Melbourne Mercer Global Pension Index Report

Australia’s Retirement Savings System Ranked World Number Three. 

The Australian retirement savings system has been awarded a score of 79.6, in the overall ranking of the Melbourne Mercer Global Pension Index (MMGPI) for 2015. The MMGPI was released on 19 October 2015, and included measures of adequacy, sustainability and integrity. Denmark (81.7) and the Netherlands (80.5) took first and second place. Although Australia’s system is often slandered locally, this world ranking paints a positive picture of how we compare globally.

Several factors of a retirement system are rated including Adequacy, Sustainability and Integrity.

Adequacy encompasses the level of base retirement income provided (i.e. the age pension safety net) and the level of replacement income in retirement for medium-income earners.

The Australian system was ranked number one with a score of 81.2 for Adequacy. The system scored 10 for the net replacement rate for median-income earners, vesting and portability upon change of employment and divorce/separation arrangements. It also scored over 8.0 for the minimum access age and proportion of total assets invested in growth assets.

However, our system scored poorly with a 2.0 on the proportion of retirement benefits required to be taken as an income stream, and a 5.0 on the continuity of contributions when temporarily out of the workforce.

Sustainability of retirement income streams globally is of particular concern given ageing population issues and the level of Government debt in some countries. The sustainability sub-index encompasses the proportion of the working age population with retirement funds, level of savings, level of total pension assets as a percentage of GDP and transition to retirement benefit access and flexibility around contributions.

The Australia system was ranked fourth globally with a score of 72.1 for Sustainability. It scored the maximum of 10 in the transition to retirement and flexibility to contribute category; and scores of more than 7.5 for the level of adjusted government debt as a percentage of GDP, and the proportion of the working age population with their own private pension plans.

Integrity measures three broad areas: regulation and governance, protection and communication, and costs, with particular focus on the private pension sector.

The Australian system was ranked third globally with a score of 87.6 for Integrity. It scored the maximum of 10 in a number of the categories including regulatory approval and supervision of private pension plans, requirement of private pension trustees to prepare policies for investment, risk management and conflicts of interest and personal requirements of private pension trustees set by the regulator and professional auditing of financial accounts.

However, our system scored poorly with scores of 5.0 on protection/reimbursement due to fraud or mismanagement and costs.

The MMGPI demonstrates that the Australian retirement income system is almost ‘A Grade’ on a worldwide scale and we should be proud of our Superannuation system. However, it also shows that there are areas that need improvement and some challenges for the Government.

For a full review on the Melbourne Mercer Global Pension Index please click here.