A report comparing the retirement outlook for a 50-year-old woman in major cities across the globe found that Australia’s pension system, including superannuation, ranks among the best in the world.
The International Pension Gap Index, compiled by wealth management firm UBS, examined the basic mandatory pension of 12 countries to see which would provide the best retirement income. It calculated how superannuation schemes, along with any government or state pensions, would pay out as a proportion of working income.
Singapore topped the table, with a pension system providing around 73 per cent of the income of a 50-year-old woman’s working salary. Australia came in second with 72 per cent and our system was deemed as one of the most sustainable.
Australia ranks highly because of our 9.5 per cent compulsory super scheme on top of the Age Pension. Compare that to the UK’s auto-enrolment scheme, which currently only pays one per cent of salary.
The Australian system means that a single 50-year-old female living in Sydney can retire at 67 with 72 per cent of her income, compared to UK female living in London, who would only retire with 41 per cent of her income.
The report also highlighted how women need to bridge the pension gap and showed how much they should save from the age of 50 to be able to retire at age 67.
A woman living in Sydney would have to save 37 per cent of her income each month from age 50 if she hoped to fund a basic retirement at age 67.
UBS frames a basic retirement as one which covers the cost expenses of groceries, rent and possible medical treatments, with some left over for a few activities a month.
According to the report: “People often don’t think about retirement until they are nearing the end of their working life. But our analysis shows that relying purely on mandatory pension systems no longer makes sense, as they only insure a minimum income to cover basic needs in old age. No matter where in the world you live, you are likely to face a pension gap – in other words, your costs will exceed your retirement income.
“We conclude that private savings are crucial for retirement, no matter where in the world you live.”
Here are the top 12 countries designated by the major cities used to calculate the pension gap:
1. Singapore: 73 per cent
2. Sydney: 72 per cent
3. Paris: 69 per cent
4. Milan: 67 per cent
5. New York: 55 per cent
6. Tokyo: 55 per cent
7. Munich: 50 per cent
8. Zurich: 48 per cent
9. Toronto: 42 per cent
10. London: 41 per cent
11. Hong Kong: 41 per cent
12. Taipei: 32 per cent
The results of the report are a call to action, mainly for women who have been disadvantaged by shorter working lives and lower salaries.
Most Australians will, at some point, rely on the Age Pension to fund their retirement. So, the challenge for the Government is not to become indebted to a system that will require more payouts to more people who are living longer lives.
In the meantime, the onus is on Australians to start planning for retirement sooner than later.
“While it is never too late to start thinking about your pension, the earlier you start, the better your prospects for a secure and enjoyable retirement. Over the numerous years that you spend in the workforce and can save for retirement, the compound interest effect will be substantial,” states the report.
How do you fare? Are you worried that you’ll have enough to fund your retirement?