Global Pension Rankings

Global pension rankings:

How good is Australia?

How does Australia’s retirement income system rank globally?

It’s easy to lose sight of this wider context if you are struggling to live on your current income while concerned about rising prices and nervy markets.

But benchmarking our system and thinking of ways to improve it is a really helpful exercise.

That’s why the annual Mercer CFA Institute Global Pension Index 2022 (published since 2009) is so handy.

Released last week, it considers the retirement income performance of 46 countries across three key indicators. Three nations – Iceland, the Netherlands and Denmark – achieved an A grade. Australia ranks 6th overall, with a B+ grade, and the following ‘scores’ out of 100 on these indicators:

  • 86.8 for integrity
  • 77.2 for sustainability,
  • 70.2 for adequacy.

On the matter of adequacy, where Australia is graded as a ‘B’, lead author of the report and Mercer Partner, David Knox believes that our system has an overemphasis on the size of retirement savings (accumulation) and insufficient focus on the amount of income (decumulation) such savings will deliver in retirement.

This is probably true. It’s fair to say that the Australian financial services industry generally has been overly focused on the size of retirees’ nest eggs for 20 or more years. And it is only due to the findings and recommendations of the Retirement Income Review, in 2020, that the urgent need for decumulation awareness, strategies and products is now more prominent.

It can be very confusing for ordinary retirees to be told not to focus so much on their nest egg, rather to concern themselves with how much income this will provide for how long.

One thing actually looks awfully like the other here.

For the past 20 or so years retirees have basically been told they’re not going to have enough in retirement, they need to save harder, and for that reason, a target nest egg became the main focus. And now the message seems to be, you need to know how this will convert into an income stream for the next 10, 20 or 30 years. And don’t be greedy and die with too much in your bank account, as that’s labelled as misusing the system for estate planning.

So it’s hardly surprising if confusion reigns supreme for those planning and entering retirement. That said, it’s good to have these challenges brought to light by fact-based research such as this annual Global Pension Index.

Australia’s ranking really does underscore the importance of knowing how long your money might last. As well as which levers are at your disposal to change this outcome if it’s just not sustainable.

That’s the very reason why Retirement Essentials created the Retirement Forecaster which measures and reports on your retirement affordability. We use this tool in consultations so that you can easily understand the key components of sustainable retirement income.

The Retirement Forecaster allows you to see the interaction between your:

  • retirement goals
  • savings and assets
  • debt
  • possible pension eligibility (current and future)

You can see

  • how long your money is likely to last,
  • when it might run out at different levels of spending,
  • the impact of different investment strategies and
  • how much will be left to your estate when you die.

It’s money and time well spent to invest an hour with our experienced financial planners and let them show you how sustainable your retirement income really is.

You can download the full 2022 Global Pension Index here.

And if you would like to talk more about your retirement forecast you can book a consultation below.

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