Australia's retirement savings system the most sustainable in the world - Allianz

Sydney, 8 November 2011

The Pension Sustainability Index (PSI)* produced by Allianz Global Investors, one of the world’s largest asset management companies, measures and illustrates the pressure on governments across the globe to reform their pension system.

Key findings of this year’s Index include:

Commenting on the finding that Australia’s retirement savings system is the most sustainable in the world, Allianz Australia Managing Director, Terry Towell, said, “the Allianz PSI uses a wide range of indicators such as demographic developments, public finances and pension system designs to systematically measure the need for pension reform. Taking all these indicators into account, Australia’s retirement savings system received the lowest score and is considered to be the best prepared for the future."

According to the PSI, which charts the relative sustainability of national pension systems in 44 countries around the world, Greece is under the most pressure to reform. Despite pension reforms initiated as a condition of the austerity packages from the International Monetary Fund (IMF) and European Central Bank (ECB), the retirement age in Greece is still low and public replacement rates (the percentage of a worker’s pre-retirement income paid out by the pension system upon retirement) are too high. However, the greatest challenge facing the Greek pension system is that its old age dependency ratio - the ratio of elderly people to people of working age - is well above the European average.

According to Mr Towell, "while pension reform has been at the top of the political agenda across the globe for many years now, the progress of reform differs considerably from country to country, hence the need for an Index to show at a glance how countries compare. In this current study, Greece, India, China and Thailand show the greatest need for pension reform, although not due to a common cause. At the other end of the spectrum is Australia. Australia’s two-tier system of lean public pensions and highly developed funded superannuation pensions means we are best prepared with respect to the potential future burden on public finances, thus, Australia is under the least pressure to reform."

Over the last decade, almost all Western European countries have been trimming their public pension systems in an effort to make them more sustainable. However, a key driver of the Index results this year was the increase in sovereign debt as a result of the financial crisis, with Greece and Ireland the most affected. In Asia, comprehensive pension systems remain the exception rather than the rule, and increasing the coverage of the pension system is still a challenge.

Concluding, Mr Towell said, “pension reforms introduced over the past 10 to 15 years have dramatically altered the global retirement landscape. Pay-as-you-go systems are moving towards funded systems, defined benefit towards defined contribution systems, and family support structures towards more formalised public systems. These are characteristics of Australia’s superannuation reforms over the last couple of decades and, along with initiatives such as the Future Fund, are key reasons why Australia’s retirement savings system ranks number one in the world in terms of sustainability."