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Australia’s pension slips rank to third
Australia's overall pension rank has slipped to third place, overtaken by the Netherlands, according to a Mercer index.
The 2015 Melbourne Mercer Global Pension Index (MMGPI) saw Australia miss out on an A grade once again. Denmark, which came first, and the Netherlands are the only countries to achieve the A grade in the seven-year history of the index.
Author of the report and senior partner at Mercer, David Knox, told Super Review the top three countries all had good coverage and had most of their workforce involved.
"Compared to the top two, our system is not compulsory for self-employed, and we have slightly lower coverage and assets. In Australia, it accounts for 125 per cent of our GDP [gross domestic product], while it is 160 per cent for the Netherlands, and 170 per cent for Denmark," he said.
However, Australian Centre for Financial Studies executive director, Amy Auster noted it was a change in methodology that bumped the Netherlands to second place.
"Australia moved from second to third but that was primarily due to a shift in how one indicator, which is the savings rate, is calculated and that's a third party provider that does that. They changed their methodology and it happened to really benefit the Netherlands," Auster said.
One of the report's recommendations was to increase the labour force participation rate at old ages.
Knox said two ways to do this was to increase the pension age to 67, and increase the preservation age so that it was not more than five years below the pension age.
"If you do all those things people are just going to work that bit longer because that's not the norm. More and more people are seeing their grandparents live well into their 90s," he said.
"One thing the Netherlands does is they adjust their pension age automatically every five years. So their system is linked to life expectancy."
Other recommendations included introducing a requirement that part of the retirement benefit must be taken as an income stream, introducing a mechanism to increase the pension age as life expectancy continues to increase, and increasing the minimum access age to receive benefits.
Auster also said since Australia remained the top of the pack, it highlighted the opportunity for the superannuation industry and fund managers to find opportunities to help Asia improve its pension system.
"A lot of the countries in the bottom half are our near neighbours in Asia. We can work on how to work and make their systems sustainable in assets under management," she said.
"Some are really struggling with an ageing population."
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