National Seniors, like many of our members and supporters, has been eagerly awaiting the launch of the findings from the Retirement Income Review. As you’ll remember, the review was announced shortly after the last election.
The Review is supposed to provide an evidence base for potential changes to the retirement income system, and many individuals and organisations took the opportunity to make submissions to the review panel.
In our own submission, we challenged the government to look to other successful systems across the world, arguing that there were ways to make the system fairer and simpler.
One such idea for consideration is that Australia do away with means testing altogether to create a universal pension - as is the case in countries such as New Zealand, Canada, the Netherlands, Denmark and the United Kingdom.
At the very least, we argued that the current means test needs to be amended to remove perverse disincentives to saving.
There is a rumour going around that the review won’t see the light of day any time soon, and that the Treasurer will use the Review’s findings to support changes in October’s Federal Budget.
If this is true, it leaves older people in the dark about what might happen in the short term and sceptical if anything at all will come of the Review.
Some organisations have speculated about what it might or should hold, with some taking the early opportunity to reinforce the case against changing the slated increase to the Superannuation Guarantee (SG).
Respected firm, Rice Warner has argued the Review should at the least provide information to “help us think about optimising the future” by highlighting “areas of strengths and weaknesses”.
They have argued that there needs to be a clear objective for superannuation, saying there is little evidence to support a change to the ongoing increase to 12 per cent.
In the absence of the Review findings, members of the superannuation industry have also weighed in, arguing that government should stick to the planned increase to 12 per cent.
Industry Super Australia (ISA), the peak body for superannuation providers, warned it is more important than ever after balances were hit through the government’s early release of super scheme and the Coronavirus downturn.
ISA says the move to allow withdrawals from super will dramatically change the trajectory of members’ savings.
Ignoring the impacts of the early release of super and the impact of the downturn on retirement savings could undermine the credibility of the panel’s findings, so these must be considered.
“A few years ago, two of our actuaries looked at the optimum level of SG and they concluded the rate should lie in the range 10% to 15% of wages. This is a wide range due to uncertainty about earning rates, future longevity improvements and the additional uses of the system.
In Rice Warner’s submission to the Review, we noted that the current SG rate of 9.5% reduces to less than 6.4% after deduction of taxes, fees, and life insurance premiums. When we add in Early Release Schemes, it does suggest the current legislated rate of 12% will be needed.”According to Rice Warner:
National Seniors noted in our submission to the Review that the compulsory superannuation rate in Australia is low by international standards. Australia’s mandatory contribution rate (effective rate) is the fourth lowest of any OECD country relative to average earnings (see graph below). Australia’s compulsory contribution rate of 9.5 per cent is much lower than the Netherlands (15%) and Denmark (12%). The OECD average was 18.4 per cent.
Effective rate on average earnings for mandatory (private and public) pension contributions.
Source: OECD 2019
National Seniors will continue to advocate for changes to the retirement income system to make it fairer and simpler.
We will be monitoring for any announcements about the Retirement Income Review and will keep members and supporters informed via our free weekly Connect eNewsletter.