Australia’s retirement system is being held back by the growth of the gig economy and restrictions on paying super to low wage earners, according to the Melbourne Mercer Global Pension Index.
The report’s author, Mercer senior partner David Knox, told The New Daily the system could be improved by boosting coverage of superannuation, which is currently paid to less than 70 per cent of the workforce despite being compulsory.
“In Denmark and some other parts of Europe it’s over 80 per cent,” Dr Knox said.
“Self-employed people and often those working in the gig economy aren’t paid super along with those earning less than $450 a month,” he said. “All who earn income should get super so we should develop a method to transition them [those not getting super] into the system.”
Super fund REST estimated that the $450 monthly threshold is cutting $150 million annually from low income workers’ super.
The gig economy, where people do casual work arranged through apps and online portals, is a growing sector where people are generally not paid super because they are treated as contractors.
The Association of Superannuation Funds of Australia estimates there are around 100,000 workers — or 0.8 per cent of the workforce — working in the gig economy through web-based platforms like Uber, Deliveroo and Airtasker.
And in the 2015 financial year, 32 per cent of the workforce, or 4.1 million workers, earned some income from freelancing and some of that would be presumably through gig companies.
Australia’s falling savings rate has cut its overall score on the world retirement tables scorecard, the Global Index found. But we still come in at No.3 behind Denmark and the Netherlands.
Australia’s overall score on the tables fell to 77.1 from 77.9, which leaves it behind Denmark at 78.9 and the Netherlands at 78.8.
“While the Australia still has a B+ rating and is at No.3 on the tables, our score has slipped because our household-savings ratio has slipped over the past couple of years”.
Australia’s household savings ratio stood at 4.6 per cent in June compared with 9 per cent in July 2015.
Leaders Denmark and the Netherlands also saw ratings declines, but theirs were driven by low economic growth following changes to the index structure. Australia was little affected by this factor.
The rankings are made up of three factors: sustainability, integrity and adequacy. While Australia performs well on the first two, it ranks only at seventh in adequacy because of relatively low age and superannuation pension levels.
“When the super guarantee (SG) goes up to 12 per cent there will be a significant rise in adequacy,” Dr Knox said. Originally the SG was scheduled to hit 12 per cent in 2019 but this was delayed until 2025 by the Coalition government.
The survey measures superannuation, pension entitlements and a range of economic factors. Australia rates in the middle in terms of pension levels, with the pension equivalent to 27 per cent of average pay.
Denmark pays 34 per cent while the US and UK pay pensions only equivalent to around 20 per cent of average earnings, Dr Knox said.
The system would also be improved by the introduction of a requirement that part of retirement benefits must be taken as an income stream as opposed to a lump sum, the report said.
“Some European countries mandate 100 per cent of benefits be taken as an income stream; that’s too high, but we should be considering a default income stream product,” Dr Knox said.
The report also recommended that the pension age be lifted as life expectancy increases and that the age at which super can be taken should be pegged at five years below the pension age.