Although Australia’s retirement income system is rated one of the best globally, it’s time to be ambitious. We need to ensure it remains sustainable and fair across generations.
More than 200 actuaries, led by a core group of about 40, have delivered a public policy review of Australia’s retirement savings system published today as the Actuaries Institute Public Policy Statement Securing Adequate Retirement Incomes for an Ageing Australia.
The wide-ranging policy document tackles issues to improve the Australian retirement income system – from the fundamental question of what should be its objective and that of its various pillars, to how much superannuation is enough, and what interventions are required to improve system efficiency and fairness. It traverses into financial advice, product development, the role of the family home, and intra and intergenerational equity.
Driving the policy positions is the Institute’s view that Australians need a simpler, more efficient and equitable system. All retirees should be able to live in retirement with dignity. Dignity is defined as taking into account basic needs, the overall standard of living of the community and the individual’s preferred retirement lifestyle.
“There are equity and intergenerational fairness issues, including for those excluded from the superannuation guarantee,” said Elayne Grace, Chief Executive. “While the system is sound and broadly sustainable, it is widely recognised that there is scope for further reform to improve outcomes.”
The 40 actuaries, drawn from three high-level working groups, spent more than a year deliberating the policy positions.
Andrew Boal, Convenor of the Institute’s Retirement Strategy Group, Tim Jenkins, Convenor of the Superannuation and Investments Practice Committee, and Shang Wu, a member of the Retirement Incomes Working Group, joined Vanessa Beenders on the Actuaries Institute Podcast to discuss the key points of the Statement.
We know more Australians are set to transition into retirement over the next decade than ever before – close to 3 million people will reach the Age Pension eligibility age.
Improvements can be made now so the system works harder for all generations, including those who still have decades to go before retiring. The benefits from further reform could be the difference between an average retirement and a comfortable one. Efficiencies adopted soon will deliver greater dividends.
And other factors – the Government’s planned retirement income covenant, for example – will provide a framework for superannuation funds to better guide members in planning for and managing their retirement.
Australians are also seeing big developments in fintech and the power of big data, which means we should be able to provide members with customised information so they can make better decisions around personal retirement income projections.
We need better online tools and calculators that show how retirement risks can be managed. And of course, this will require changes to the regulations that govern the provision of ‘financial advice’ to make it more affordable and accessible to all Australians.
Improving efficiency is another factor, so Australians can more confidently and safely spend their savings during retirement.
The availability of lifetime income stream products means retirees can have certainty of retirement income, which means not having to conserve a significant portion of their savings as a contingency against their own unknown longevity.
Further encouragement could be given for the development of innovative products that provide retirees with a lifetime income stream. While some products already exist, there is low consumer take-up. Greater availability of longer-term government bonds, including inflation-linked bonds, could help with the development of a deeper market.
Disincentives could also be introduced for choosing to make large lump sum withdrawals or bequests, above a reasonable threshold, for example. This is only fair, as the tax concessions provided to help build those savings in superannuation were founded on the principle that superannuation is used to fund an income in retirement, not for an intergenerational transfer of wealth.
Improving equity is another area that the Institute is passionate about. There are inequities in the system. Some of these have existed from the constraints that applied when superannuation was in its infancy. Technology and the implementation of SuperStream in 2014 have made transaction processing more efficient, removing any reasonable excuses for not paying Superannuation Guarantee (SG) contributions at the same time as wages are paid.
We also need to better protect the retirement of workers in the gig economy and others currently not covered by the SG system. And we should pay superannuation for those on paid parental leave. All wages should be covered and treated the same.
We should also allow those who have unfortunately known shorter life expectancies, such as First Nations people, to access part of their superannuation from an earlier age than the uniform preservation age as they may need to fund retirement earlier than otherwise.
We know big ideas need a transition phase. People need time to plan and adapt. It also protects retirees whose circumstances are already set, and allows superannuation funds, financial markets and regulators time to build their capacity and play their part in a stronger system.
We should work together to make our retirement income system fairer, simpler and stronger. It should be a system that delivers better retirement outcomes for generations to come.
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