Decumulation's Lost Decade?

Welcome to the second edition of The Retirement Rubicon. Hopefully you found the first post ‘illuminating’ (a shameless reference to Lumisara) and will find this one equally so.

In this edition we review the 2025 Mercer CFA Institute Global Pension Index and ask a simple but uncomfortable question: “have we experienced a lost decade in retirement policy and action?”. We’ll provide some talking points, you be the judge.

The Mercer CFA Institute Global Pension Index 2025 report was recently released, the 17th edition of this comprehensive stocktake on pension systems globally. Over the years this Australian-led initiative has grown from 11 countries in the inaugural 2009 report to now encompass 52 retirement income systems worldwide, covering 65% of the world’s population.

The index methodology has been stable throughout, with each country assessed on three sub-indices: Adequacy (40% weighting), Sustainability (35%) and Integrity (25%) to calculate a composite score, and ranking.

In the 2025 report:

The question you probably have right now is: “Wait, I thought Australia had the best pension system in the world. What gives?” 🤔

If I tried to unpack the reasons why Australia has fallen off the podium in recent years it would take way more copy than this newsletter should! So I posed the question to the driving force behind these reports; lead author for each until this year and Senior Partner at Mercer (now in semi-retirement - so still full-time work by any normal standard), the esteemed Dr. David Knox AM.

His response, in summary:

On the positive side, Australia’s score has been boosted by:

But these improvements were offset by:

Australia has fallen from 6th to 7th position with both Singapore and Sweden overtaking us during the last two years but with Norway falling below Australia. While our score has risen, Singapore and Sweden improved across all three sub-indices (adequacy, sustainability and integrity) and have thus overtaken us.

Crucially, as David notes in a recent Firstlinks article, Australia scores an ‘A’ grade on Sustainability and Integrity, but a ‘B’ on Adequacy, ranking 24th out of 52 on that dimension.

So it’s not that Australia has regressed, but that others are progressing faster and more comprehensively, particularly in turning retirement savings into retirement income.

Our full Q&A with David is published at the end of this newsletter: In conversation with Dr David Knox AM

Where David is most emphatic is not on league-table movements but on the deeper question of design: does Australia actually have a retirement income system?

His short answer: not yet.

Since the 2014–15 Financial System Inquiry and its call for Comprehensive Income Products for Retirement (CIPRs), there has been steady movement, most notably the introduction of the Retirement Income Covenant (RIC) in 2022 and the growing emphasis on retirement solutions within funds.

But as David notes:

In other words, we’ve built a powerful accumulation engine and a robust regulatory framework around it. However the transition from “pot of money” to “income in retirement” remains largely optional and under-developed.

David is proposing a ‘soft decumulation default’ as one possible path forward:

It’s a gentle yet deliberate ‘nudge’, not hard compulsion. But it would start to shift the system toward default income in retirement, rather than default accumulation by inertia.

David Knox is one of the most respected superannuation experts in Australia, and he is correct in asserting that Australia still does not have a retirement income system.

Modern superannuation, born out of the Prices and Incomes Accords of the 1980s, was designed to be Defined Contribution-biased, contributory and broadly inclusive.

This ‘choice architecture’ however has generated its own incentives. Starting with an SG rate of 3% in 1992, the race was on to accumulate member assets and scale as fast as possible. Funds that did this well have delivered strong outcomes for members and built globally significant balance sheets. That is no small achievement inside 35 years.

Today:

In my 2013 Firstlinks piece on the rankings I noted that “one of the key messages from the latest report is to ‘start with the end in mind’. Pension systems exist to provide benefits in retirement, and the best systems deliver that goal to the greatest number by the most robust means possible. A mind-shift away from focusing primarily on capital accumulation and more toward post-retirement income generation is needed”.

It would appear that, 12 years later, we are still closer to the start of that journey than the end.

“Lost decade” is a strong turn of phrase. On the evidence of the Mercer index, and Dr. Knox’s comments, a more nuanced reading might be:

For trustees, executives and product leaders, the implication is clear: the next decade has to be about finishing the work on retirement income - designing defaults and pathways that turn a world-class accumulation system into an equivalently world-class retirement income system.

