It’s the ultimate first world problem. Australia has one of the finest retirement systems going, with mandated regular contributions swelling a superannuation vault now worth $3 trillion and an age pension far better than comparative nations. When it comes to financial provision for retirees, Australia really is the lucky country.

As our retirement system has grown, however, its flaws have become more apparent and impactful. The age pension has convoluted means testing and is overly complex. Debate about the appropriate level of mandated contributions rages. Balances are skewed between genders and a new generation of self-employed workers remain under-served. We don’t have the right pension products in place to service retirees and far too little emphasis is placed on the decumulation phase of superannuation.

These are pressing issue, but at the core lies a greater problem. Our retirement system is fundamentally without direction. It lacks a broad objective that declares its purpose and drives appropriate policy, as well as a framework trustees can rely upon to guide decision making on behalf of fund members.

For all its brilliance, our retirement system is like a big boat with serious leaks and a missing rudder. It’s time to pull anchor and make repairs.

A good problem to have

According to David Knox, senior partner at Mercer, Australians tend to look at our retirement system with blinkers on. “Our system has great features that we tend to undervalue,” he says.

In Mercer’s 2019 Global Pension Index, which Knox authored, Australia ranked third in the world with a total index value of 75.3, behind two wealthy nations that employ defined benefit programs in Denmark on 80.3 and The Netherlands on 81. The average score across the 37 systems covering almost two-thirds of the world’s population was 59.3.

“Look at our age pension,” Knox says. “For a single person it’s 27 or 28 per cent of the average wage. In the US or the UK it’s about 18 or 19 per cent, so that’s pretty good on a global perspective.”

On the superannuation side, Knox continues, we have a tax-friendly compulsory contribution system that encourages consumer prudence and should lead to Australia having the OECD’s lowest public pension cost in about 20 years.

“Put those two together and we have a very good base,” he says. “From a fiscal and sustainability perspective we’re in a really positive position.”

Jeremy Cooper, the chairman of retirement income at Challenger, puts the importance of our system in a broader perspective. “It’s part of the national psyche,” he says. “It’s had all sorts of positive impacts in our society.”

The complex, ‘half-baked’ system

Our retirement system may be first-rate on a comparative scale, but its size amplifies the impact of its flaws.

When the International Centre for Pension Management held its 15th annual discussion forum in Australia in October last year, chair of the working committee that assessed the system, Andre Snellen – an economic psychologist and chair of the Dutch pension fund Pensioenfonds Detailhandel – denounced the complexity of our system, saying it disempowered individuals who struggle to transition from savings to an income stream. Snellen will speak at Professional Planner and Investment Magazine’s annual Retirement Conference in Sydney on March 31 alongside Senator Jane Hume and the Grattan Institute’s John Daley.

There are still tickets available to attend this year’s Retirement Conference, reserve your seat here.

“People are utterly lost going into retirement,” Snellen said in a conversation with Professional Planner‘s sister publication, Top1000. “Pretending people can choose in such a complex situation is fake, even misleading.”