Expert Suggests 3 Areas of Improvement for Australia to Achieve A Rating on Superannuation

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Australia’s superannuation system ranks highly worldwide but it needs some improvement to level up from B+ rating.

Superannuation’s purpose is to provide citizens a standard of living after retirement similar to what they have in their work life. 

Australia’s superannuation system ranks one of the highest across the globe. In fact they are currently in the 6th place out of 44 systems studied in the Mercer CFA Institute Global Pension Index, a global retirement income ranking system.

To reach the A rating which one three countries (Iceland, Denmark, and Netherlands) achieve, there are three things that Australia’s system needs to implement according to David Knox, lead author of the Index and senior partner and senior actuary at Mercer Australia.

The first step is to give more attention to retirement income beyond accumulation. 

Second, the system requires expanded coverage, particularly for self-employed individuals, and third, the super guarantee (SG) should be increased from its current level of 10.5 per cent to 12 per cent or higher in superior systems.

Knox claims that there is a huge gender disparity in super, which is caused by a variety of variables, including different job habits between men and women. On the plus side, the means-tested elderly pension narrows the disparity because more women receive it than men, and the gap is less significant in a family where a couple works together.

But there is clearly a gap, Knox said, and there are things that can be done to close it, including SG paid on parental leave, but also a carer’s credit for people who are caring for babies and young children, who may take six or 12 months off the workforce without making any superannuation contributions.

“By having the child, they’re doing something very much for the benefit of the community longer term,” Knox stated.

“Therefore, their retirement years shouldn’t be sacrificed with that lower superannuation. So, what we’re arguing here is there should be a super baby bonus, if you like, given to the primary carer, and we’re suggesting something in the order of four-and-a-half to five thousand dollars,” he added.

According to him, this sum is essentially the SG rate multiplied by the minimum salary for a year and would be paid to everyone who is a primary carer as a credit to their future retirement benefit.

Due to some positive efforts and developments, super has become more equitable between genders.

Aside from gender, there is also a gap in terms of income. Most of the superannuation tax concessions goes to high income earners while the middle earners gain lesser government support.

However, according to Deborah Ralston, experienced company director and professorial fellow at Monash University, the $450 monthly SG payment level was also a huge concern for women, who were generally casual employees on smaller wages, she noted, and it has been rectified. Furthermore, the recent declaration that paid parental leave would be extended from 18 to 26 weeks will be beneficial.

Lastly, the government should increase the assistance for people who are forced to retire so they can afford to pay the rising housing cost and healthcare.

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