This year Australia’s score improved slightly taking it to second place among the 25 countries included in the survey,which is a very strong result. However, it should be noted that the improvement in rankings was based in part on the gradual increase of compulsory employer contributions to 12%, which has been postponed by the current government.This boost would have contributed greatly to the ‘adequacy’ element used to rank national pension systems. Unfortunately,many workers will now retire poorer due to this postponement. Still, on the global stage Australia should be proud of its achievement of a highly regulated,funded superannuation system which increasingly will become a cornerstone of the Australian economy.
And why are adequacy, sustainability and integrity so important? David Anderson, Managing Director and PacificMarket Leader at Mercer*, provides some interesting statistics to consider:
- • 50% of retiring white-collar male workers are likely to live to 88 years and20% are expected to live to 94, and
- 50% of retiring female white-collar workers are likely to live to 91 years with20% likely to live to 96.
He describes the increased longevity phenomenon as “the perfect storm”because as the ageing population grows,the smaller tax base will have difficulty supporting it. Add government reductions to the age pension and the “perfect storm”metaphor begins to take shape.
The magic age of 65 for retirement was introduced by Germany in the early 20th century after having initially been set at 70by Chancellor Otto von Bismark. America followed suit in 1935 with the introduction of its social security system. Of course at the time of the introduction of these benefits, life expectancy was much lower than 65 so social security payments did not apply to the bulk of the population who would never reach the magic age.
With the increase in longevity, however,we can see that retirees will have to be prepared for a much longer ‘golden years’ period that they will have to fund themselves. In many cases this will be20 or 30 years. So far the world-classAustralian pension system has worked well for the accumulation of superannuation phase, but given the extended drawing–down period, more work will have to be done for the retirement phase. A government-backed annuity system which would ensure a lifetime income stream would be a good start, but it would take a far-sighted government to implement such a change. Adequacy of retirement savings is an issue which all members need to consider for a dignified and comfortable retirement period.
On behalf of the NGS Super Trustee,Management and Staff, we would like to wish all IEU members a very happy, safe and restful holiday period.
*Mercer Global Pension Index taken fromDr David Knox’s article, Second Place,Superfunds magazine, November 2014David Anderson, The Perfect Longevity Storm,Superfunds magazine, November 2014