Australia is no longer the top retirement system in Asia Pacific – the first time that has happened since the Mercer CFA Institute Global Pension Index started tracking and ranking the competence of pension systems around the world.
The index was published annually and the 2024 iteration examined 48 retirement income systems around the globe, covering 65 per cent of the world population. Vietnam is a new entrant this year.
Australia’s superannuation system clocked a B+ rating once again, but Singapore’s pension system lifted its score and came on top in Asia Pacific. The latter is based on the Central Provident Fund (CPF), which covers all employed Singaporeans and permanent residents, the report said. The increase in its rating was due to improvements in communications provided to CPF members and the prevalence of defined benefits in the system.
Netherlands, Iceland, Denmark and Israel retained their A-ratings as some of the best pension systems in the world.
Presenting the findings at a CFA Society event on Thursday, Mercer senior partner and lead author of the index, David Knox, said there are some things the Australian system can do to catch up.
Granted, Australia has one of the best defined contribution components in the world, but a glaring area of insufficiency is a lack of retirement income focus.
“Without that focus, we are going to stay B-plus. That’s a government policy decision,” Knox said.
Both APRA and ASIC have not relaxed their pressure on funds to develop concrete retirement strategies since the Retirement Income Covenant took effect in mid-2022. However, the regulators have been underwhelmed with funds’ responses and actions, as revealed in a recent checkup of the covenant’s progress.
Knox also called on super funds to include an income projection in their members’ annual statement, such as “what are you likely to get as an income in your retirement if you keep going the way you’re going, many super funds do it, but it’s not a requirement”.
“One third of the pension systems around the world require [it], we do not,” Knox said.
“That’s something about the fact that we don’t focus on retirement income.”
Moreover, Knox said there is more work to do to close the gender gaps in superannuation – one of them is providing unisex annuities.
“Everything else in the super system is the same for men and women, except when you buy a lifetime annuity,” he said.
Australia’s annuity rates are not only determined by age but also by gender, since on average, women live longer than men. However, Knox argued the key factor behind life expectancy is lifestyle and economic class, and elsewhere in the world, such as in Europe, a unisex annuity rate is achieved.
But also, Knox said Australia could potentially introduce a government super contribution for carers, following the passage of legislation to pay super on parental leave with cross-party support in the Senate last month.
“In some of the leading systems around the world, people who are caring for young children, who are productive mothers, get a government contribution or credit to their pensions,” Knox said.
The countries are ranked in aspects of the retirement system, including adequacy (the suitability to a range of income earners and the efficacy of the overall system), integrity (regulation, governance and member communication) and sustainability (how long-lasting the pension system is).
Elsewhere in major markets, UK pension system, which is currently going through significant reforms, received a B rating. Canada also scored a B rating while the US system scored C+.
