World's best country to grow old in revealed

Retirees in Denmark and the Netherlands have the best systems. Images: Getty

With Gouda cheese, windmills and millions of bicycles, it’s hard to find a reason why anyone would ever want to leave the Netherlands.

But the Dutch can add another great lifestyle perk to their list; an enviable retirement system.

Scandinavian and northern European countries topped the list of best countries to retire in, with the Netherlands, Denmark and Finland taking out gold, silver and bronze in the newly released Melbourne Mercer Global Pension Index.

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The report, which benchmarks global retirement income systems, downgraded Australia to fourth place, bumped out by Finland due to tightenings in our Age Pension means test which saw some retirees receive smaller pensions.

We’re followed by Sweden, Norway and Singapore.

However, all countries face similar problems in providing retirement systems that are financially sustainable as populations age.

“It’s a challenge that policymakers are grappling with,” study author Dr David Knox said.

Systems which provide generous pensions are more likely to face future funding challenges, but protecting future retirees’ income often means reducing current pensioners’ incomes.

“The question is – what’s an appropriate trade-off?”

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He added that the rise of the gig-economy and part-time work means less people are paying in to pensions like Australia’s superannuation system.

“We need to ensure these schemes include everyone so that the whole workforce is saving for the future.”

Why did Australia slip?

The best systems, like those in Denmark and the Netherlands, provide retirees with enough income without jeopardising future retiree income. In the ideal system, workers and savers also understand and engage with a well-regulated program.

Australia, which scored a B grade, did well on regulation and was considered reasonably sustainable. However, the authors raised concerns that retirees don’t have enough money in retirement.

They said its score “fell significantly” because of changes in the Age Pension assets test which saw some retirees receive less income. The number of Australians entering retirement with household debt was also a problem, the authors explained.

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However, they said Australia could turn it around if the assets test was changed to provide more support for average income earners, and if individual households saved more.

Similarly, encouraging Australians to retire later and benchmarking the pension age to life expectancy could improve the Aussie system.

Meanwhile, the Dutch system comprises a flat-rate public pension as well as employer and employee pensions tied to particular workforce sectors.

As most employees belong to these schemes, they also tend to receive defined incomes.

However even the best countries could be better if individual households saved more and if the labour force participation rate at older ages was higher.

“Many of the challenges relating to ageing populations are similar around the world, irrespective of each country’s social, political, historical or economic influences,” Knox said.

Saving more money is easier said than done: research

The average Australian entering retirement without owning property needs an extra $500,000 to enjoy the same retirement lifestyle as a home owner, new research from consultant Milliman has found.

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“The finding raises significant questions about government policy settings, as well as super funds’ common advice that members should save more for retirement amid a housing affordability crisis,” Milliman consultant Jeff Gebler said.

“Retired urban renters are also hurt by policy settings which favour homeowners. Renters receive relatively low levels of subsidy (Centrelink Rent Assistance) while the often-substantial value of the family home is exempted from the Age Pension means test.”

This is a growing problem as more retirees enter retirement with a mortgage in tow, he added.

“In some cases, older Australians may be better off diverting savings towards home ownership rather than superannuation.”

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