What you can expect from the Retirement Income Review

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After almost a year of analysis and deliberation, the federal government has been handed the final report from the Retirement Income Review.

Federal Treasurer Josh Frydenberg was handed the Retirement Income Review report on Friday.

The report, announced on 27 September 2019 and undertaken by an independent panel, chaired by Mr Mike Callaghan AM PSM, with Ms Carolyn Kay and Dr Deborah Ralston, examines the interaction between superannuation, the Age Pension and voluntary savings – including home ownership.

An initial consultation paper was released in November 2019, which highlighted how the current system favoured the wealthy, with Australia’s wealthiest given twice as much financial support as those on the lowest incomes.

Mr Frydenberg may be expected to level the retirement income playing field, at the same time as extracting whatever ‘budget benefits’ he can from a segment of the population that holds 50 per cent of the nation’s wealth.

So far, his office has declined to comment on when the report’s findings would be released.

Industry Super Australia (ISA) has called on the government to publish the findings immediately and has raised concerns that the review might be used as a “stalking horse” to go back on its plans to increase compulsory contributions.

“The community knows that government faces a tough task, but we can’t have this review remaining hidden or used as part of a secret plan for super to create an Australia where there are those that can have a dignified retirement and those that can’t,” said ISA chief executive Bernie Dean.

“Super is already a great economic leveller for most Australians, but we need to do more to avoid us ending up as a divided nation, with millions of women and low-income earners scraping by just on the Age Pension.”

ISA says eight million Australians would suffer if the government were to dispense with the scheduled rise in superannuation contributions made by employers.

“For an average 30-year-old couple working full time, cutting the super guarantee increase would deprive them of up to $200,000 in super by the time they retire.”

Shadow treasurer Jim Chalmers also wants the report released immediately.

“This government … when they look around and see the way people’s retirement incomes are being eroded, they think the answer is to go after super,” he said.

The review, which examined the current state of our retirement system, also analysed how it it is expected to perform as the population ages, taking into account any incentives for people to self-fund their retirement and the sustainability of the system in terms of the federal budget.

While the government had previously ruled out including the family home in the pension asset test and committed to increasing the compulsory superannuation guarantee from 9.5 to 12 per cent, since COVID-19, many predict these, and other plans, could be subject to change.

Actuaries and consulting firm Rice Warner believes the report will focus on the adequacy of the current rate of superannuation contributions, home ownership via superannuation, Age Pension eligibility criteria, allocation to longevity products, spending patterns and the vehicles for superannuation.

“We expect it will highlight areas of strengths and weaknesses. There will be much to ponder and no doubt more legislation to follow,” stated Rice Warner.

“Let us hope that politicians and the industry focus on the critical matters that will make our world-leading system even stronger.”

Taking into account the recent early release of super scheme and legislated changes to the super guarantee, Rice Warner noted: “When we add in Early Release Schemes [extended yesterday, at a budget cost of further $2.2 billion], it does suggest the current legislated rate of 12 per cent will be needed.”

The firm also said the review may give more freedom and help for those who want to manage their own money (SMSFs) and could float the idea of restricting the number of superannuation funds to the 10 best funds.

“The PC’s proposed ‘best in show’ was flawed and is unlikely to be introduced. Instead, market forces will reduce the number of funds and they will all be bigger and much stronger than the funds existing today,” said Rice Warner.

The Grattan Institute believes the focus will be on super tax breaks and SG contributions.

“If the review finds, as I expect it will, that most Australians can look forward to adequate retirement income, then the case of increasing SG certainly disappears … That’s certainly the finding of our work and that remains true if you include that returns are lower,” said Grattan Institute household finances program director Brendan Coates.

“I’d be surprised if the review’s findings point in a different direction.”

“An area we think the review will certainly look at is, superannuation tax breaks. We saw in the consultation paper, tax breaks are skewed towards high income earners which is arguably [at odds with] the purposes of super, particularly in a post-COVID world, with government accumulating substantial deficits.

“It is hard to see how super tax breaks that are inconsistent with the purpose of super could survive. You could use that money for budget repair and personal income tax cuts.”

The review itself was not to make any recommendations but Mr Frydenberg will no doubt be examining it to make some of his own.

