Australia has dropped from sixth to seventh in the Mercer CFA Institute Global Pension Index for 2025, with a focus on retirement income as the primary purpose of superannuation cited as a key area where improvement is needed.
“We’re the fourth biggest [retirement savings system] in the world. We’ve got a fantastic system for accumulation, so we’ve got the money there, but we’re sort of letting retirees down in retirement,” Challenger head of retirement income research Aaron Minney said.
While Australia scored above 80 in both the sustainability sub-index and integrity sub-index, it only scored 69 for adequacy. It was also the second year it had fallen a place, after regressing from fifth to sixth in 2024.
The report, in its 17th year, ranks 52 retirement systems around the world and also suggested moderating the assets test on the age pension to increase the net replacement rate for average-income earners as another key measure of improvement for the Australian system.
“As the index makes clear, the central purpose of pensions must remain to secure retirement income, guided by fiduciary duty above all else. Pension systems work best when they balance innovation and national priorities with the enduring responsibility to serve end-investors’ interests,” CFA Institute president and chief executive Margaret Franklin explained.
According to Minney, Australian superannuation funds and the government need to focus more on the retirement phase and encourage people to maximise their lifestyle in retirement.
“Most people are not taking the income stream and they’re not taking a high enough income stream, and this includes even just an account-based pension … the focus has historically been the lump sum,” he noted.
He acknowledged the situation is improving slowly, with Challenger reporting a 16 per cent increase in lifetime annuity sales in the first quarter of 2025/26.
“If we’re looking at the adequacy and supporting income through retirement, we’re seeing an increased take-up … but we’re also seeing an increase in income streams through some of the other platform players,” he indicated.
