Options for an Improved and Integrated System of Retirement

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Although Australia’s current retirement incomes system compares well internationally, there are obvious shortcomings – the system is complex, intrusive, contains anomalies, produces perverse incentives and is sometimes unfair. These shortcomings will become even more apparent as an increasing proportion of retirees move from an accumulation phase to a pension phase. However, there is also potential fiscal headroom to accommodate some changes.

The Actuaries Institute believes the overarching objective should be to ensure that Australians can confidently live their retirement years in dignity. At a minimum, it will require better integration of the current disparate Age Pension and superannuation systems, but it can go much further and better integrate with our aged care and health care systems.

The Institute’s authors Anthony Asher, David Knox and Michael Rice, put forward a series of potential structural reform options, including:  

  • Simplifying the Age Pension (including changes to means testing or introducing some universal benefits).
  • Addressing the anomalies and perverse incentives in the treatment of the family home.
  • Embedding automatic adjustments to reflect changes in longevity in both the superannuation Preservation Age and the Age Pension eligibility age.
  • Setting targets for government support in retirement in terms of government expenditure.
  • Addressing taxation and funding anomalies created by unusually large superannuation balances and at end of life.
  • Coordinating retirement, pension and age care policies, or calibrating social security benefits and living standards.

A combination of these options is likely to deliver an improved retirement incomes system that is simpler to understand, sustainable and has community support.

The Institute is seeking responses to these options. It expects that actuaries will model many of them to show the potential impact on consumers and government if they were to be introduced at an appropriate time. If you have any comments, please direct them to actuaries@actuaries.asn.au.

Podcast episodes

Episode One provides context for why and how the retirement system should be reformed, including research the authors have brought to it through the Melbourne Mercer Global Pension Index and the Age Pension dependency projections by Rice Warner. The authors also discuss the conceptual framework adopted to think about what an ideal retirement system should look like.

Episode Two drills down into the specific reform options developed in the Green Paper, implementation practicalities, and final observations by the authors on their hopes for the future debate.