The Government has announced the foreshadowed Review of the Retirement Income System, which is to report by June 2020.
Treasurer Josh Frydenberg said the Government was “continuing to ensure Australians are well-supported during their retirement” by starting an independent review of the retirement income system.
The review is set to look into the three pillars of the Australian retirement income systems – the Age Pension, compulsory superannuation and voluntary savings. There will be a focus on “adequate” incomes in retirement, but also that the systems are “fiscally sustainable” and include “incentives for self-provision”.
“In doing so, the review will cover the current state of the system and how it will perform in the future as Australians live longer and the population ages,” said the Treasurer.
“Through its work, the review will 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.”
Review could be “stalking horse” for cuts: Labor
Following the release of the Terms of Reference, Labor Shadow Treasurer Jim Chalmers said that Labor will engage with the Review “as appropriate”, but also called on the Government to rule out cuts to the pension and superannuation.
“After six years of attacks on retirees and older Australians, Scott Morrison and Josh Frydenberg must rule out the possibility that this review will become a stalking horse for cutting the pension, including the family home in the pension asset test, and further delaying the legislated increase in the Superannuation Guarantee to 12 per cent.”
“This Liberal Government has a dismal record on pensions and superannuation.”
“Attacks on the pension and superannuation are in their DNA.”
Chalmers has previously accused the Treasurer of wanting the review to justify “more cuts to super and more cuts to the pension”. This was compounded by Coalition backbenchers agitating for a pause or freeze to increases in the Super Guarantee rate – which led to the Treasurer to at first say there were “no plans” for changes to the legislated increases to the Super Guarantee rate and to later rule out changes. Though the Prime Minister has not been so committal, only saying: “there’s no change to the Government’s policy.”
Productivity Commission recommended review ahead of SG increase
The Treasurer points to a recommendation of the Productivity Commission for such a review, in its Superannuation: Assessing Efficiency and Competitiveness report.
The Government has yet to respond fully to the Productivity Commission report, despite having the report since December last year and welcoming the recommendations that support Government policies.
The Productivity Commission recommended an “independent inquiry into the retirement incomes system”:
“The Australian Government should commission an independent public inquiry into the role of compulsory superannuation in the broader retirement incomes system…. This inquiry should be completed in advance of any increase in the Superannuation Guarantee rate.”
The SG rate is set to increase from 9.5% to 10% from 1 July 2021.
A consultation paper on the review will be released in November 2019, and the final report is to be provided to Government by June 2020.
Three people will sit on the review panel – Chair Michael Callaghan AM PSM, formerly an Executive Director of the IMF and senior Treasury official, Carolyn Kay, who has extensive experience in the finance sector, and Dr Deborah Ralston, Professorial Fellow in Banking and Finance at Monash University and Chair of the SMSF Association and the Alliance for a Fairer Retirement.
Review welcomed by industry, but with warnings
National Seniors says the Review is a once in a life time opportunity to reset the retirement income system to “embrace adequacy, sustainably, certainty and fairness”.
But National Seniors Chief Advocate Ian Henschke warned that the Review could become a “wasted opportunity” if it becomes battleground for “ideological warriors who want to attack older Australians”.
He said remit of the Review was “very broad”, and hoped it would address the problems in the retirement income system.
“The review tribunal is on trust to do the right thing and truly address the hot issues impacting now on seniors.”
“One of the most glaring problems with the pension system is the taper rate means the more you save the worse off you are.”
National Seniors also wants the Review to look at “spiralling living costs”, the politicisation of the Age Pension, high deeming rates, and inadequate Newstart and rent assistance payments.
Meanwhile, Industry Super Australia (ISA) welcomed the “important opportunity” for policy makers to use evidence to improve efficiency in the super system – while not neglecting other reforms.
ISA particularly welcomed an investigation into distributional impacts across the population and over time.
“This is an opportunity to address some of the inadequacies in our current system, where we see lower income and vulnerable workers, those with interrupted work patterns and in particular women, retire with significantly less super than other Australians.”
But the review should detract from work on other superannuation reforms, including underperformance and the setting of default super funds – both of which were the focus of other recommendations of the Productivity Commission, though ISA disagrees with the recommendation on default super.
The Terms of Reference for the review are:
TERMS OF REFERENCE
As recommended by the Productivity Commission in its report Superannuation: Assessing Efficiency and Competitiveness the Government is commissioning an independent Retirement Income Review.
Australia’s retirement income system is based on three pillars:
- a means-tested Age Pension
- compulsory superannuation; and
- voluntary savings, including home ownership.
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.
The Review will 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.
The Retirement Income Review will identify:
- how the retirement income system supports Australians in retirement;
- the role of each pillar in supporting Australians through retirement;
- distributional impacts across the population and over time; and
- the impact of current policy settings on public finances.
More to come.