Key Takeaways
- • Australia ranks third in the Melbourne Mercer Global Pension Index, regaining its third-place spot from Finland, which had displaced it the prior year, according to research by Mercer and Monash Business School.
- • The index assessed retirement income systems across 37 countries representing more than 63% of the world's population, benchmarking over 40 indicators.
- • The Netherlands, with a $1.5 trillion pension industry, retained the top position and has held first or second place in ten of the last eleven editions.
- • Australia's $2.9 trillion superannuation industry scores consistently well, but the tougher age pension assets test introduced on 1 January 2017 has been identified as a key weakness.
- • Mercer's David Knox called for better integration between the age pension and superannuation and clearer incentives for additional contributions.
Summary
Australia has regained third place in the Melbourne Mercer Global Pension Index, ranking behind the Netherlands and Denmark, according to research by HR consulting firm Mercer and Monash Business School. Australia had been displaced by Finland the previous year. The analysis evaluated the strength, quality and fairness of retirement income systems across 37 countries, representing more than 63% of the world's population. The index covers more than 40 indicators, including the generosity of pension benefits, the quality of public and private sector pensions, expected retirement benefit duration, pension communication and governance, and protections for plans and retirees.
The Netherlands, with a $1.5 trillion pension industry, was again named the global leader and has held first or second place in ten of the last eleven editions. Denmark ranks closely behind the Netherlands, while Finland, Sweden and Norway rank ahead of major pension markets including Germany, the UK, China and the US.
Australia's $2.9 trillion superannuation industry scores consistently well on most dimensions, but the report identifies weaknesses. Among them is the age pension assets test. Since 1 January 2017, the part-pension reduces more quickly as assets increase: the reduction rose from $1.50 of pension per $1000 of assets to $3.00 per $1000. David Knox, senior partner and lead author of the report at Mercer, said that although people save during their careers, the stronger assets test reduces their age pension entitlements.
Knox argued that Australia would benefit from better integration between the age pension and superannuation, noting that there are not enough incentives for individuals to make extra contributions. The report also stresses that retirement income assessments should include household savings and home ownership. Knox noted that Australia's significant household debt means some retirees will use superannuation savings to repay debt, reducing disposable income in retirement. He advised policymakers to ensure the pillars of the pension system work together to encourage saving.
The Netherlands, with a $1.5 trillion pension industry, was again named the global leader and has held first or second place in ten of the last eleven editions. Denmark ranks closely behind the Netherlands, while Finland, Sweden and Norway rank ahead of major pension markets including Germany, the UK, China and the US.
Australia's $2.9 trillion superannuation industry scores consistently well on most dimensions, but the report identifies weaknesses. Among them is the age pension assets test. Since 1 January 2017, the part-pension reduces more quickly as assets increase: the reduction rose from $1.50 of pension per $1000 of assets to $3.00 per $1000. David Knox, senior partner and lead author of the report at Mercer, said that although people save during their careers, the stronger assets test reduces their age pension entitlements.
Knox argued that Australia would benefit from better integration between the age pension and superannuation, noting that there are not enough incentives for individuals to make extra contributions. The report also stresses that retirement income assessments should include household savings and home ownership. Knox noted that Australia's significant household debt means some retirees will use superannuation savings to repay debt, reducing disposable income in retirement. He advised policymakers to ensure the pillars of the pension system work together to encourage saving.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.