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Retirement Income Review

As recommended by the Productivity Commission in its report Superannuation: assessing Efficiency and Competitiveness, The Retirement Income Review was announced by the Government late September (to be undertaken by an independent panel) and aims to look into:

  • The three pillars of the retirement income system – the age pension, superannuation and voluntary savings, and how each pillar supports Australian through retirement,
  • The incentives for people to self fund their retirement,
  • The fiscal sustainability of the system – and the impact of current policy settings on the government budget, and
  • The level of support provided to different cohorts across time – that is, the distributional impacts across the population and over time.

There are also calls for the Review to specifically look at the situation of women, given the often inferior retirement outcomes for women (retiring with less than half of the superannuation of men).  As a result, women are more heavily reliant on the age pension and the number of homeless women has increased by 31% since 2017.

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As Australians live longer and the population ages, many now retire with debt or without the security of owning their own home.  As home ownership amongst the aged become less and less common in future, and people therefore navigate the private rental market, reforms to the current system may need to be undertaken to ensure equitability and sustainability over the longer term.

In the current climate, retirees are facing a myriad of challenges, most notably:

  • Cash rates at historic lows (currently 0.75%), with the low interest rate environment likely to be prolonged, and
  • Increasing cost of living.

One of the biggest issues that needs to be addressed will be the idea of the Age Pension means test – as it currently stands, the more superannuation you have, the less pension you get.  The question posed by Mercer’s David Knox is “does the means test actually provide an incentive to save or is it a disincentive?”

One recent criticism has been the reduction of the deeming rate on the income test (though still set at levels above anything offered by the banks or term deposits), being “too little, too late”.

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*Lower balance deeming rate is now 1% and the upper deeming rate is 3%.

Criticisms aside, the Review appears to be a good opportunity to examine the complex retirement income system holistically to ensure that the greatest number of Australians benefit from government policies in order to achieve a comfortable retirement.

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