The Australian retirement income system would improve if there was better integration with superannuation and the Age Pension, according to a report.
The ‘2019 Melbourne Mercer Global Pension Index’ found the country’s retirement system placed third in the world behind the Netherlands and Denmark.
Australia was the only country to score a ‘B plus’ grade – a system that had a sound structure, with many good features, but had some areas for improvement that differentiated it from an A-grade system.
The index found the Australian system lagged in adequacy and long-term sustainability values but had high integrity.
The report recommended the country should:
- Moderate the asset test on the means-tested age pension to increase the net replacement rate for average income earners;
- Raise the level of household saving and reduce the level of household debt;
- Introduce a requirement that part of the retirement benefit must be taken as an income stream;
- Increase the labour force participation rate at older ages as life expectancies rise; and
- Introduce a mechanism to increase the pension age as life expectancy continues to increase.
Mercer senior partner and author of the study, Dr David Knox, said systems globally were facing unprecedented life expectancy and rising pressure on public resources to support the health and welfare of older citizens.
He said policy makers needed to ensure long-term outcomes for retirees of the future.
“In Australia, we need better integration between the age pension and superannuation, which doesn’t currently provide enough incentive for individuals to contribute. In particular, the overall system needs to provide clear additional benefits from making extra contributions,” Knox said.
“There are recommendations that have been put forward for some time now, such as raising the pension age as life expectancy increases, and making adjustments to the asset test to improve retirement income for average earners.
“We’re on the cusp of strengthening our retirement system to receive the coveted A-grade. Hopefully the Review of Retirement Incomes will go a long way to improving the Australian system.”