21 October 2009
Australia’s superannuation system – one of the best in the world
Australia has emerged as one of the best ranking countries in a global measure of superannuation funds recently developed by the Mercer group for the Melbourne Centre for Financial Studies.
The top-ranking country was the Netherlands, with Australia second, edging out Sweden and Canada.
The Australian superannuation system is based on a compulsory levy of 9% of an employee’s wage or salary that has to be paid by the employer (on top of the employee’s wage or salary) to a superannuation fund of the employee’s choice. All superannuation funds that are available to the public have to be registered with the Australian Prudential Regulation Authority. The employee can make his or her own extra contributions to the superannuation fund, and these contributions can attract tax concessions.
Australia’s retirement income system was ranked second in a world-first global pension index that compares private and public pension systems from around the world. The overall index considers results from more than forty indicators which reflect certain features that are desirable in all retirement income systems. These characteristics have been grouped into three sub-indices: adequacy, sustainability and integrity. The study allotted the adequacy of a pension or superannuation system the highest weighting with 40 points, with sustainability accounting for 35 points and integrity 25 points.
The inaugural Melbourne Mercer Global Pension Index, produced by the Melbourne Centre
for Financial Studies and Mercer, is a world first in comparing the retirement income
systems of 11 countries.
The Netherlands obtained top ranking in the Index with a score of 76.1 out of a
maximum of 100, followed by Australia (74.0), Sweden (73.5) and Canada (73.2).
"With an ageing population on the agenda as a critical issue for governments around
the world, this index can provide lessons and better insights into how countries
are grappling with the related economic and social issues", said Professor Deborah
Ralston, Director of the Melbourne Centre for Financial Studies.
The report recommended that Australia’s system could be improved by:
increasing the level of mandatory contributions, preferably with some participation
requiring some part of the final benefit to be taken as an income stream, instead
of a lump sum amount;
raising the labour force participation rate amongst older workers; and
continuing to review the pension age as life expectancy increases.
No country in the Index was classed as having an A-grade system (obtaining a score
greater than 80). “The fact that no country achieved an A-Grade classification confirms
that no one system is perfect or currently robust enough to withstand the growing
challenges of supporting an ageing population”.
“The best arrangements for a particular country will depend upon its individual
social, economic, political, cultural and historical context. However, Governments
can learn lessons to help them better prepare for demographic change by looking
at other retirement income systems,” Dr Knox, Mercer’s worldwide partner in retirement,
risk and finance, said.
The countries with the lowest ranking retirement income systems were Japan with
a score of 41.5, China (48.0) and Germany (48.2). While these countries don’t fall
into the lowest grade E category, with a score below 35, the efficacy and sustainability
of their systems will be in doubt if major weaknesses are not addressed.
The adequacy of benefits – or how much income is available to a retiree – was given
the highest rating in the index. The Netherlands (80.5) and Canada (76.2) scored
highest in this index due to the level of the minimum public pension, and a relatively
high net replacement rate of income for median income earners. Australia was in
fourth position in the adequacy sub-index with a score of 68.1. Japan had the lowest
score at 39.2.
In the sustainability sub-index, participation in private pension plans and the
level of pension assets (expressed as a % of GDP) were the two major factors. Sweden
(75.2) and Australia (71.0) rated the highest on this sub-index.
The integrity sub-index was based on an assessment of four key areas – prudential
regulation, governance, risk protection and communication of private pension provisions.
The highest rating countries for the integrity sub-index were the Netherlands (88.2),
Australia (87.8) and the UK (86.3).
The inaugural Melbourne Mercer Global Pension Index was a pilot study and it is
hoped that it will be repeated annually and future studies will be expanded to include
more countries. The report is expected to generate strong interest internationally,
including with organisations such as the World Bank and the OECD.
> About Us
> PDS - Want to invest?
> Subscribe Free
> Independent Ratings
> Mortgage Shopping List
Head of Funds Management
t +61 3 8610 2811
Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.
La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.
Copyright 2010 La Trobe Financial. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial. Disclaimer