Getting it right

6 min read
6 min read

Ageing populations continue to pose a challenge to governments worldwide, with policymakers struggling to balance the twin goals of delivering financial security for their retirees that is both adequate for the individual and sustainable for the economy.

Now in its tenth year and measuring 34 global pension systems, the Melbourne Mercer Global Pension Index reveals who is the most and who is the least prepared to meet this challenge.

This year the Index reveals that many North-Western European countries lead the world in providing the best pension systems for their citizens. The Netherlands, with an overall score of 80.3, just beat Denmark to first place by 0.1, a spot held by Denmark for six years. Finland bumped Australia (72.6) out of third place with an overall score of 74.5 and Sweden (72.5) came in fifth place.

Common across all results was the growing tension between adequacy and sustainability. This was particularly evident when examining Europe’s results. Denmark, Netherlands and Sweden score A or B grades for both adequacy and sustainability, whereas Austria, Italy and Spain score a B grade for adequacy but an E grade for sustainability that visibly points to areas requiring reform.

Author of the report and senior partner at Mercer, Dr David Knox explains: “The natural starting place to having a world class pension system is ensuring the right balance between adequacy and sustainability. This year we see that some countries are doing reasonably well in both adequacy and sustainability, but there are others where the benefits for many retirees may be adequate, but they are unlikely to be sustainable – Austria, Italy and Spain are examples and you’d probably mention Brazil and Japan in there as well.”

What the report highlights is that countries are in different positions in terms of the long term relationship between adequacy and long-term sustainability.

“It’s a challenge that policymakers are grappling with,” says Dr Knox. “For example a system providing very generous benefits in the short-term is unlikely to be sustainable, whereas a system that is sustainable over many years could be providing very modest benefits. The question is – what’s an appropriate trade-off?”

As highlighted in Chart 1 below, all systems should aim to adjust their settings so they are moving towards the top right quadrant. By looking at the common features of those in this space it becomes easier for others to design and adapt their own systems. From an Australian perspective, adequacy and not sustainability is the main concern.

From an Australian perspective, adequacy and not sustainability is the main concern.

Chart 1: Adequacy versus Sustainability ratings for global pensions systems

Coverage becomes more important

Dr Knox adds that beyond the challenge of balancing adequacy and sustainability, an emerging dimension to the debate about what constitutes a world class system is “coverage” and the proportion of the adult population participating in the system.

“In some countries, broad coverage has been successfully accomplished through compulsory workplace pension systems or, in some cases, auto-enrolment arrangements,” he says.

“However, with changes in the way people are working around the world, we need to ensure these schemes include everyone so that the whole workforce is saving for the future. This includes contractors, self-employed, and anyone on any income support, be that parental leave, disability income or unemployed benefits.”

Introducing a new question to the index: Household debt

An important adjustment to the adequacy sub-index this year was a new question relating to household debt to gain a more holistic view of retirement adequacy.

The index has always considered the level of household saving as it represents an important contribution to the level of non-pension saving. However, this current question relates primarily to the flow of household savings and does not consider the accumulated level of household debt. In some countries where there is significant household debt, such as Switzerland and Australia, some retirees will use superannuation savings to pay off their debt, resulting in retirement savings being reduced and benefits being lowered.

“What we try to do is go beyond the three pillar approach and consider five pillars thereby considering what happens outside the pension system. That’s where the household debt comes into play,” Knox said. “When we’re talking about retirement pensions, we need to make sure that we don’t just look at super, and we don’t just look at the aged pension, and voluntary savings, but we need to look at household savings, home ownership to get the full picture.”

Examining five pillars—including household savings and household debt—allows a fuller picture that can assist in designing regulation and taxation policy to encourage complementary behaviour rather than perverse behaviour, Knox said.

So why did Australia slip from third to fourth in 2018?

David Knox says that Australia’s downgrade is primarily due to a toughening of the assets test and the inclusion of the level of household debt (as noted above) as part of the adequacy sub-index.

“The OECD produces the net replacement rates every two years for their member countries and we have used these results for this year’s study and it’s caused a significant reduction in our net replacement rate,” Knox said. “The cause is very simple. Although people are saving through super during their career, the stronger assets test means they are getting reductions to their Age Pension. Their net income is lower in retirement, so that’s the primary reason for the lower score.

“What it does highlight, and it’s highlighted in other systems as well, is that policymakers need to make sure that the various pillars work together, and that these pillars provide the right incentives for people to save for the future.”

2018 Results

What does the future look like?

Some pension systems face a steeper path to long term sustainability than others, and all start from a different origin with their own unique factors at play. Nevertheless, every country can take action and move towards a better system. In the long-term, there is no perfect pension system, but the principles of best practice are clear and nations should create policy and economic conditions that make the required changes possible.

This year’s Index now includes Hong Kong SAR, Peru, Saudi Arabia and Spain, covering 34 systems against more than 40 indicators across adequacy, sustainability and integrity. This comprehensive approach highlights an important purpose of the Index – to enable comparisons of different systems around the world with a range of design features operating within different contexts and cultures.

The only commonality globally is that no-one is satisfied with their own country’s pension system, Knox added.

