We hear a lot of effusive praise from politicians, trade union leaders, super fund executives, and plenty of others about the Australian retirement system. Assistant Treasurer Daniel Mulino recently said we have “one of the best retirement income systems in the world”. But do claims like this hold up?
Well, it’s official. The latest Marsh CFA Institute Global Pension Index is out and, for the first time ever, Australia’s retirement system earned an A grade, scoring 80.6 out of 100. Only five other countries can say the same.
However, we have work to do to catch up to the frontrunners. The Netherlands, Denmark, Iceland, Singapore, and Israel all scored higher overall:
- The Netherlands: 85.8
For every year you live or work in the Netherlands you earn 2% of the full state pension once you retire. Most workers also have an industry pension on top.
- Denmark: 84.1
Danish residents receive a basic pension, paid in full after 40 years living there, plus an income-tested supplement. Most people also receive a workplace pension.
- Iceland: 84
Iceland has a basic state pension and supplement, which are both income tested, plus private pension schemes with mandatory contributions from workers and employers.
- Singapore: 82
Workers and employers in Singapore both make mandatory contributions into the Central Provident Fund, which provides a lifetime retirement income for most workers.
- Israel: 81.9
Israel has a state pension that all residents over 70 can receive, plus an income-tested supplement and private pensions with compulsory employer and employee contributions.
A retirement system’s final score is made up of three touch points. Australia scored very well for sustainability, or how well positioned the retirement system is to hold up in the future) and integrity, how much confidence working people have in the retirement system. However for adequacy, which measures how well the system delivers retirement incomes today, 20 other nations outranked us, including Mexico, Chile, and Saudi Arabia.
How can we catch up? Well, one big difference between Australia and some other countries is that our Age Pension isn’t universal.
“Australia’s retirement income system differs from the other A grade systems in having a means tested Age Pension and a slightly lower net replacement rate for a median income earner,” Marsh Partner and lead author of the index Tim Jenkins told Canstar.
The report recommended three possible ways we might lift our score, with the most eye-catching arguably allowing more Australians to receive a state pension.
Should it be easier to get a pension in Australia?
In other countries, including the Netherlands, Denmark, and Israel, pension recipients over a certain age largely aren’t means tested – meaning their assets and investments often aren’t considered when it comes to their eligibility.
You can’t get a full pension in Australia if the total value of your assets exceeds the following thresholds. The value of your home isn’t counted, but homeowners have a lower limit:
Homeowner | Non-homeowner | |
|---|---|---|
Single | $333,000 | $600,000 |
Couple (combined) | $499,000 | $766,000 |
These limits include your superannuation balance. For context, according to APRA’s superannuation statistics the average superannuation account belonging to a 60-64 year old in Australia currently has a balance of $270,800.
Australia’s asset test works alongside the income test, which assesses all the income you (and your partner if you have one) receive from almost anywhere, including superannuation. Whichever test results in a lower pension rate is the one Centrelink uses.
The asset test is already controversial and some have suggested it leads to outcomes that aren’t socially beneficial. For example, it arguably disincentivises older people from downsizing, because if they sell their expensive house, they may end up with more wealth in assets like super, which could affect their eligibility for a pension.
In the Netherlands, which took out the top spot, anyone who has lived or worked in the country for at least 50 years is entitled to 100% of the state pension.
There have been calls, including from National Seniors Australia, to adopt a similar basic pension system in Australia.
Dutch Minister of Social Affairs and Employment Hans Vijlbrief called the state pension the “crown jewel of Dutch social security” earlier this year. The flipside of course is that money has to come from somewhere.
Can we afford to give out more pensions?
The Australian Government is already spending well over $100 billion each year on assistance to the elderly, according to the 2026-27 Federal Budget, and workers in the Netherlands generally pay higher taxes than we do. Dutch people earning more than €78,426 (about $125,000) pay a marginal tax rate of 49.5% – that’s higher than our top tax rate (not including the Medicare levy), which doesn’t kick in until $190,000.
