Report backs move to older pension age
AUSTRALIA could be doing a lot better with how it prepares for the surge in its ageing population according to the most recent Melbourne Mercer Global Pension Index (MMGPI).
And doing better should include increasing the pension age, the report suggests.
This is contrary to Treasurer Josh Frydenberg's recent viewpoint that the Federal Government was not considering raising the pension age as part of the Government's Superannuation: Assessing Efficiency and Competitiveness retirement income review. It will look at the three pillars of the existing retirement income system - the Age Pension, compulsory superannuation and voluntary savings.
The Melbourne Mercer Global Pension Index (MMGPI) annually measures 34 pension systems, using adequacy, sustainability and integrity, to measure each retirement income system against more than 40 indicators.
This year's report shows there is significant diversity across the systems, with Netherlands and Denmark (with scores of 80.3 and 80.2 respectively) offering A-Grade world-class retirement income systems with good benefits - "clearly demonstrating their preparedness for tomorrow's ageing world". Argentina ranked lowest at 39.2.
Australia achieved a B grade, which is described as "a system that has a sound structure, with many good features, but has some areas for improvement that differentiates it from an A-grade system".
Its overall index value came in at 72.6 in 2018, down from 77.1 in 2017. "(This is) primarily due to a toughening of the assets test resulting in a reduction in the net replacement rate and the inclusion of the level of household debt as part of the adequacy sub-index," the report concludes.
The MMGPI found the Australian retirement income system relies on three interacting pillars - the means-tested and publicly funded Age Pension; the mandatory employer-funded defined contribution known as Superannuation Guarantee; and additional voluntary contributions supported by tax concessions and direct government support for low-income earners.
The report suggests the index value for the Australian system could be increased by:
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 retirement benefit must be taken as an income stream;
Increasing the labour force participation rate at older ages as life expectancies rise; and
Introducing a mechanism to increase the pension age as life expectancy continues to increase.
"Pension systems around the world, including social security systems and private sector arrangements, are now under more pressure than ever before," MMGPI lead author and director at Mercer, Dr David Knox reports. "Significant ageing of the population in many countries is a fact of life. Yet this is not the only pressure point on our pension systems."
Underpinning the report's findings is the realisation that: "The provision of financial security in retirement is critical for both individuals and societies as most countries are now grappling with the social, economic and financial effects of ageing populations.
"The major causes of this demographic shift are declining birth rates and increasing longevity. Inevitably these developments are placing financial pressure on existing retirement income systems."