Simply setting an objective for superannuation is not enough, says consulting firm Mercer.
Mercer says that objectives should be set for both superannuation and the age pension, but that the objective for super must state that the purpose is to provide income for life, not simply supplement the age pension.
Treasury has been consulting on potential objectives for superannuation. Mercer, in a submission, says there needs to be a focus on moving retirees away from lump sums, towards income products.
“The objective of Australia’s overall retirement income system should be to provide the vast majority of Australians with an income throughout their retirement that enables their pre-retirement living standards to be maintained.”
“The Government needs to develop policy that encourages retirees away from lump sums and towards income products because longevity risk is one of the biggest social and economic risks facing our ageing population,” said Mercer Senior Partner, Dr David Knox.
“We need to step away from the challenge of just setting an objective for super, we need to define the goal for our overall retirement income system,” he said.
“It is important that superannuation relieves pressure on the cost of the age pension, but the system should do much more than that. Australians need a system that is designed to protect them against longevity risk by helping provide an income for life.”
“It is too vague to state that super should supplement or substitute the age pension.”
Modelling by Mercer indicates that Australians on above average incomes could still depend on a combination of super and the age pension later in life.
“Our modelling proves that improving retirement outcomes for Australians requires our policy makers to address all pillars of our retirement income system, opposed to setting isolated objectives for just super. We need a system that aims to deliver a spreading of income over a lifetime for everyone, with some limits,” said Dr Knox.