Retirement Income Review submissions highlight shortcomings.
Australia has the third best pension and retirement system in the world, according to research by HR consulting firm Mercer and Monash Business School. But the Actuaries Institute is the latest to flag a series of “shortcomings” in its submission to the government’s retirement income review.
The Mercer and Monash analysis, which looked at the strength, quality and fairness of retirement income systems in 37 countries (representing more than 63 per cent of the world’s population), returned Australia to third spot after it was displaced by Finland last year.
The Netherlands (a $1.5 trillion pension industry) again claimed top spot with Denmark second. Finland, Sweden and Norway were ranked behind Australia.
The index benchmarks retirement income systems across more than 40 indicators, including how generous systems are in their pension benefits, the quality of the country’s public and private sector pensions, the length of expected retirement benefits, pension communication and governance, and how pension plans and retirees are protected.
Australia’s $2.9 trillion superannuation industry scored consistently well in most areas, but the analysis was critical of our “relatively tough” assets test on the Age Pension.
In 2017, the government changed the assets test so that retirees lost $3 instead of $1.50 of pension per $1000 of assets above the threshold. The change to the taper rate has drawn criticism from many sources ever since.
Economist Sean Corbett told YourLifeChoices: “You really have to wonder why the government introduced a change that discourages people from providing their own retirement income and instead relying more heavily on the Age Pension.”
A report released by the Actuaries Institute from Mercer’s David Knox, Rice Warner principal Michael Rice and University of NSW associate professor Anthony Asher says the assets test taper rate provides “little (if any) reward for saving”. They all support a reduction on the taper rate to $2 or $2.25.
Mr Knox added that Australia would also benefit from “better integration between the Age Pension and superannuation”, because there were not enough incentives for individuals to contribute.
“The overall system needs to provide clear additional benefits from making extra contributions,” he said.
The Actuaries Institute says Australians need a much clearer understanding of how much money they can expect to get during retirement, how this changes as their contributions rise and fall, how much Age Pension they might receive, what impact investment returns have on outcomes, and how super and the Age Pension interact with aged care.
YourLifeChoices’ submission to the retirement income review urged the government to:
- Increase the base rate of the full Age Pension to an amount that better aligns with the actual cost of retirement.
- Limit housing stress by increasing the rental supplement to a more realistic amount.
- Reduce the penalty for earning income, e.g. remove the income test attached to the Age Pension.
- Encourage a higher mature adult workplace participation.
- Consider capping the number of legislative changes to retirement income or to grandfather all legislative changes to support longer-term planning.
- Review the 2017 changes to the taper rate to encourage people to save and self-fund.
- Review the role and efficacy of Centrelink as the delivery agency for the Age Pension.
Do you believe our pension and retirement system deserves its third placed ranking?
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