We drink the second largest amount of beer in the world per capita (according to FinancesOnline), have the second-highest house prices in the world (according to BIS), and now, our retirement income system is also ranked second in the world, according to the latest study from Mercer.
The Melbourne Mercer Global Pension Index (MMGPI) ranks the retirement income systems of 25 countries around the world, judging them against 50 indicators. The study looks at integrity, sustainability and adequacy in particular and is considered to be the most comprehensive comparison of pension schemes on the planet.
In 2013, we landed third place with a score of 77.8. In 2014, Australia beat the Netherlands for the first time in five years with a score of 79.9. The current top spot belongs to Denmark, however.
So what makes the Australian superannuation system so great?
A big part in the leap from second to third place was the initiative to increase superannuation guarantee (SG) payments from 9% to 9.5%, as well as the plans in place to continue this to 12% after 2021. The SG is a compulsory contribution from employers, determined by your ordinary time earnings. The government has set the SG in place to help Australians save for retirement, a move that earned Australia first place in the adequacy sub-index of the study, with a score of 81.2.
Proving Australia worked hard for its high ranking, Executive Director of the Australian Centre for Financial Studies mentioned that since the start of the pension index, the ratings have been on the rise.
“The average score for the 14 countries in 2010 was 61.7 compared to 64.3 for the same countries in 2014,” she said.
In Australia, you can also boost your retirement savings with a salary sacrifice, personal contribution or spousal contribution, giving you plenty of ways to top up that super fund. Find out if Virgin S
How can we improve the Australian superannuation system?
Despite our lofty rankings, the superannuation debate rages from all quarters. Legislators try to balance the needs of the individual, the economy and the future of the country. Employers might struggle to afford growing the SG payments in an increasingly competitive world. Employees could prefer the money in their pocket today. Retirees may yearn for better ways to access their super pots.
And that’s just scratching the surface.
Globally, the MMGPI suggests that countries in general need to encourage better private savings, increase retirement ages in response to higher life expectancy and promote working in the labour force at older ages.
Australia already has a retirement age increase in the works, moving from its current level at 65 to 67 by 2023 according to the Department of Social Services, but the report also includes a few specific suggestions. These include increasing the minimum age at which people can access funds from their private pension plans and to remove “legislative barriers to encourage more effective retirement income products”.
Second in the world is pretty good – but can you identify ways to improve our superannuation system?