Retirement Income Review consultation paper released

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The Retirement Income Review has started, with Treasury releasing the consultation paper.

The Government has tasked the three-person Retirement Income Review panel with investigating how the retirement income system supports retirement, the role of each pillar of the system, impacts over time and across the population, and the impact of current policies on the Budget. The Review will not be making recommendations, instead providing a ‘fact base’.

The Review consultation paper says: “The retirement income system is fundamentally important to the Australian community. However, the settings for the system and its underlying principles have historically been a source of significant public debate. As part of its work, the Panel will undertake a holistic assessment of how the retirement income system is functioning and the interaction between the various components of the system.”

“Decisions around retirement income invariably involve a range of trade-offs. Judgement is required in determining the value of those trade-offs. It is ultimately up to the Australian community to make judgements about the merits of the various trade-offs. The contribution this Review seeks to make is to identify relevant issues, provide a better understanding of the nature and consequences of trade-offs, and develop a fact base to help the community make any decisions.”

As part of the Review, the panel plans to review research already completed, with a focus on “identifying the basis for some of the very different conclusions made in those papers and reports”.

The Review panel will also “undertake new analysis of the operation of the retirement income system, including modelling how the system performs today and how it will perform in the future”.

The Review is also welcoming submissions, and has set out a number of consultation questions.

The Review has its roots in a recommendation of the Productivity Commission. The Commission, in its report on superannuation, recommended an independent inquiry into the retirement incomes system – ahead of any increases in the Super Guarantee rate. The Government has yet to respond to all the recommendations in the report.

Some, including Labor, are concerned that the Government may use the Review to support a case for pausing or stopping increases in the Super Guarantee rate.

Acknowledging there is a live debate over the extent to which compulsory superannuation is paid for by employers or by employees through lower wages, the Review paper says there is a trade off of consumption before or during retirement.

“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.”

In a number of sections of the consultation paper, the Review panel appears concerned that levels of superannuation savings are above what is necessary for some, while insufficient for others. Treasury modelling also shows a higher level of support through tax concessions for people on higher incomes.

Retirement Income Review. Lifetime government support provided through the retirement income system. Source: The Australian Government the Treasury.

Source: The Australian Government the Treasury.

“The retirement income system is not intended to boost private savings per se, nor is it intended to be a source of savings for the purchase of large assets during an individual’s life (such as housing), or to assist with wealth accumulation in order to provide for inheritances.”

In another section, the paper says: “The overall level of public support provided by the retirement income system should be targeted to those who need it most.”

Pointing to research, the paper notes that the minimum superannuation pension drawdown levels, combined with the Age Pension, can result in income growing in retirement while studies show that expenses in retirement are constant or decrease.

“This may result in retirees having higher overall retirement income at a time when they are less likely to have significant expenses, and lower income when retirees are more active and may wish to have higher expenditure.”

It also notes the $450 threshold for Super Guarantee leaves some people with lower super balances than they would have otherwise, and the Age Pension means tests can lead to people with the same level of wealth receiving differing levels of pension.

Review a stalking horse for cuts: Labor

Labor has repeated its criticism of the Review as a “stalking horse” for cuts.

Labor Shadow Treasurer Jim Chalmers said the Government created the Review as a “stalking horse for more cuts to the pension and further delays to the legislated increase in the Superannuation Guarantee to 12 per cent”.

“If they knew anything about the ageing of the population they’d know you don’t boost retirement incomes by thieving the super people need for a decent retirement.”

“The Liberals and Nationals have a dismal record on pension and superannuation.”

Submissions in response to the consultation paper are due 3 February 2020. The final report of the Review is due to go to Government by June 2020.

More to come.

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