As the government undertakes its review of the Australian retirement income system, a new report has ranked Australia’s pension system third globally.

Receiving a grade of B+, Australia ranks behind only the Netherlands and Denmark in the 2019 Melbourne Mercer Global Pension Index. According to the Index, the B+ denotes a system that “has a sound structure, with many good features”, with some areas for improvement.

The Index assesses pension systems according to three key indicators: adequacy, sustainability, and integrity.

Under the ‘adequacy’ banner are factors including benefits, savings, system design, and tax support. Meanwhile, ‘sustainability’ takes into account the likes of demography, contributors, total assets, and pension coverage; and ‘integrity’ focuses on factors including regulation, governance, protection, and operating costs.

Receiving an overall Index score of 75.3, the Australian system was awarded a score of 70.3 for adequacy, 73.5 for sustainability, and 85.7 – or an A – for integrity.

The report outlined a number of measures which could boost the Australian system’s score:

  • 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
  • Introducing a mechanism to increase the pension age as life expectancy continues to increase

A number of these measures may be addressed by the government’s review of the retirement income system.

The review is looking into the three pillars of the existing retirement income system: the Age Pension, compulsory superannuation, and voluntary savings. The review will cover the current system and how it will perform in the future as Australians live longer and the population ages.

The release of the Index follows research from Challenger earlier this year that found Australia’s super system is, for the most part, delivering on its intended goal of providing income in retirement to substitute or supplement the age pension.

According to Challenger, there’s now $800 billion in the super accounts of members aged over 65. This figure represents over 28 percent of total assets in the super system.

The average balance per member in retirement is $305,000 for those in not-for-profit funds, like Qantas Super, compared to an average balance of $255,000 for members in retail super funds. The average balance for Qantas Super members aged 65 and above is $390,000.

Disconnect between members and their super

Despite the bronze medal for the Australian retirement system, there seems to be a disconnect between the system and how members view it.

According to the latest Qantas Super CSBA Retirement Confidence Index (RCI), only six in 10 Australians trust their super funds to act in their best interest, only just slightly ahead of the 54 percent who trust in their banks.

Around 13 percent of respondents believe that super funds are profit-driven organisations who only consider their own interests.

Management fees, minimal knowledge or engagement with the fund, the impact of the Royal Commission, and their view of the government regulations governing super were also cited as factors leading to a lack of trust.

The survey identified a slight gap in trust between younger Australians and older Australians.

Perhaps because they have reached retirement age—and their super fund has, in theory, served its main function by helping them save for retirement—Australians aged 60 and above (3.7 out of 5) have more trust in their main super fund than those aged 40-59 (3.5 out of 5).

Along with trust in their super funds, confidence in a financially comfortable retirement is also low for most Australians.

Overall, the RCI measured confidence at an average of 5.4 out of 10. While up from last year’s average of 5.1, the continued lack of confidence from the same groups, including women and those aged between 30-49, from year to year is particularly concerning.

5 easy steps to help increase your retirement confidence

Know your super balance

A recent study by Stockspot revealed that 15% of Australians didn’t know how much super they have. People who have greater clarity of their current situation are generally better placed to make decisions about their future.

Calculate how much super you need for retirement

One of the most common questions we get from members is “how much super will I need to have a comfortable retirement?” Using calculators like the ASFA Super Guru Retirement Tracker can help you work out what income you are likely to have from super and the age pension when you retire. This information can help you decide if you should make additional contributions to super and how long you may need to work in order to have the income you want in retirement.

Find lost super

The ATO’s latest estimate reveals there is $20.8 billion in lost and unclaimed super. You can quickly and easily check for any lost super by logging into your account and clicking ‘Find My Super’, or via the myGov website.

Check your insurance

Australians often have death, disability and some even have income protection insurance built into their super. It’s important to know what insurance you have to understand your level of protection, the premiums you are paying and whether you need more or less insurance cover.

Improve your understanding of how super works

Contributing to many Australians’ apathy toward super is a lack of knowledge around how super works and its importance in providing income in retirement. Online education tools, like our Learning Hub, can help people improve their knowledge so they can make more informed, confident decisions about their financial future.

We're here to help

If you need help with making a decision about your super, you can get simple advice over the phone or face to face. It’s included as a part of your membership so there’s no extra cost.