As governments around the world take on the tough issue of the growth in aging population, there seems to be a struggle to ensure that the elderly can remain financially comfortable after their retirement.
Enter Denmark, the country which is not only known as the happiest country in the world but has also been ranked as having the best pension system by the Melbourne Mercer Global Pension Index for 6 years in a row. Only this year, it has finally been beaten by the Netherlands and is now ranked as second best as of 2018.
Of course, it comes with no surprise for a country that has opened their universities for everyone to attend for free, has 52 weeks of fully paid maternity leave and free health care. So, what is it about Denmark’s pension system that makes it one of the best in the world? And what can we learn from it?
For one, Denmark has a great retirement system where they have several sources of income for retirees. As a result of this, it means that most retirees will not be relying on tax payers for a government pension which in the long run makes it more sustainable. Denmark’s pension system has a complementary benefits of a public basic pension scheme, a means tested supplementary pension benefit, a fully funded defined contribution scheme and a mandatory occupational scheme.
So how much is enough for Australians to survive? According to the Association of Superannuation Funds of Australia, they are currently estimating for a “comfortable lifestyle”, a couple will require a lump sum of $640,000, while a single person will require a lump sum of $545,000. This is, of course, taking into the assumption that retirees will lower their living expenses, draw down all their capital and receive a pension from the government (which is currently sitting at a maximum of $17,958.20 each for couple and $23,823.80 for an individual per annum. Enough to barely cover a year’s worth of rent in an underprivileged area in Sydney).
While improvements can be made to the Australian pension system, with the main target of developing a more sustainable pension system, we are currently also ranked very highly as number 4 in the world for top pension systems globally.