The Government’s Retirement Income Review panel has sidestepped the question of whether the family home should be included in the Age Pension assets test and it is not clear that it will directly address the question of whether the superannuation guarantee should increase above its current rate of 9.5 per cent.
The panel released a consultation paper last week, setting out the issues for discussion in the review.
A reading of the consultation paper suggests that it will be a valuable exercise but it will be limited by failing to address, or adequately address, those two hotly debated issues.
The purpose of the review is to “establish a fact base” of the current retirement income system that will improve understanding of its operation and the outcomes it is delivering for Australians.
It will look at how well the system is responding to an ageing population, how the components of the system are interacting and the impact of current policy settings on public finances.
The three pillars of the system are the government funded age pension, compulsory superannuation and other savings, including the home.
The terms of reference say: “It is important that the system allows Australians to achieve adequate retirement incomes, is fiscally sustainable and provides appropriate incentives for self-provision in retirement.”
In this context, the panel will look at adequacy, fairness, sustainability and cohesion.
The panel will consider the relative strengths and weaknesses of the different measures of adequacy. No consensus exists on what is the best metric to measure an adequate retirement income and the panel could provide some useful input on the relative merits of the 70 per cent replacement rate, the ASFA cost of living in retirement benchmark, the minimum superannuation pension drawdown and other measures.
In considering whether the retirement income system is fair, the panel is interested in whether the it provides equitable outcomes for women, whether individuals’ needs for income before and after retirement are appropriately balanced, and whether there is intergenerational equity.
It has asked to what extent the retirement income system compensates for, or exacerbates, inequities experienced during working life.
“Ideally, the retirement income system should support individuals to save enough to allow consumption smoothing over their lifetime without deferring too much consumption to their retirement at the expense of living standards during working life,” the panel says.
While stating that the family home is an important asset for retirement, the consultation paper does not raise an questions about whether the home should be subject the means testing. However, it says “the financial benefit of owning a home can be well in excess of the support available through Commonwealth Rent Assistance to renters” – perhaps pointing to the need to improve that program.
It has asked for feedback on whether support for non-home owners is equitable.
The paper makes the important point that the ability of the retirement income system to deliver on its purpose partly depends on Australians having confidence in its settings and long-term sustainability.
“Where individuals do not have confidence in the system, they may reduce voluntary savings or save excessively as a precautionary measure. A perception of lack of stability in the system may have implications for community confidence,” the panel says.
Overall, the panel is positive about the value of the system, It says growing household wealth at retirement has resulted in a reduction in the proportion of the eligible population receiving the Age Pension over the past two decades.
However, the system needs to be able to adapt to demographic changes, such as longer life expectancy and decreasing home ownership – both factors that could lead to a higher level of savings required to support an adequate retirement income.
And it says it can be “complex for retirees to determine the extent they should draw on their savings to provide income each year in retirement. Uncertainty regarding future expenditure needs can affect the income retirees draw from their savings.”