Policy needs to look beyond super to address retirement income issues.
The deal struck on the Federal Government’s superannuation package represents an important step towards ensuring greater fairness and fiscal sustainability. However, if Australians are to have adequate income in retirement, policy needs to look beyond the superannuation system and consider how all the components of the retirement income system work together.
Research shows that even under a mature superannuation system, most people won’t have saved enough to meet their aged-care costs and will have income well below a comfortable income in retirement. People on average full-time incomes will struggle to have a comfortable retirement unless they make voluntary contributions to superannuation.
Given the increasing cost of aged care and a rising rate of people going into aged care facilities, Australians will need to make more effective use of all household assets to maintain an adequate living standard.
Australian households have more wealth tied up in housing than any other asset. But pensioners need to be encouraged to access the equity in their homes to improve their retirement incomes. Currently, however, the reverse mortgage market in Australia fails to support retirement income - most loans are lump sums not income and the average loan size is small and costly in terms of interest.
It would be counter-productive to improving retirement income adequacy if any funds released in this way were included in the Age Pension means test. The value of the home is no different from any other asset, and in principle it should be included in the Age Pension means test. The difficulty, however, is how to access pensioners’ home equity without reducing their cash income, especially as some pensioners own high value homes but are income poor.
Including the family home in the means test would further disadvantage women, who have significantly lower superannuation balances than men. Women live longer than men, and so are likely to rely more on housing to help fund aged care. Nearly 70 per cent of 65-year-old women will need to enter permanent aged care facilities at some stage. Women are also more likely to receive the family home in divorce settlements, while men tend to have more access to superannuation savings.
These and other issues will be addressed at the CSRI’s Leadership Forum in Canberra on 12-13 October. The forum will feature presentations by Financial Systems Inquiry Head David Murray, Financial Services Minister Kelly O’Dwyer and her opposition counterpart, Senator Katy Gallagher, alongside key industry, academic and community leaders.
Among the specific policy issues to be considered are:
- Should the phased increase in the compulsory contribution rate to 12 per cent be accelerated?
- How can we make more effective use of superannuation assets at retirement through income stream products?
- Should we consider options to encourage older Australians to remain engaged in the labour market in those cases when they are able to continue in paid work?
- How do we address the gap in superannuation between men and women?
To find out more about the CSRI’s Leadership Forum or to register, visit csri.org.au/leadership-forum-2016/registration
Patricia Pascuzzo is the Managing Director and Founder of the Committee for Sustainable Retirement Incomes.