The YourLifeChoices submission recommended the following:

  • Increase base rate of the full Age Pension to an amount that better aligns with the affordability of retirement.
  • Increase the rate of rental supplement to a more realistic amount for those under housing stress.
  • Reduce the penalty for earning income – so consider removing 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.

Which of the points in our submission would you most like to see come to fruition? What do you think will be the hot-button issues to come from the Retirement Income Review? What do you most fear happening?

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Written by Leon Della Bosca

Leon Della Bosca is a voracious reader who loves words. You'll often find him spending time in galleries, writing, designing, painting, drawing, or photographing and documenting street art. He has a publishing and graphic design background and loves movies and music, but then, who doesn’t?

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55 Comments

Total Comments: 55
  1. 0
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    Reduce the penalty for earning income – so consider removing the income test attached to the Age Pension.

    • 0
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      Agree with that – just tax the lot, pension income, investment as well as earned income, leave Services Australia looking after other issues and let ATO handle us oldies making a bit more money. Give us the incentive back to make a bit more as we age.

    • 0
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      Even more importantly – remove the assets test or dramatically increase the limits, as people with modest assets are income-poor and have no income security. Saving for retirement is dumb and yields no gains under current system unless you can accrue a very large asset balance.

  2. 0
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    The first and third points are the only important ones IMO as they relate to fairness for all.
    The other points are only of benefit or relevance to some.

  3. 0
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    Did YLC define what Income should be excluded from the Income Test? Aged Pensioners currently receive many forms of income eg shares, investments, defined benefit pensions etc.

    • 0
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      The point names ‘earned income’ which would suggest all those you mention would not be included since they are not ”earned’.

    • 0
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      Actually KSS, the current definition of earned income used by both Services Australia and the ATO includes all the items I mention plus others such as net capital gains, income from overseas. It is not as simplistic as you think

    • 0
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      Sundays, do you have some references or links to that all encompassing definition for “earned income”?

  4. 0
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    People should absolutely be encouraged to save and self-fund (and not then penalised for doing so).

  5. 0
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    “Which of the points in our submission would you most like to see come to fruition? What do you think will be the hot-button issues to come from the Retirement Income Review? What do you most fear happening?”

    I note that the points raised by YLC are too subjective and don’t give a clear indication of what is needed to fix any perceived problems. The points talk of “increase” and “decrease” without specifying exactly how much is needed to change the pension or any supporting subsidies.

    The method of adjusting pensions is to increase them each March and September in accordance with the CPI and this was changed from the previous method of aligning the changes with the average wage. The ideal may be to use both methods and use the one that has the greater increase each half year.

    I have no fear of what will happen as politicians will make decisions on what is the best way to get re-elected and we will get the crumbs they choose to scatter. I note that it matters little which political party is in power as the self interest of politicians is something that all sides always agree on.

    • 0
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      Horace Cope, the increase to the Age Pension in March and September of each year is based BOTH on the CPI (as it applies to products seniors are likely to use) AND the Male Average Weekly Earnings, the greater increase being paid. Tony Abbott was going to change it just to the CPI, but that didn’t get through.

  6. 0
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    It seems to me there will always be a block of people who, for whatever reason, will be unable to “save” sufficient funds to provide for their retirement. These same people, again for whatever reason, seem to think spend now and the Government of the day will take care of their end days.
    Similarly, there are those who don’t have the spend now philosophy and ARE / DID save to achieve a better end of days outcome.
    I can see that Governments will need to change how the VERY wealthy retirees contribute.
    I would include the family home in the assets/income test – income value set @ 0.5%. So on an $800,000 property – income would be applied on $4,000.
    I would increase the Pension to the “acceptable living standard” level.
    I would tax the all up income of Pension receivers, after applying the income test rules at a fixed rate of 10% on “calculated income” above $100,000.
    I would provide the Pension for everybody of retirement age, including those who self provide their sustenance, and then tax them @ 10% flat rate – pension, personal/super income and franking credit refunds – income is “calculated applying the income rules”.
    This flat rate will increase to 25% on “calculated income” over $250,000; 40% over $400,000 and top marginal rate for “calculated income” over $500,000.
    So, let’s see who can calculate all this out???

