The Australian pension index value fell slightly during 2017 thanks to the reduction in the household saving rate and the inclusion of the new economic growth question in the system’s sustainability.
The Melbourne Mercer Pension Index 2017 scored the Australian system 77.1, compared to 77.9 in 2016. The index is based on the three sub-index values of adequacy, sustainability, and integrity.
The index said the system could be increased by:
- Introducing a requirement that part of the retirement 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 increase; and
- Increasing the minimum access age to receive benefits from private pension plans so that access to retirement benefits is restricted to no more than five years before the Age Pension eligibility age.
The Australian system had an overall index grade of B+ with adequacy graded as B+, sustainability as B, and integrity as A. The system came third after Denmark (at 78.9) and the Netherlands (at 78.8).
The Australian Centre for Financial Studies interim director, Professor Edward Buckingham, said the Australian pension system was good but had room for improvement.
“Without the immigration of young people from other countries our ageing locally-born population would face significant challenges funding their retirement. The reason is simply that as we live longer, healthcare and public service costs will escalate and our society, like others, will face pressure to fund the needs of the old at the expense of the young,” he said.
“Optimising the use of savings set aside for retirement is a perennial responsibility that demands strategic improvement of pension systems worldwide.”
The index also said that increasingly life expectancies and low investment returns were having significant long-term impacts on the ability of many systems to deliver adequate retirement benefits both now and into the future.
It cited Japan, Austria, Italy, and France and developed economies whose pensions systems did not represent a sustainable model that would support current and future generations in their old age. The overall index values were 43.5, 53.1, 50.8, and 59.6 respectively.