Australian super system slips down global index

Australia’s superannuation system has slipped down the global rankings because it has failed to adequately focus on the decumulation phase, according to new analysis of the Mercer CFA Global Pension Index.

The Index reveals that Australia has lost its position as having the best system in the Asia Pacific with Singapore now outranking it.

In terms of the global top 10 on the index, Australia has slipped from fifth position to sixth.

Commenting on the latest Index, Mercer senior partner and lead author of the report, Dr David Knox said Australia needs to encourage more older Australians to make the best use of their retirement savings by taking out long-term retirement income streams.

“All but one retirement system in the Global Pension Index’s top 10 has a focus on income in retirement. Australia is the exception. Greater encouragement of retirement income streams will give aging Australians more confidence to plan, spend, and in turn, improve their wellbeing in their golden years,” Knox said.

“Our system is celebrated for being among the best in the world at securing and growing retirement savings through compulsory superannuation. A focus on retirement income is the most significant improvement we can make to our system and the lives of Australian retirees as they live longer,” he said.

The Netherlands’ retirement income system has retained the top spot on the list, with Iceland and Denmark remaining in second and third places, respectively.

Looking at the index methodology, Mercer said the Netherlands had the highest overall index value (84.8), closely followed by Iceland (83.4) and Denmark (81.6).

It said the Netherlands’ pension system has continued to be the best system, as it moves from a defined benefit (DB) structure to a more individual defined contribution (DC) approach, noting that the system also features strong regulations and offers participants guidance regarding their pensions.

Mercer said the Index uses the weighted average of the sub-indices of adequacy, sustainability and integrity. For each sub-index, the systems with the highest values were the Netherlands for adequacy (86.3), Icelandfor sustainability (84.3) and Finland for integrity (90.8).

“Australia continues to perform strongly, particularly in integrity reflecting strong governance and regulation where we compare favourably with global peers,” said Maria Wilton, AM, CFA, Member of the CFA Institute Board of Governors. “The challenge remains in improving pension adequacy, an area where Australia lags.”

“The Government’s initiatives, such as paying superannuation to government-funded parental leave and increasing compulsory contributions to 12 percent from 2025, are important steps towards addressing this gap. Yet, it’s crucial that future policy proposals avoid allowing leakage, which can undermine pension savings by reducing the benefits of compounding and increasing reliance on the Age Pension.”