When the Treasurer announced in mid-2019 an intention to review Australia’s Retirement Income system, we welcomed the news. It is something we have long called for.
Some commentators say the result of the last election signalled an unwillingness of older Australians to embrace systemic economic reform. Nothing could be further from the truth. Reform, like death and taxes, is inevitable. The trick is to deliver reform fairly and communicate it effectively.
While Australia’s retirement system is one of the strongest in the world, it can and should do better.
Australia is a rich country but Canada and New Zealand, despite having lower rates of GDP per capita, have much lower rates of pension poverty.
Unlike Australia, which has a complicated system to restrict access to the pension, New Zealand provides a pension to all and recoups some of the cost through the tax system.
This allows retirees to continue working without penalty.
While we take 50c in the dollar from the pension over a certain threshold, in New Zealand there’s no penalty for pensioners who choose to work. They simply pay tax on their earnings.
The New Zealand system does away with complicated means testing – which makes the process of managing the pension much simpler for government and ultimately, for you.
Our submission to the Retirement Income Review calls for a focus on improving adequacy and fairness for all, drawing heavily on information provided by you, our members and supporters.
We have asked the review’s panel of experts to consider what is happening in other countries and to put forward options for reform that enhance our own system.
It will be useful to conduct modelling to show how elements from different systems might provide better outcomes for retirees in Australia."
The purpose of the Australian retirement system is not well understood. The system is just too complex. A lack of financial literacy compounds this problem.
Many people are disengaged from superannuation until they near retirement age.
Our submission argues that it is in government’s interest to encourage all retirees to become more self-reliant by accumulating more resources to pay for their retirement.
This would ease the burden on all taxpayers. More full pensioners could become part-pensioners and more part-pensioners could be self-funded.
We need to make the system fairer so that more people have more savings in retirement.
At one end of the scale, we know those on low incomes or with broken work patterns, especially women, struggle to get enough superannuation and are not benefiting from superannuation tax concessions as others are.
This will require ongoing reforms and proactive policies, such as removing the exemption for paying compulsory superannuation to those earning less than $450 per month and to continue to increase the Superannuation Guarantee (SG) beyond 9.5%.
At the other end of the scale, we know there are rules which are distorting and undermining the savings of those who are better off. Look at the current assets test taper rate.
How can the present system be fair when a couple who save $800,000 receive less income overall than a couple on the pension who save only $400,000?
Our submission points out that the capacity for people to contribute to their savings depends on stable policy settings.
Encouraging Australians to be more self-funded in retirement requires long-term planning. Policy settings need to remain stable over decades, or we will continue to jeopardise retirees’ savings plans.
That’s why we have argued the principles of equity, adequacy, sustainability and cohesion, proposed by the Panel, should be balanced by consideration of a fifth principle, certainty – something our members have told us time and time again.
What this means in practice is that reforms should consider the impact on current retirees who have made plans in good faith, within the rules.
Changes should be fair and provide adequate timeframes for adjustment (or be grandfathered if necessary).
Despite recent rancour about the cost of the ageing population, Australia is in good shape.
Recent modelling from Rice Warner shows that the proportion of retirees who receive a pension will decline over time. Over the next 20 years the proportion of retirees on the full pension is expected to fall from 50% to only 30%!
This is good news, but we can and must do better.
We will continue to engage with the Panel and feed your views into the discussions.
And of course, we will remind all politicians and key players that every second voter is now over 50 and the next election will be here sooner than they think!