AUSTRALIA'S $1.3 trillion superannuation system has regained a second-ranked spot in a global measure of retirement savings schemes, coming in slightly behind the Netherlands when for payments to retirees.
However, Australia could emerge as a clear winner if the government pushes ahead with its plans to lift the compulsory superannuation savings rate to 12 per cent from 9 per cent, according to the latest Global Pension Index.
"Australia is quite a robust system, we're relatively well funded, we're still putting additional money aside and we don't have the demographic pressures, which are extreme in other countries," said David Knox, a senior partner with Mercer, a superannuation advisory firm.
"But if we move in the direction of increasing the superannuation guarantee, increasing the workforce participation rate among older Australians . . . then we can actually become the first gold-standard [superannuation] system," he said.
The index tracks public and private superannuation systems across 16 countries from Europe, Latin America and parts of Asia. The rankings are compiled through a combined measure of payout on retirement, whether a country can afford a scheme over time, and the level of trust in the superannuation system.
Australia regained its second spot in the rankings with an overall score of 75, up from fourth place last year. The Netherlands rated 77.9, China was last on 42.5.
The study found Australia had the largest exposure to sharemarkets among global schemes, which can leave retirees' savings vulnerable to wild swings. At the other end of the spectrum, many assets of pension schemes, as in Singapore, are tied up in government bonds, leaving little room for income growth.
This is the third year the index has been compiled, providing politicians and regulators with a key measure for the standing of Australia's superannuation system.
It comes in the midst of a shake-up of Australia's super sector, including tougher oversight of funds. The move is aimed at improving confidence in the industry, when volatile global markets have produced shrinking returns, and follows recommendations from the federal government's "stronger super" reforms.
Some of Europe's wealthiest countries France and Germany scored poorly on the index even though they are regarded as having relatively generous superannuation systems by global standards. Their weak point is whether their pension schemes can be sustained over the long term. Evidence of this can be seen in other parts of Europe where governments are struggling under too much debt and are under pressure to sharply curb spending.
Frequently Asked Questions about this Article…
What does the Global Pension Index say about Australia's superannuation ranking?
The Global Pension Index ranked Australia second overall with a score of 75, up from fourth place last year, putting it just behind the Netherlands (77.9) in the latest measure of retirement savings schemes.
Could raising the compulsory superannuation rate make Australia the top-ranked retirement system?
According to the study and commentary in the article, Australia could become a clear winner if the government raises the compulsory superannuation guarantee from 9% to 12% — an increase that experts say would strengthen retirement savings and potentially create a ‘gold-standard’ system.
What criteria does the Global Pension Index use to rank superannuation and pension systems?
The index ranks 16 countries using a combined measure of retirement payout levels, whether a scheme is affordable and sustainable over time, and the level of public trust in the superannuation or pension system.
How exposed are Australian super funds to sharemarkets and what does that mean for retirement savings?
The study found Australia has the largest exposure to sharemarkets among the countries measured, which can leave retirees’ savings more vulnerable to large market swings and volatility in investment returns.
How does asset allocation in other countries affect retirement income growth?
The article notes that some schemes, such as in Singapore, tie many assets into government bonds — a conservative allocation that can limit potential income growth compared with higher sharemarket exposure.
What recent reforms and oversight changes are affecting Australia’s superannuation industry?
Australia’s super sector is undergoing a shake-up with tougher oversight of funds aimed at boosting confidence after volatile global markets, and these changes follow recommendations from the federal government’s ‘stronger super’ reforms.
How has Australia’s Global Pension Index score changed compared with last year?
Australia’s overall score improved to 75 this year, moving it up from fourth place last year to reclaim the second-ranked position in the index.
Why did some wealthy European countries score poorly on the Global Pension Index despite generous pension benefits?
The article explains that countries like France and Germany scored poorly mainly because of concerns about long-term sustainability — even with generous benefits, high government debt and fiscal pressure raise doubts about whether those pension schemes can be maintained over time.
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