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Our retirement system is far from perfect, but it’s still better than most

DAVID KNOX, Senior Partner


From industry commentators to think tanks and politicians, the gloves are off – with punches being thrown from both sides. 


The superannuation guarantee (SG) increase can’t possibly be in the best interest of members in a time of low wage growth. Segments of the workforce such as low income earners should be set ‘free’ from super’s stranglehold. Funds are too powerful because of the sheer amount of money they control. High fees are a rip-off and some providers are profiting from the retirement savings of hard-working Aussies.


How, then, as we endure round after round, can Australia’s retirement system be the third best in the world, as announced recently in the 2019 Melbourne Mercer Global Pension Index?


Because we’ve earned it.


The Index, published by the Monash Centre for Financial Studies with the support of the Victorian Government, is overseen by a steering committee of international pension experts, including academics and practitioners. These world-class experts have deemed Australia’s retirement system, of which superannuation is a component, as one of the best in the world.


Why? For starters, the Australian age pension is relatively generous on a global scale. Expressed as a percentage of the average wage, it is higher than that of France, Germany, the Netherlands, the UK and the US. We’re giving a good base to those in need.


Then, if we look at assets, during the last 20 years the level of assets in Australian super funds has skyrocketed from 40 per cent of our GDP to more than 140 per cent – a strong result as funds are being set aside for the future retirement benefits of Aussies, vital for an ageing population. While this is significant progress in a relatively short amount of time, it is still less than the level of pension assets held in Canada, Denmark, the Netherlands, and the US, when expressed as a percentage of GDP.


We also have a workforce that has a comparatively strong level of coverage of people that are receiving and will receive superannuation benefits, thanks to the compulsory SG. Without it, future retirees would be relying on the means-tested age pension. Australia, in fact, is likely to have the lowest Government expenditure on pensions of any OECD country within the next 20 years – an excellent outcome for the next generation of taxpayers with the resulting reduced pressure on federal budgets.


Finally, while we are an ageing country, our demographic outlook is well placed when compared to some other countries – particularly those in Asia and Europe – as we are ageing at a slower rate due to immigration and a higher fertility rate.


The integrity of our superannuation system has been called into question, citing the recent banking royal commission’s findings and high fees. The reality is that some funds have high fees, others don’t. Generally, fees are very competitive and members are getting good outcomes for their fees. The integrity of our retirement system is supported by the fact that we have continuous scrutiny and review in the public domain. That we can even carry out a royal commission as well as a Productivity Commission review, Financial System Inquiry and the current Retirement Income Review are testament to the integrity of the system. Many other countries included in the Index don’t have this luxury. While each review has highlighted some shortcomings, leading to amendments, the core elements of our system have remained unaltered and supported.


So, is it among the world’s best retirement systems? Yes.


Is it perfect? No.


Our age pension is generous but there needs to be more assistance for private renters, and a moderation of the current strong assets test taper.


A recent review by international experts from the International Centre for Pension Management confirmed the need to set a goal for Australia’s overall retirement income system. It is important that the forthcoming review consider the role of each pillar of Australia’s system – including the age pension, superannuation and voluntary savings, as well as home ownership – and how they interact with each other to develop an integrated retirement income system. After all, there are elements within the current arrangements that may be operating in sub-optimal ways.


We seem lost when considering the decumulation years. We’re great at accumulating retirement savings, but after that, what then? There is no clear direction. It is critical that we understand the purpose of the overall system and that a broader range of pension products be developed to ensure that retirees receive income for life in a fair and sustainable manner.


Fruitful friction plays an important role in building a stronger system and future for our retirees. But, as we throw the punches, we shouldn’t lose sight of our successes while at all times keeping our eye on the prize – making the necessary improvements to ensure that we have a first class retirement system that serves all Australians.


First published in The Australian, 5 November 2019




Dr David Knox BA PhD FIAA
Senior Partner, Senior Actuary
Dr David Knox BA PhD FIAA
Senior Partner, Senior Actuary

David is a Senior Partner at Mercer and Senior Actuary for Australia. He is the National Leader for Research and the actuary to the Tasmanian and Western Australian public sector superannuation plans
He was the industry expert of the three-person team who conducted a review of Military Superannuation for the Australian Government and is the lead author of the Melbourne Mercer Global Pension Index which compares more than 30 retirement income systems around the world.
Before joining Mercer in 2005, David was at PricewaterhouseCoopers and prior to that was the Foundation Professor of Actuarial Studies at The University of Melbourne. In his two decades in academia, he acted as a consultant to a range of financial organisations, in both the private and public sectors, specialising in the superannuation and retirement incomes area. He has spoken and written widely in this area and has served on many Government and industry committees.
David was an independent Board member of Australian Prudential Regulation Authority from 1998 to 2003 and President of the Institute of Actuaries of Australia in 2000.
He has a Bachelor of Arts and Doctorate (which focussed on pensions) from Macquarie University and is a Fellow of the Actuaries Institute.

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