SuperFIRE - Comparing Pension Systems of Australia, NZ, Canada and the UK [Part 2]

Language may shape how we think but it certainly doesn't shape our pension systems. Following my superFIRE post, I thought it would be interesting to do a comparison of pension systems in the rest of the English-speaking world, New Zealand, Canada and the United Kingdom. Interestingly, despite their shared culture and language, the pension systems are remarkably different. Australia alone means tests their public pension, whereas the others depend on residency or state payments to build an entitlement. NZ's confusing state pension system named superannuation is the most generous with no means testing or contribution. Finally, the UK and Canada have similar contribution system where you must pay into the system for several years to get what appears to be a fairly meager amount. 

These retirement systems contain a second pillar of private pensions and provide savers with many tax benefits to encourage citizens to work and to save. All the respective countries have removed mandatory retirement and are increasing the age of access. Not only do all these systems want workers to save, but they want to extend their working lives as much as possible. Thus, private pensions transfer responsibility onto the individual, but where are all the jobs for 65+ year olds?

The trend towards pension privatisation is overwhelming. Governments are encouraging self-reliance and citizens to work well past previous retirement ages to support themselves. Yet, wages aren’t increasing and the essentials such as housing are going up dramatically. It makes you wonder if there is a conspiracy against retiring.

The following table outlines a rough comparison between the public pension systems:

Country

Eligible Age

 Earning Qualification

 Means Testing

 Means Testing (Single)

 Mean Testing (Couple)

 Approx Monthly Payment (Single)

Monthly Payment (Couple)

Australia

67+

 N/A

Yes

270k to 588k 

 405k to to 884k 

 $2064 AUD

$3111 AUD

Canada

60+

At least one  payment (39+ years for max)

No

N/A

N/A

$706 CAN 

$1403 CAN (double)

New Zealand

65

Resident for 10 years 

No

N/A

N/A

$2083 NZD

$3125 NZD

United Kingdom

66+

Payment 10 to 35 years

No

N/A

N/A

£788 UKP (Max)

£1576 UKP (Max)

This table shows a surprising divergence between the systems. The New Zealand public pension is certainly the winner without means or income testing and the Australian system comes in second. Both systems provide a basic standing of living once you hit the age or residency requirements. Canadian and UK systems, while income tested, are pretty stingy and a retiree would certainly need to support themselves with additional savings.

Despite being relatively generous, Australia has one of the highest levels of poverty in the OECD. The Gratton Institute argues this apparent contradiction is because of the higher homeownership within Australia. Suggesting those who are suffering are renters. Another reminder that if you want to retire in Australia, you want to be a homeowner as the home isn’t means tested, freeing a greater proportion of your income. 

So what does this mean for an early retirement in Australia? If I really wanted to optimise retirement, perhaps I could work in Australia and early retire in New Zealand in my fifties to secure a non-means tested pension. Pension-arbitrage if you will. However, it would be a lifelong commitment, as the pension has limits to overseas payments. This could be a great option if you wanted to move to New Zealand, otherwise it’s an extreme option even for the most optimised early retiree planner. 

Australia’s system really is unique and most Western retirees are willing to take funding from the state. Perhaps it may help you feel less guilty taking a pension from the state. The splendid news is that Australians have a fantastic safety net called the age pension, so live now and if you hit back luck in old age, they will catch you.

This article was updated on September 26, 2021

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