    • 0
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      I like most of what you suggest.
      On the family home – an $800,000 home – you say “Income would be applied on $4,000”. You can’t eat your family home. You can’t liquidate an extra bedroom to boost your income.

    • 0
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      I agree with Gadgetmum. The family home is not an income producing asset. OK, you don’t pay rent, but you do pay council rates, water rates ( not just water usage), repairs and maintenance. You have paid stamp duty to buy the property, and also paid very high interest rates on buying a property, especially if this happened in the late 80’s and 90’s ehen interest rate peaked at about 18% on mortgages. All this was to supply you with a reasonable retirement when you could no longer work. The above expenses do not go away when you retire. What is the next impost, a tax on furniture or motor vehicle? The value of the land is out of your control, is this to be included as well?

    • 0
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      Gadgetmumma, you are right. I have friends who bought houses in the early 70s for the family and they still live there. They have the pension and nothing else but the house is not much short of sanity’s stipulated $800’000 (they paid $40K+ for them). He would deduct $4000 off their pension, $80 a week! Better to introduce an inheritance tax and get some money back that way. Not popular: the oldies are against it and the youngies certainly as well. A dictatorship would achieve it or Labs and Libs getting together on the subject. We would have nowhere to go as the Greens being Communist, are against private ownership.

    • 0
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      And don’t forget that a homeowner gets less age pension than a renter. If you want to treat the family home as an asset then give all age pensioners the same rate of pension.

    • 0
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      Sanity + Horace seems a good start to me.

  7. 0
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    The need to include the family home in the assets test is a mandatory and for those that keep whingeing about not then having enough income need to leverage the asset through a Govt. backed reverse mortgage to give them cash flow. When is this ridiculous situation of people sitting on property worth millions whilst claiming a pension and then passing it on death to family ever going to stop. And for all you other whining boomers that carry on about how you worked hard to save for your property and are entitled to a pension because you payed taxes, get over it, move on and stop sucking the life out of this country.

    • 0
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      Remember, Deano, when all these Boomers were paying taxes a portion of those taxes were creamed off to pay for the hefty pensions of ex politicians, ex bureaucrats, ex judges and a few more as well. As Scomo said “we’re all in this together “, then politicians, bureaucrats and judges’ houses/multiple houses and pensions must be assessed also. After all nobody could look at the way a bunch of politicians decided to grant themselves a lifelong, indexed pension and perks after eight years in parliament and not think ‘corrupt decision ‘.
      Boomers are not whiners they are people who like to see fair play for all.

    • 0
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      And so what is the relevance of that fact Triss ? The bottom line is one day we will all die and the only thing we need prior is a good income to ensure we can live well until that time arrives. If people are sitting on large assets and bleeding Govt. coffers thru pension manipulation instead of using their own funds/assets thru reverse mortgages to survive then we need to make changes. You don’t need the money when you are dead and inheritance to others is just a blight on their own personal growth towards developing self reliance. A 100% death duties tax would help solve a lot of problems.

    • 0
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      That’s what I said, Deano, only instead of garrotting the age pensioners alone we need to also look at the other sections of society who are also sitting on large assets and bleeding the taxpayers dry.
      You are annoyed with people sitting in houses worth millions and still collecting taxpayer funded pensions so check how many ex politicians and bureaucrats are multimillionaires with houses worth millions, or own three or four expensive houses whilst still collecting taxpayer funded pensions and perks.

    • 0
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      Maybe, as an alternative, the family home could be exempt up to the approximate average house price – at moment this would be about $700,000.
      To me it’s totally stupid to allow some to live in multi-million homes in upmarket suburbs and still be able to bleed the public purse by not paying any tax.
      Everybody can be brought back to a level playing field BUT those who have plenty still keep their “Plenty” (after tax).
      That imho is fair!

    • 0
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      so Deano, based on this presumptive thought pattern of yours, you are quite happy if a like wise harsh penalties is applied to those with the ‘live for today and bugger tomorrow attitude’? After all it seems you will get to pay for these loafers full pensions, full rental assistance etc without them having done a darn thing to contribute to their old age.

      I suggest ‘sucking the life out of our country’ is abundantly obvious for all to see at the moment. Barely any of them able to survive a week because they haven’t bothered to save and are now bleeding the country dry.

