Given the Intergenerational Reports are meant to forecast the challenges of an older population on the Australian economy and federal budget in 40 years time the superannuation and age pension systems should figure prominently.
However, as with previous reports, the Intergenerational Report 2015 did not devote much attention to either, when released by Treasurer Joe Hockey.
Intergenerational Report 2015: Superannuation
“The superannuation system helps Australians enhance their retirement incomes, and supplement or reduce reliance on the Age Pension,” said the Intergenerational Report 2015.
The report forecasts the superannuation system will continue to grow faster than GDP, “at least until the pre-Super Guarantee workforce moves through the system.”
“According to current projections, the superannuation system is expected to mature at about the same time as the old-age dependency ratio stabilises.”
“Future growth in retirement balances has potential implications for the size of Australian Government outlays on the Age Pension,” says the report.
Intergenerational Report 2015: Age Pension
Currently, according to the report, around 70% of Age Pension age Australians receive the pension, with 60% receiving the full-rate pension.
Though superannuation balances are expected to grow this is not expected to reduce the proportion of retirees who receive some amount of Age Pension. Also the “proportion of part-rate pensioners relative to full-rate pensioners is expected to increase.”
Government payments in the form of Age and Service Pensions are expected to increase each year. “In today’s dollars, spending per person is projected to increase from almost $2,000 in 2014-15 to around $3,200 in 2054-55.”
However, as a proportion of GDP, the expenditure would remain broadly stable, “as a result of the structural changes to indexation and age of eligibility proposed in the 2014-15 Budget.”
Under the Government’s proposed policies Age and Service Pensions will decrease from the current 2.9% of GDP to 2.7% in 2054/55, “when real incomes per person will be much higher.”
“If the structural changes to indexation and age of eligibility are not implemented, spending is projected to continue rising over the period, reaching 3.6 per cent of GDP by 2054-55.”
The Intergenerational Report says that, once the Budget has a surplus of 1% of GDP, “there will be more capacity to revisit the level of Government support to groups such as Age Pensioners.” The Budget is expected to reach this level of surplus in 2028/29.
Intergenerational Report 2015: Industry response
In response to the Intergenerational Report 2015 ASFA CEO Ms Pauline Vamos said “this Report confirms that the superannuation system is delivering in terms of decreasing reliance on the Age Pension and providing income to retirees to live a better lifestyle in their retirement years.”
Ms Vamos also said the report highlighted the need to review the tax setting in the superannuation system, to improve equity and sustainability.
“As a starting point, it may be appropriate to question whether it’s fair for future generations of taxpayers to fund growing tax concessions on earnings for older Australians who have accumulated very high superannuation account balances.”
Sally Loane, FSC CEO, said “it’s time to face the reality that Australians are living longer and will need to work longer to achieve a comfortable retirement.”
“The expectation should be that super is a replacement for the pension, not a top-up, and the age pension needs to be considered as a safety net for those who cannot provide for their own retirement.”
“We need to significantly shift remaining expectations that the age pension is an entitlement which is available to all.”
COTA Australia Chief Executive Ian Yates said “despite Government assurances that the proposed changes to the age pension will not adversely effect older people, the Report clearly names reducing pension indexation rates to CPI only as a key budget saving.”
For the key facts and figures of the report see: Intergenerational Report 2015 released.
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