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Australia’s retirement income system climbs to fifth place globally
Australia has the fifth best retirement income system of 47 markets ranked in the Mercer CFA Institute Global Pension Index for 2023, with higher contributions and asset appreciation driving an increase in its score to gain a place on last year’s result.
Noting that demographic changes, as well as the reemergence of inflation challenges and other profound threats, are putting unprecedented pressure on retirement income systems around the world, the researchers found that Australia’s retirement system has a “sound structure” that positions it relatively well for these shifts but that there is room for improvement, warranting a B+ grade. That puts it on par with Finland and Singapore and behind the Netherlands, Iceland Denmark and Israel, which garnered A ratings.
“Each year, this index serves as a critical reminder that there is a long way to go in many jurisdictions to make pension schemes function at their best and for the long-term financial security of beneficiaries,” CFA Institute president and CEO Margaret Franklin said in the index report.
Australia’s pension system received an overall score of 77.3 per cent in the 2023 index, up from 76.8 in 2022, with the research attributing this improvement primarily to higher mandatory contributions and increased pension assets, both tied to the significant hikes to interest rates over the past year-plus.
According to the report, Australia could increase its overall index value by implementing several changes, including moderating the assets test for the means-tested age pension to increase the net replacement rate for average income earners and requiring part of the retirement benefit to be taken as an income stream in most circumstances.
It also calls for the introduction of a government superannuation contribution to primary carers of young children, as well as a requirement that members’ annual statements provide benefit projections.
The index, published annually since 2009, measures the adequacy, sustainability and integrity of retirement income systems against more than 50 indicators, including system design, benefits, coverage, costs and demography. It covers 47 markets representing 64 per cent of the global population, with index scores ranging from 42.3 (Argentina) to 85 (the Netherlands).
Ageing populations, high inflation and interest rates, and deglobalisation are “just a few of the increasingly complex challenges pension funds face, which, in turn, impact the end-beneficiaries in significant ways”, Franklin noted. “More and more often, it is becoming evident that individuals will have an increasingly important role to play regarding their own retirement.