      FYI The older bracket, you so malign, aren’t all living in mansions, most have basic affordable homes but you don’t want to know about that, you are falling for the oldest trick in the government books. Its sad to see the Government enjoys pitting the haves, the have nots and the I wants, against each other. Have a walk in others shoes and you might not be so judgmental or the aged.

      Personally I think they will introduce a tax on all income irrespective. But unless they control loopholes it will be a pointless exercise. Don’t you think for a minute that a good accountant will not be able to successfully bury money from selling the family home?

      Remember Deano, whatever they come up with and what ever you demand, be very careful what you wish for, as YOU will one day live with the results.

    • 0
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      Deano. You annoy me. Obviously not a saver or homeowner. Spender I’d say but want people who have gone without and worked hard to be penalised.
      The homeowners payed massive stamp duty tax when they bought. They already paid tax on their houses. Grrrr

    • 0
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      Possibly Deano has no relatives to leave his meager possessions to, son of a bachelor, and jealous of everyone who has something in life. 100% death duty! Try to bring that in – you might be successful with that under a dictator and of course a bullet to the head at 65 if you cannot sustained yourself. Have a discussion but do not be stupid mate.

    • 0
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      history informs us that imagination is the only limitation to the ways death duties could be rorted but nevertheless I agree with Deano inclusion of the family home in a future assets test is inevitable. The idea is already out there and part of the policy conversation so the denialists will only hold back the tides of change for so long.

  8. 0
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    Including the family home is a bit tricky. Some houses are worth very little (country village eg) whilst others are modest homes but, because of their location, have increased in value exponentially.
    I live modestly; have worked hard. Have never taken one cent of government benefits; I’ve worked until into my ’70s to provide as well as I can for my retirement. The goalposts have changed so much over the last 10 years that planning is very difficult. I’m terrified to give up work in case my superannuation (ravaged by GFC and COVID) downturns will be inadequate before I fall off the perch.
    I agree with removing the penalty for earning income.
    I agree that increasing the pension to a reasonable amount would be beneficial. I think the NZ system (what little I know) where everyone gets a universal aged pension, regardless of circumstances, is the best idea. It would save countless millions in compliance costs.

  9. 0
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    As far as I am concerned this government have and always will keep trying to run industry super and if this report does not suit this liberal government we will not see or only parts of it

  10. 0
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    Agree with all the points. I would like to add one: allow retirees to contribute to their super fund without having to work a minimum of 20 hours per month. I might be receiving a lump sum in the future (fingers crossed) and would like to put it in my super from which I draw a pension to supplement my part age-pension. Why do I have to put it in the bank instead of my super fund? My part age-pension would be decreased accordingly regardless of whether the money is in the bank or super fund. I don’t get it. What am I missing here.

    • 0
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      Chloe, you can only make non-concessional contributions (not from your earnings) to your super fund if you are still working – where your fund is in the accumulation phase and you are under the age of 74.
      Hope this helps.

    • 0
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      Gadgetmumma – reading the post from Chloe, she is fully aware of the minimum working requirements.
      Chloe – I too fully agree with you. I am in exactly the same situation. I am single, no longer work, have minimal super, and recently came into a small amount of money. I would gladly add this to my super – but am discriminated against, solely because I do not work any hours. Instead I have to put it into the bank, at some ridiculous low interest.
      It is quite unfair that you are effectively being penalised twice. And solely because you cannot work. Unable to earn any kind of income, and unable to add to your super.
      And like you Chloe – I say the same thing. I don’t get it. It is clear discrimination.

    • 0
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      Chloe, further to my previous comments. I would not want to put money into super any more. I came into a lump sum last December. I lost that and whole lot more by March! It broke my heart. The super has recovered a bit since then, but not all that I lost in that hit.

      Thanks Older & Wiser. I see that I answered a question she already knew the answer to. Sorry! I was trying to be helpful.

    • 0
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      I agree Chloe, it would be reasonable to expect you could contribute to super so long as still in accumulation phase regardless of age and work so fingers crossed this change comes not too far away. It would also be helpful to contribute an occasional lump sum top up to super regardless of status, which you might think will be reasonably common in the decades ahead with more people living to 90s before dropping off the perch, but equally could be a win on the lotto, sale of a business etc.

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