Likewise, the regulatory framework needs to evolve to facilitate this mind-shift, as trustees often find themselves in the dark about member circumstances leading up to, and in, retirement.

Wealth and superannuation platform HUB24 has just announced that it will develop a lifetime income solution in conjunction with TAL.

HUB24’s new product retirement is due to be launched in the first half of 2026. The ASX listed entity has enjoyed strong adviser-led inflows over the past 24 months, with the latest APRA data indicating that, for its size, its positive Net Members’ Benefit Flows is amongst the highest in the entire APRA-regulated sector.

APRA has commenced a second round of consultation on proposed changes to the capital framework for longevity products, including annuities. Interested parties are able to provide feedback on the draft prudential standards until 17 December. ⌛

The Compensation Scheme of Last Resort (CSLR) has reportedly paid 434 claims totaling $48.3 million against 38 separate firms during 2024-25. Claims against failed advisory group Dixon Advisory and its related superannuation services arm accounted for 237 claims, or almost 55%, of claims paid.

ASIC has released a new report following a review of retirement communications to members by funds. Report 818 ‘From superficial to super engaged: Better practices for retirement communications’ found instances of trustees providing ‘one-size fits all’ retirement communications, potentially “missing opportunities to engage with members throughout retirement and provide more meaningful support”. ASIC is urging trustees to carefully consider the calls to action (CTAs) and better practice case studies detailed in the report to address deficiencies in their retirement communications. 📫

We spoke with Dr. David Knox AM, one of Australia’s foremost retirement income experts, about the country’s changing position in the Mercer CFA Institute Global Pension Index and just how much progress has been made on post-retirement solutions.

HC (Harry Chemay)

So I’ve been writing about the Mercer CFA Institute Global Pension Index since 2013 (the 5^th edition), back when it was the Melbourne Mercer Global Pension Index (MMGPI). In that year Australia scored 77.8 in overall index value while placing third, behind the Netherlands in second place and Denmark in first. 

In my 2021 update, Australia’s index score had slipped to 75.0, and had fallen to sixth place. In this latest report, Australia’s score has rebounded to 77.6, yet it has fallen to seventh place.

Can you tell us some of the reasons why Australia has improved on an absolute basis, but regressed on a relative basis?

DK (Dr. David Knox)

Australia’s score improved for several reasons including:

However, these improvements were offset by:

Australia has fallen from 6^th to 7^th with both Singapore and Sweden overtaking us during the last two years but with Norway falling below Australia.

In summary both Singapore and Sweden improved their scores in all three sub-indices (adequacy, sustainability and Integrity) during this period.

HC

At the launch of the 2013 report you made a point that “developing effective and sustainable post-retirement solutions has to be one of the most critical challenges for policy makers and retirement industries around the globe.” 

Given changes since the 2014-15 Financial System Inquiry call for a ‘Comprehensive Income Product for Retirement’, how do you rate Australia’s progress in meeting this challenge?

DK

We still do not have a retirement income system.

The introduction of the Retirement Income Covenant has been a positive, and funds are doing more, but it does not require members to take a retirement benefit.  The money can stay in the accumulation phase for ever!

The consequence is that many poor retirees are leaving their retirement benefit in MySuper, and the wealthy are using super for estate planning.  Neither is a good outcome.

HC

Finally, you penned a recent piece for the print edition of Conexus’ ‘Retirement Magazine’ where you opined that to advance post-retirement outcomes, Australia should consider introducing a ‘soft default’ pension product.  How would such an arrangement work?

DK

There are many possibilities but here is one way forward.

From age 65, funds would be required offer all members an account-based pension (ABP) with the same investments as the member is using during accumulation. Of course, the member could change their investment options.

The use of an ABP does not restrict further products, such as lifetime products. The member would not have to take it up at this point and would have the choice to start the pension at any age from age 65 to age 75.

At age 75, the ABP would be required to commence unless the member has chosen other retirement products.

Of course, the fund would be required to obtain bank account details for each member. This is seen to be a problem but:

I recognise that for those with larger balances (e.g. over the transfer balance cap) there may be some additional complexities but that is not a new feature for those with large balances.