By Robin Bowerman Smart Investing 13th April 2011 Principal & Head of Retail, Vanguard Investments Australia
Most of us will always remember those much-used words in school reports: "Room for improvement".
An OECD publication, Pensions at a Glance, periodically reviews the retirement-income systems of a large number of countries and gives its report card. The 2011 report covers 43 major economies.
How does Australia's system rank?
Ross Clare, director of research for the Association of Superannuation Funds of Australia (ASFA), has delved into the 350 pages of the latest Pensions at a Glance and summarised its findings for Australia on the 34 listed indicators.
Clare writes in the April issue of ASFA's Superfunds magazine that Australia does "pretty well for many of them [meaning the indicators], but there is room for improvement" regarding some of the measures.
As Pensions at a Glance explains, the three components of Australia's retirement-income system are the means-tested pension, Superannuation Guarantee (SG) contributions, and voluntary super contributions (along with other private savings).
Based on the publication's findings, Clare makes these points:
The eligibility age for Australia's age pension is a couple of years higher than the OECD average and is set to increase further. This is a particularly important advantage for Australia given our long life expectancy and "relatively good health care services".
Australia does not rate well internationally on adequacy of retirement incomes. The income replacement value of the combined aged pension plus compulsory super contributions (at 9 per cent) is 47.3 per cent for the average Australian against the OECD average of 57.3 per cent. (Income replacement value is measured against working income.)
Clare is optimistic that the proposed increase in SG contributions together with SuperStream will "go a long way" to addressing the OECD's findings of a need for improvement in our retirement-income system in regards to adequacy and efficiency.
The OECD's action of periodically running an international yardstick over Australia's system helps bring a range of key issues into perspective.
