Winners and losers in retirement


The Retirement Income Review report was recently released. Here's what it means for you.

Key Points


  • The Retirement Income Review report was released on 20 November 2020 
  • Seniors fear the pension, health and aged care systems will not meet their needs
  • The system needs to be simplified, so that there is more surety for retirees 

National Seniors welcomed the long-awaited release of the retirement income review by Treasurer Josh Frydenberg on 20 November 2020.

Australia’s peak consumer organisation for older Australians acknowledged the hard work of the Review Panel in putting forward the evidence for potential reform.

The 600-page document does not contain any clear recommendations, serving only as a ‘fact base’ for potential reforms in the future.

Even so, National Seniors is pleased that the review finds older Australians are not an ‘economic time bomb’ as has long been asserted. Countering this mistaken assertion, the report predicts the cost to the taxpayer of funding the Age Pension will drop.

"The Age Pension is expected to “fall from 2.5 per cent of GDP to 2.3 per cent by 2060.”

There is a lot of information and analysis in the report. However, it falls short of giving a better understanding of the problems faced by retirees and the reasons why older people lack trust in the system.

A complicated system


To its credit, the report acknowledges the retirement income system is very complicated. This is something National Seniors pointed out in its submission to the Review.  

However, the heavy focus on income adequacy neglects the role of expectations in shaping how retirees feel about the system.

For example, the report wasn’t able to drill down to address the interface between retirement income and the sustainability and accessibility of other systems such as health and aged care. How people feel about health, aged care and other aspects central to retirement is critical in determining whether the system is in good shape.

In this regard, the report doesn't adequately acknowledge the valid reasons why older Australians choose to hold on to their capital.

“Seniors tell us time and again they are petrified of running out of money. They fear the pension, health and aged care systems won’t meet their needs. Acknowledging these fears is an important first step in reforming the retirement income system.”

If you look at aged care, for example, we are currently in the middle of the Royal Commission because, to use the Prime Minister’s own words, people have lost ‘faith’ in the aged care system.

While there is a need to improve financial literacy, as the report suggests, National Seniors has called for greater simplification of the system and more surety for retirees to allow them to feel confident.

Home equity


The report also highlights the need to promote the use of equity in the home to help live a better life in retirement.

While some commentators have seen this as a justification for including the home in the pension means test.

Our own Chief Advocate, speaking to the AFR noted that while some seniors are supportive of including the family home in the pension means test, he also noted that:

"I’m sure the political parties would say: 'I’m going to lose half my voter base almost if I go ahead with this policy. That’s political suicide.'"

The Review report argues:


  • the retirement income system is “effective, sound and its costs are broadly sustainable”
  • “complexity’, ‘misconceptions’ and ‘low economic literacy’ are undermining good planning and use of capital
  • better use of assets and home equity could boost retirement income without higher contribution

To its credit, the report said the Pension Loans Scheme (PLS) might be one way of helping older people to unlock their equity. However, it failed to acknowledge the main reason why older Australians do not draw on the wealth of their home.

According to data in the report, the PLS has seen a three-fold increase in demand but only 2,288 people used the scheme as of March 2020.

“National Seniors has long been calling on the government to cut the interest rate for the existing Pension Loans Scheme (PLS). It’s a clear barrier,” Mr Henschke said.

“This scheme is especially important for those receiving aged care, who could be using it to live more comfortably staying in their own home and out of residential aged care.”

“Lowering the 4.5% interest rate should be a priority and certainly must be cut in the next Federal Budget.”

“We urge the Treasurer to recognise the vital role older Australians could play in the economy and the COVID recovery by helping them release the equity in their homes,” said Mr Henschke.

Super Guarantee gets a work over


Much of the attention in the media from the report related to evidence appearing to support a freeze or halt of the legislated Superannuation Guarantee.

Despite calls to ensure the report does not overemphasize superannuation, much ink was spilt assessing whether the guarantee was adequate.

Given this emphasis, one can envision this issue will be on the radar, come the next federal election.

National Seniors will continue to analyse the report over the coming week and will bring important insights to light through Connect and in the media.

To read the full report, click here.