Despite employers’ problems with it, the Australian superannuation system is the third best in the world according to the latest results from the annual Melbourne Mercer Global Pension Index.
Apart from employers’ usual complaints about having to distribute payments themselves, the study recommends increasing the retirement age, promoting more labour force participation and increasing the coverage for the self-employed in a private pension system.
The release of the report is timely. More Australians are using self-managed superannuation accounts than ever before – so much so regulators have even warned property investments could cause prices to rise.
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Mercer senior partner David Knox told SmartCompany this morning while employers may dislike the system of having to distribute and manage payments to workers, the older method of using pension funds was arguably worse.
“Most employers used to have their own funds, which was even messier,” he says.
The Australian system was ranked third, behind the Netherlands and Denmark, and graded a B+. This rating actually increased from last year due to the government’s changes in superannuation law, such as the default low-cost MySuper accounts.
Although the system is very strong, it said, there are still improvements which can be made.
Specifically, Knox said, the government should think about introducing a requirement to make part of retirement benefits paid in income streams rather than lump sums.
“It doesn’t have to be overnight, it can be done over a transitional period, but I think it’s important the government signals this as a way we’re heading,” he says.
Given life expectancy is increasing, he says, helping people understand they need to stretch income over as many as 30 years is essential.
“We’ve signalled the pension age is going up from 65 to 67, and we should see that super is all about income. Seeing some changes there would be a big improvement.”
Other improvements recommended by the report included introducing a mechanism to increase the pension age as life expectancy continues to rise, along with removing legislative barriers to encourage more effective retirement products.
Another suggestion is for the government to increase minimum access ages to receive benefits from private plans, so that benefits aren’t available more than five years before the age pension eligibility.
Despite employers’ protests with the superannuation system, the Coalition government is considering changes to employers’ role.