So does a universal state pension inevitably mean higher taxes or less public spending elsewhere? Some countries have come up with potential solutions. Canada has a universal state pension, but people who earn over a certain threshold while receiving it have to pay a ‘recovery tax’, which in practice means they partly or fully pay the government back.
Where you stand on a universal pension probably depends on your political leanings, and you might have strong feelings either way. However, we might not need to make such a significant change to see meaningful improvement. The Marsh report suggested merely making the Age Pension more accessible, specifically by easing the asset test, could bump Australia’s retirement system’s score.
How else could we improve our retirement system?
The Marsh report gave two other suggestions on how the Australian retirement system could get an even higher score:
Focusing on retirement income as ‘primary purpose’ of superannuation
A lot of the discourse around super tends to be on the ‘accumulation’ phase: how much employers should have to contribute, how funds should be taxed, the list goes on. The ‘decumulation’ phase – what happens once people are allowed to access their super – can be overlooked, and one of Marsh’s proposals was for an increased focus on how super balances are turned into retirement incomes.
“Retirement income and decumulation solutions give members greater confidence about how much they can safely draw down, how long their savings will last, and how their super interacts with other sources of retirement income,” Mr Jenkins told Canstar.
In Singapore, most retirees receive a lifelong retirement income through the Central Provident Fund (CPF). The CPF is state run, but works a little bit like superannuation in that employers have to make regular contributions throughout a person’s working life. Employees are also required to pay a minimum portion of their wages into the CPF.
Get people saving more and borrowing less
Finally, the report suggested Australia’s retirement system index score could improve if households increase savings and reduce debts. That might sound obvious, but it raises an important point: Australia is one of the most indebted countries in the world. According to the ABS, Australian households owed over $3.5 trillion as of June – more than 100% of our GDP, which is far above the average for advanced economies.
How to get Aussies as a whole to save more and spend less on interest is a hotly debated topic. But individuals looking to improve their personal outlook may find some solutions are easily actionable.
Checking in on your home loan might be a good place to start. If you can refinance to even a slightly lower rate, the savings on interest can add up quickly.
“The average Australian household’s disposable income is far outstripped by debt,” Canstar finance editor Brooke Cooper said. “In fact, household debt comes in at almost double household disposable income, according to the latest figures from the RBA, making small mortgage changes all the more impactful.”
For a person with a $600,000, 30-year mortgage, refinancing from a home loan rate of 6.50% p.a. to one with a more competitive 6% p.a. rate could shave $195 off their monthly repayments, according to Canstar’s mortgage calculator.
“And while savings rates have been hitting headlines in the wake of the latest RBA rate hike, savvy savers would be wise to also pay attention to their super,” Ms Cooper continued.
“Superannuation is a big reason Australians as a whole are a wealthy bunch compared to many of our international counterparts, and your retirement savings should be the last thing you put on autopilot.”
Canstar data shows a 30-year old receiving a competitive average five-year return of 7.5% p.a. (post-fees) could be nearly $250,000 better off in retirement than if they were to realise an average 6.1% p.a. return.
Source: Canstar. Scenarios begin at the start of FY2026-27 based on the average super balance by age (APRA) and median full-time wage by age (ABS). Investment returns are net of fees, based on the average annual 5-year return of balanced investment options on Canstar’s database. The average of the top 5 balanced funds is based on those with the highest 5-year returns across this subset. Balanced options are those with a growth asset allocation of 60% to less than 80%. Average life and TPD insurance premiums are assumed to be charged at the end of each year, based on default cover available for each scenario’s starting age on Canstar’s database. Annual income and insurance premiums are assumed to increase with inflation each year. Inflation is assumed to be 2.5% p.a. due to the rising cost of living (CPI inflation), plus a further 1.2% p.a. due to rising community living standards. End balances at retirement have been adjusted for inflation. Information is for illustration purposes and actual returns will vary. Past performance is not a reliable indicator of future performance.
