Presentation to the Alliance for a Fairer Retirement System, 31 July 2019
The Federal Government has announced a review of Australia’s retirement incomes system. In this presentation, Grattan’s Household Finances Program Director Brendan Coates identifies the big challenges the review should tackle.
It should start by setting the retirement living standard that the system should aim for. Retirement incomes can always be made higher – if people have lower living standards while working, or if taxpayers fund bigger superannuation tax breaks or higher pensions. Without a clear standard, debate about the system has not balanced these alternatives. The review should adopt the approach used by the OECD and others, and aim for retirement incomes that are 70 per cent of pre-retirement (post-tax) incomes. This standard recognises that you can fund the same lifestyle in retirement with less than while working, because you have more time to do things for yourself and fewer expenses.
The review should consider whether lifting compulsory super contributions from 9.5 per cent of wages to 12 per cent, as legislated, is necessary. Grattan research shows that even without this wages penalty, most people across the income distribution are likely to have enough money to fund a lifestyle in retirement at least as good as they enjoyed while working. And increased compulsory super contributions won’t do much to help the retirements of middle Australia – because their extra super in retirement would mostly be offset by lower pension payments. Instead relaxing the pension asset test taper from $3 to $2.25 a fortnight for every $1,000 in assets would help middle-income retirees.