Aussie retirement income system better than average OECD

Oksana Patron

24 February 2023

Australia’s retirement income system is well placed to meet future challenges compared to the average OECD (Organisation for Economic Co-operation and Development) country which often face with higher government spending on pension payments.

The ASFA Research “The cost of pensions across advanced economies” has identified poor system design, population ageing, and elevated inflation as “imperiling the long-term sustainability of many OECD retirement income systems”.

The data shows that the average OECD government spending on pension payments will rise from 9.0% to 10.4% of GDP over the next four decades while Australia’s government pension expenditure was relatively low and is expected to decline – from 2.6% to 2.1% of GDP by 2060.

“Globally, pressures on fiscal sustainability are building and many countries in the OECD face politically challenging reforms to repair their retirement systems,” ASFA chief executive, Dr Martin Fahy, said.

“In contrast, Australia’s retirement system is well placed to face challenges to fiscal sustainability, due in large part to our high levels of private superannuation savings helping to reduce government pension spending.”

Additionally, Australia’s super system was maturing – with the superannuation guarantee (SG) contribution rate scheduled to reach 12% in 2025 and people who reach retirement will have received SG contributions at higher rates, for longer periods of time.

According to the research, this will lead to higher balances for workers at retirement.

“Australia’s unique defined contribution (DC) super system is arguably the best in the world. At a time when most advanced economies are grappling with the fiscal burden of the age pension, Australia’s will continue to be among the lowest of our OECD peers,” Dr Fahy added.

Other key findings from the report included:

• For the OECD as a whole, the proportion of the population aged 65 and over will increase from 17 to 27 per cent over the next three decades.
• Countries where pension spending is expected to increase relative to GDP (in the absence of reform) include Canada, Germany, NZ, the UK and the US.
• In some other countries, pension spending is projected to fall but remain at a very high level – such as, France, Greece and Italy.
• For OECD countries facing sustainability challenges, changes to current policy settings would involve a combination of reduced pension payments and tighter pension eligibility.