According to the 2019 Melbourne Mercer Global Pension Index, Australia’s super system is rated a B+.
It scored 75.3 on the index rating, behind only the Netherlands and Denmark, which both scored above 80.
The report highlighted Australia’s high levels of household debt as a key challenge holding back our superannuation system, which saw a need for additional funds being required to pay off debt in retirement.
The report’s author, Dr David Knox, said that “as the OECD notes, one needs to look at the assets available to pay down debt. In particular, where future pension liabilities are already funded, this will increase households’ assets.”
The report noted that the levels of household debts vary greatly country to country, with Argentina’s debt level being 7 per cent of GDP, while Australia currently has 129 per cent of its GDP in debt.
Countries with household debt of 130 per cent of GDP or higher scored a zero on this element of the index, the report outlined.
Despite high debt levels, it said that overall, Australia’s superannuation system has a sound structure with many good features but has areas for improvement that differentiate it from an A-grade system.
To improve into an A-grade system, Mercer outlined five main areas in which Australia’s superannuation system needs to be overhauled:
- Moderating the asset test on the means-tested age pension to increase the net replacement rate for average income earners
- Raising the level of household saving and reducing the level of household debt
- Introducing a requirement that part of the benefit must be taken as an income stream
- Increasing the labour force participation rate at older ages as life expectancies rise
- Introducing a mechanism to increase the pension age as life expectancy continues to rise.
The report comes off the back of a strong September for Australia’s growth focused super funds.
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