Retirement income to be reviewed

In an interview with the Financial Review shortly after the election Treasurer Josh Frydenberg said the review would include superannuation, pensions and taxation.

The terms of reference and timelines have yet to be announced but it is reported that also on the table for reform will be restricting union and employer involvement on the boards of industry superannuation funds – by mandating a minimum percentage of independent directors to be included.

The announcement follows the Productivity Commission's recommendation for an extensive review. The Treasurer was quick to rule out changes to taxing superannuation. Commentators aren’t that sure.

Does the one-size-fits all approach work?

Some reports are adamant that tax breaks on super payouts should also be examined, with the Productivity Commission having questioned whether the compulsory superannuation system is having the effect first imagined almost 30 years ago.

The Gratton Institute is calling for the setting of a target for an adequate retirement income and discussion around what the trade-off should be between living standards while working versus in retirement.

“Past governments have been reluctant to specify an adequacy target, and so the super industry has filled the void. But the one-size-fits all “comfortable” standard promoted by the Association of Superannuation Funds of Australia won’t do,” the Gratton report says and elaborates “A budget of $43,255 a year for homeowning singles, or $61,061 for couples might not seem generous to some, but it’s more than what most Australians have while working after covering the rent or mortgage.”

The ASFA defence

Not surprisingly the Association of Superannuation Funds of Australia argues against the Gratton Institute approach.

“Based on a flawed interpretation of the data, its modelling envisages an austere future that stymies aspiration and refuses to redefine retirement to meet the changing expectations of Baby Boomers and working Australians. Australians want to be prosperous in retirement, not just getting by.

“We need to recognise that the Grattan definition is not what Australians aspire to. We know that Australians would rather their retirement be substantially self-sufficient and reserve the full age pension for those who need it most.

“Retirement is the new chapter in the emerging narrative of Australian life: 30 or more years of retirement, punctuated by the joys of travel, children and grandchildren, as well as adequate aged care and health care.

“We cannot think of retirement in binary terms. The reality is people will continue to work on a flexible basis as they move into their later years, in order to stay healthy and productive.”

Mandatory superannuation is set to rise from 9.5 per cent to 12 per cent gradually between 2021 and 2025. The Productivity Commission recommended the review be completed before that kicks in.

National Seniors Chief Advocate Ian Henschke has welcomed the announcement of the review.

“National Seniors has been calling for a comprehensive review of the retirement income system for many years. We hope that this will result in a simpler system that provides both an adequate safety net and rewards those who have saved for their retirement. The current system doesn’t incentivise personal responsibility, and it doesn’t meet the costs associated with longer lives and changing need.

“National Seniors stands ready to work with the Morrison Government and opposition parties to develop and action policies for older Australians,” Ian said.

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