Australia’s Retirement Income System

I’m sure by now you have heard that due to rising life expectancies, increased government debt and uncertain economic conditions, our social security system is under more pressure than ever before. It is the primary reason why our government continues to make changes to superannuation and the age pension. What you may not realise is that this problem exists in most other countries in the world.

The Melbourne Mercer Global Pension Index seeks to conduct research and compare the retirement income systems in 25 countries which encompass a diversity of pension policies and practices. In its sixth edition, presented in October 2014, Australia jumped from third to second falling just short of Denmark. The main reason for this jump was the improvement to our SG payments, increasing from 9% to 9.5%, with a planned increase to 12%. According to the author of the report and Senior Partner at Mercer, Dr David Knox, the results highlight that increasing the SG from 9 to 12 per cent is the right long-term policy to ensure an adequate and sustainable retirement income for all Australians.

However, I believe there is still room for improvement. Mostly as I am still meeting with people every day who, without significant short to medium term changes, will have to compromise on their ideal lifestyle in retirement. It concerns me that there is still a tendency for people to bury their heads in the sand until they are forced to sit up and take notice, often at 1 minute to Retirement.

While there are a number of reforms that the government can (and probably will) put in place, I think the majority of people would benefit by increasing their own personal levels of saving for retirement sooner. For example, it is easier to save $50 a week for 20 years, than $1,000 per week for 5 years. It may also be worthwhile seeking out professional financial advice to see how you are placed to meet your retirement goals, the sooner the better. In the meantime, congratulations for living in a country with the second best retirement income system but that is no reason to rest on your laurels. Get up now and go look at your last super statement. If you have trouble understanding what it means, it may be time to talk to a financial adviser who can help decipher it for you.