox said these changes “made the pension harder to get” for many Australians, putting more pressure on their superannuation savings.
The increase of household debt in Australia is another big factor, Mr Knox said, with Australia now boasting the second highest proportion of household debt per GDP.
The number of Australians reaching retirement age with a mortgage that still needs to be paid off is also on the up, Mr Fahy said, and this is putting pressure on the super system and affecting the country’s global ranking.
Holistic view necessary
The Global Pension Index said Australia had room to improve in how it manages retirement income, and while some of these addressed the superannuation system directly, many dealt with broader pre-retirement themes.
Similarly, both Mr Knox and Mr Fahy said it was important for the issue of retirement income to be examined in a way that incorporated all the constituent factors, including superannuation, the age pension and household debt levels.
The Global Pension Index report suggested further changes to the asset test for the age pension could help bolster Australia’s global ranking, as could reducing household debt and raising the retirement age.
Extending the superannuation guarantee to self-employed people and employees earning less then $450 per week (the current threshold under which no super has to be paid) would also strengthen the system, according to Mr Knox.
Likewise, raising the superannuation guarantee to a 12 per cent contribution from the current 9.5 per cent would support Australians during retirement, Mr Fahy said.