Retirement Income Reform: Big Picture View Needed

Short-term budgetary and political positioning over superannuation threaten putting off even further an effective long-term reform plan for Australia’s retirement income system, an independent body of experts has warned. Ongoing politicking over superannuation tax concessions risks resulting in yet another narrowly framed attempt to tackle a much wider problem.

“Debate over policy reform is a good thing,” says CSRI executive director Patricia Pascuzzo. “But if eventual change is driven primarily by short-term budgetary and political considerations, we risk missing the opportunity for much more effective long-term reform.”

Ms Pascuzzo says there is no silver bullet – a package of measures is needed if we are to move to a more sustainable system.  Further, while lower cost and greater efficiency are important and worthwhile aims for the superannuation system, these are inputs not outcomes and reflect lack of clarity about the actual purpose of superannuation.

“After seven years of reviews, we should know what super is for,” she said. “It should not be about maximising wealth or minimising tax or funding ‘nation building’ projects. It should be about providing adequate income through all the years of retirement for all Australians.”

The CSRI, which attracted industry and policy leaders to its inaugural leadership forum last year and which is due to hold a second forum on June 20-21 in Canberra, argues the priority should be on setting an income goal for the retirement system, as recommended by the Murray inquiry.

“The fact is if we get agreement on an income goal, all the other issues, like tax, cost and efficiency and default schemes become easier to resolve,” Ms Pascuzzo said. “And if we take a holistic approach, looking at super and the age pension together, we are more likely to improve the system’s overall effectiveness, sustainability and affordability.”

Currently, the CSRI and other bodies say the lack of a clear objective for super leaves the system open to political pressures for super to be diverted into other purposes like providing home deposits, paying off higher education debts, or fixing the deficit.

Shifting the focus of the system from wealth accumulation to provision of secure retirement income would help reduce the risk that people either run out of savings and fall back on the age pension or, as is more likely, live frugally to ensure they don’t outlive their savings.

The CSRI also argues that good long-term policy is more likely to help overcome many of the problems plaguing the system – like poor targeting of tax concessions, excessive complexity, waning community support, limited sustainability and inadequate longevity risk management.

“Yes, wealth accumulation is necessary for improving retirement incomes, but it isn’t a sufficient condition for achieving financial security in retirement,” Ms Pascuzzo said. “How accumulated superannuation balances are transformed into income streams and how longevity risk is hedged are critical for income security and lessening reliance on the age pension.”

The CSRI says in enshrining a retirement income objective, the government should also lay out a number of supporting principles – ensuring fairness and equity; assisting individuals manage financial risks; providing certainty with necessary safeguards; and contributing to the sustainability of government expenditure.

A copy of the CSRI Discussion Paper “Clarifying the Purpose of the Retirement Incomes System” can be found here.

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