Opinion article

National reform summit: Developing adequate income for retirees

Following the National Reform Summit, CEDA Senior Economist Sarah-Jane Derby examines income for retirees including superannuation and owner-occupied housing.

The sustainable retirement incomes policy session at yesterday’s National Reform Summit in Sydney revealed, unsurprisingly, that there is still a lot of work to do when it comes to providing an adequate income for retirees.

The group identified numerous challenges with the system including : the lack of a clear objective for the system, inconsistency of retirement income policy, the complexity and cost of the system, inequity in tax arrangements and concessions, and outcomes for groups disadvantaged by the system including low-income earners and women.

These issues are examined in CEDA’s upcoming report The super challenge of retirement income policy. The report, to be released on Tuesday 1 September, puts forward policy options for government to consider as it grapples with these complex issues that will require bold reform.

Delegates discussed the need to start examining what retirement means – we no longer work ourselves to the ground and hope for a few years of rest as a reward. The meaning has changed from being a short period of rest to an extended period of leisure, as put succinctly by one of the delegates.  Rethinking what retirement means is particularly important when setting policy – for example, the eligibility age for the Age Pension has barely changed since the pension was introduced in the 1900s; yet, life expectancy has been rising consistently. Today, most of us can expect to live for more than 20 years in retirement, almost double what it was in the 1900s.

Calling retirement an extended period of leisure may be met with cynicism by some, but it would not be a stretch to say that most of us want to live well in retirement. As discussed at the forum, there is evidence that we are not saving enough for retirement on average, while the incentives that exist at present favour wealth accumulation and are inconsistent with what the retirement income system, and in particular, the superannuation system, is supposed to deliver.

The super challenge of retirement income policy questions what the role of government should be when it comes to ensuring the system is delivering an adequate and equitable standard of living in retirement. As discussed widely at the forum, super tax concessions benefit the rich the most – the top 20 per cent of income earners account for 58 per cent of superannuation tax concessions.

CEDA’s report explores two key questions when it comes to superannuation taxation concessions, namely:

  • Do we need superannuation incentives given that we have compulsion?
  • Are the incentives working when it comes to voluntary salary-sacrificed contributions?

The group also discussed housing at length including recognising the lack of emphasis on the third pillar of the system (including housing and other private savings) and considered improving the safety net to those with high housing costs. The housing discussion is a refreshing addition to the retirement income debate.

Owner-occupied housing, or the family home, is crucial in alleviating poverty in retirement. Those who retire without a house are more likely to experience poverty and disadvantage than retirees who own their own home. As discussed in The super challenge of retirement income policy, there are close to 300,000 households who are income- and asset-poor in retirement in Australia today, most of whom are renters. Most of these renter households are single women households.

The current retirement income system is failing low-income Australians, those with career-breaks, in unpaid work or with inconsistent income. The high cost of housing and declining affordability, reflected in falling ownership rates will only exacerbate this problem in the future. Going forward, housing must be an integral part of the retirement income policy debate.

Developing retirement income policy that delivers an adequate retirement for all Australians will not be an easy feat and bold reforms will be needed to challenge the status quo. While there are differing views as to how reform can be achieved, there is broad consensus that we can do better and that any policy changes will require the right check and balances to ensure fair and equitable outcomes.

The super challenge of retirement income policy will be launched in Sydney on Tuesday. Click here for more information.

About the authors

Sarah-Jane Derby

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Sarah-Jane is a Senior Economist at the Committee for Economic Development of Australia (CEDA) where she undertakes research on the economic and social policy issues affecting Australia. She has led research projects in a range of areas including industry, social and regional economic development policy.

Prior to joining CEDA, Sarah-Jane was an industry analyst at IBISWorld where she specialised in the analysis of manufacturing industries, including the automotive sector.