10.13.2011
By Terry Flanagan

Australian Pensions Lead by Example

In a recent Mercer survey, Australian pensions rank first in sustainability.

The 2011 Melbourne Mercer Global Pension Index takes a holistic account of pensions around the world. The institutional consultancy teamed with the Australian Center of Financial Studies to provide a report on the index findings.

According to the study, Australia ranks first, based on criteria such as sustainability, and adequacy integrity—both in 2010 and 2011. This year, roughly 72 percent of Australian pensions are considered sustainable by the study.

“I would say that the single biggest difference between Australia and the U.S. is that Australia went define contribution twenty years ago. If you look at the U.S., the top pension stories are now that the private sector is freezing plans, and blocking new entrants,” noted Arthur Noonan, senior consultant and the intellectual capital leader for Mercer’s U.S. retirement, risk, and finance business.

Noonan highlighted that a move towards a defined contribution society “by definition does not have unfunded liabilities.”

The report lists Brazil as a close second, where cash-rich pensions benefit from a high interest rates, and in third place is Canada. The U.S. came in 14th place.

Part of Australia’s success story could be mandatory employer contribution, known as superannuation, estimated at 9 percent, according to Noonan. Moreover, this nationwide Australian program is solely used for retirement income, unlike the array of social programs integrated and pinned on the U.S. labor force.

Such programs, such as social security, have not received the same level of success as Australian superannuation.
Noonan cited perhaps cultural differences between the two countries.

“In the U.S., I’m not sure that plan participants here have enough support to take on a greater responsibility to make saving for retirement work…they need some help; whether that’s from policy makers, or having better access to options,” Noonan told Markets Media.

Noonan cited that the average Australian plan participant typically does not need a professional to provide assistance with investment choices, and noted a variety of constraints on U.S. participants.

“In the U.S., there are constraints on how much you can truly contribute, and how much coverage participants have,” Noonan said, referring to individually managed individual retirement accounts. “If you don’t have a private sector, employer sponsored plan, you are truly handicap.”

Related articles