“We see this in Australia, with the Productivity Commission report, and yet we’re still coming 4th out of 34 systems,” he said. “We see in the Netherlands where there’s a lot of concern, a lack of trust in the system, yet they came out as the leader this year. One thing this report can show is that no system is perfect – there will always be shortcomings, there will always be room for improvement, but if you’re in the top half-dozen systems you’re doing some things well, and don’t discount that.”

Picture of By Dr David Knox

By Dr David Knox

senior partner

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Derek Thompson

Via live link

Best Selling Author, Podcast Host of 'Plain English'

Sessions

Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Few speakers can match Derek Thompson‘s ability to synthesize mega-trends in society, labor, economics, technology, and politics. Put another way: Derek trawls the data sets and does the forecasting and deep reporting necessary to help us better understand how we live, how we vote, how we spend, and how we work.

In his paradigm-shifting #1 New York Times bestseller, Abundance (co-written with Ezra Klein), this award-winning journalist reveals how our policies and culture have pushed us into a world of scarcity (not enough housing, workers, or progress)—and offers a radical new path towards a world where housing is affordable, energy is plentiful, and innovation flourishes across industries.

He shares a compelling vision of a future where we have more than enough for everybody, and a practical, actionable roadmap for how to get there. It starts with taking more risks, building more expansively, and recognizing that we all have the power to create a world of abundance. “Everything’s utopian until it’s reality,” he says.

Carmen Beverley-Smith

Executive Director - Superannuation, Life & Private Health Insurance, APRA

Sessions

Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Carmen joined APRA in March 2023 and holds the role of Executive Director, Life and Private Health Insurance and Superannuation.  

She has had an esteemed career in financial services, spanning over 25 years. She has held diverse leadership roles at Westpac and Commonwealth Bank of Australia, including across risk, transformation and change, product and portfolio development, and sales and service. 

Prior to joining APRA, she held the role of General Manager, Risk Transformation Delivery Integration at Westpac. This involved leading the group-wide implementation of a suite of solutions to uplift risk management capability and develop data, analytics and reporting. 

Carmen leads with a values-driven approach and a particular interest in developing and mentoring talent. 

She holds a Bachelor of Commerce and Accounting, is a certified Chartered Accountant and a Graduate of the Australian Institute of Company Directors. 

Amy C. Edmondson

Novartis Professor of Leadership and Management, Harvard Business School

Sessions

Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Amy C. Edmondson is the Novartis Professor of Leadership and Management at the Harvard Business School, a chair established to support the study of human interactions that lead to the creation of successful enterprises that contribute to the betterment of society.

Edmondson has been recognized by the biannual Thinkers50 global ranking of management thinkers since 2011, and most recently was ranked #1 in 2021 and 2023; she also received that organization’s Breakthrough Idea Award in 2019, and Talent Award in 2017.  She studies teaming, psychological safety, and organisational learning, and her articles have been published in numerous academic and management outlets, including Administrative Science Quarterly, Academy of Management Journal, Harvard Business Review and California Management Review. Her 2019 book, The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation and Growth (Wiley), has been translated into 15 languages. Her prior books – Teaming: How organizations learn, innovate and compete in the knowledge economy (Jossey-Bass, 2012), Teaming to Innovate (Jossey-Bass, 2013) and Extreme Teaming (Emerald, 2017) – explore teamwork in dynamic organisational environments. In Building the future: Big teaming for audacious innovation (Berrett-Koehler, 2016), she examines the challenges and opportunities of teaming across industries to build smart cities. 

Edmondson’s latest book, Right Kind of Wrong (Atria), builds on her prior work on psychological safety and teaming to provide a framework for thinking about, discussing, and practicing the science of failing well. First published in the US and the UK in September, 2023, the book is due to be translated into 24 additional languages, and was selected for the Financial Times and Schroders Best Business Book of the Year award.

Before her academic career, she was Director of Research at Pecos River Learning Centers, where she worked on transformational change in large companies. In the early 1980s, she worked as Chief Engineer for architect/inventor Buckminster Fuller, and her book A Fuller Explanation: The Synergetic Geometry of R. Buckminster Fuller (Birkauser Boston, 1987) clarifies Fuller’s mathematical contributions for a non-technical audience. Edmondson received her PhD in organisational behavior, AM in psychology, and AB in engineering and design from Harvard University.

 

Daniel Mulino MP

Assistant Treasurer and Minister for Financial Services

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Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Born in Brindisi, Italy, Daniel was a young child when he moved with his family to Australia. He grew up in Canberra and completed his first degrees – arts and law – at the ANU. He then completed a Master of Economics (University of Sydney) and a PhD in economics from Yale.

He lectured at Monash University, was an economic adviser in the Gillard government and was a Victorian MP from 2014 to 2018. As Parliamentary Secretary to the Treasurer of Victoria, Daniel helped deliver major infrastructure projects and developed innovative financing structures for community projects.

In 2018 he was preselected for the new federal seat of Fraser and became its first MP at the 2019 election, re-elected in 2022 and 2025. From 2022 to 2025, Daniel was chair of the House of Representatives’ Standing Economics Committee in which he chaired inquiries; economic dynamism, competition and business formation and insurers’ responses to 2022 major floods claims.

In 2025, he became the Assistant Treasurer and Minister for Financial Services.

In August 2022, Daniel published ‘Safety Net: The Future of Welfare in Australia’, which aims to explore the ways in which an insurance approach can improve the effectiveness of government service delivery.