Over recent years, there have been some conflicting reports into the retirement prospects for Australian retirees. Back in 2015, a report from the OECD, or The Organisation for Economic Co-operation and Development, suggested that Australia ranked second from the bottom in terms of social equity out of 33 countries.
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Additionally, figures from the Australian Bureau of Statistics show that in 2013/14, the average retirement savings by retirement age for men was just $322,000. Women seemed to be in an even worse situation, with just $180,000 in average savings by the same age. Assuming that the average person might live for around 20 more years after reaching retirement age, this means that men will have $16,100 per year on average, while women will have just $9000. These figures might not look very encouraging.
However, more recent research suggests that retirement outlooks for Australian citizens might not be so bad after all. In 2017, wealth management firm UBS completed a report on the mandatory pension systems in 12 different countries, in which they compared the retirement incomes offered to women in these different countries.
Australia ranked 2nd, falling just short of economic-powerhouse Singapore. The report determined that the Australian pension system could provide an income totaling around 72% of an average working woman’s salary, compared to Singapore’s 73%. Although this is comparatively a good result, it does highlight how important it is to supplement your pension with private savings to meet the costs of retirement.
But that isn’t the only good news for Australian retirees. It also seems that Australia can claim to have the fourth largest collective pension pot in the world, totaling $1.8 trillion dollars. The only countries to boast larger pots are Japan, the US, and the UK. This is further evidence to indicate that Australia is leading globally when it comes to the best retirement systems.
– Why Do the Retirement Prospects for Australian Citizens Look So Great?
Mostly, this is down to Australia’s ‘Superannuation system’, which celebrated its 25th-anniversary last year. The Superannuation system is the final component in the trilogy of potential income sources for pensioners in Australia, alongside traditional means-tested state pensions and private retirement savings.
The superannuation system was created in the 1980s with the aim of helping Australians to be less reliant on the Age Pension. It works by forcing employers to make additional contributions to their employees’ retirement funds on top of their salaries. The contribution rate was set at 9.5% in 2014 but is planned to increase to 12% by 2025, ensuring even better prospects for retirees in the future.
– Similar Schemes in Other Countries
This Superannuation system has been referred to as “the envy of the world”. There are other countries that have similar schemes in place, such as Hong Kong’s Mandatory Provident Fund and Singapore’s Central Provident Fund. However, many countries are yet to adopt mandatory pension schemes, and saving for your pension out of your income remains voluntary.
In the UK, for example, workers that are between age 22 and the state pension age, and earn over £10,000 a year, are automatically enrolled in the ‘Workplace Pension’ scheme. In this scheme, a percentage of their pay is automatically deposited into their pension funds. However, unlike in Australia, UK citizens can choose to opt out of this at any time. There is also the basic state pension that anyone over the qualifying age can claim. New Zealand has a similar system in place, in which workers are automatically enrolled with the option of opting out.
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– Other Pension Systems That Seem to be Working
Mercer publishes yearly reports in their Global Pension Index that compare retirement income systems across the world. They assess them based on three criteria: adequacy, sustainability, and integrity. In addition to Australia, there are a few other countries that rank near the top of the list. It seems that the Scandinavian countries are doing something right, as many of these countries rank in the top 10 each year.
The latest Mercer index seems to suggest that Denmark, for example, has one of the best retirement systems in the world. There are a few different strands to the pension scheme in Denmark. There is the usual means-tested basic pension, known as the “Folkepension”, as well as various occupational pension plans and other mandatory schemes. Mercer gave Denmark a high grade but highlighted the fact that it could do more to protect savers from fraud.
The Netherlands has a similarly excellent pension system. Like in Australia, there are three pillars to the Dutch pension scheme. The first is a state pension scheme that can be claimed by those aged 66 or over and is financed by contributions from the working population. The second is collective pension funds which are contributed by employers on behalf of their workers. These are mostly mandatory funds and 90% of Dutch employees are part of a collective pension scheme organised through their employer. The third pillar of the Dutch pension system is individual pension products, in which savers can make their own pension investments and enjoy related tax-breaks.
Finland’s pension system also seems to be working and consists of two main pension schemes. There is the National Pension public plan, which is a means-tested state pension, as well as a compulsory occupational pension. Finnish workers can retire as early as 63, but there are numerous incentives to encourage workers to retire later in life.
There are a number of other countries that have seemingly effective pension schemes in place, too, including, but not limited to, Sweden, Canada, Chile, the UK, and Singapore. However, it looks like, at present, there is no need for Australia to follow in their footsteps, as our Superannuation system seems to be working comparatively well.
The outlook on retirement prospects for Australians looks set to continue to be excellent well into the future, but having an effective retirement plan in place remains fairly important. No matter what age you are, it’s never too early to start planning ahead for your retirement years.
Want to start planning for your financial future? The team at Ethica Private Wealth Specialists on the Sunshine Coast offer a no-cost, no-obligation 2 hour strategy planning session to help get you on the right path. Book yours today by calling (07) 5443 5577.