The Morrison Government has today released the independent Retirement Income Review Final Report which confirms that “the Australian retirement income system is effective, sound and its costs are broadly sustainable.”
The Review also finds that Australia’s retirement income system is well placed to respond to the economic challenges posed by the COVID-19 pandemic.
The Review was recommended by the Productivity Commission in its report Superannuation: Assessing Efficiency and Competitiveness and comes 27 years after the establishment of compulsory superannuation.
The Review makes three over-arching observations about the system. Firstly that the three pillars of the existing retirement income system, being the Age Pension, compulsory superannuation and voluntary savings, continue to provide effective support to Australian retirees and are sustainable in the long term.
Secondly that there is a need to improve understanding of the system so that all Australians can make the most of their assets in retirement. Thirdly, that the system would benefit from a clear objective in order to guide future policy and provide a framework for assessing its performance.
The Final Report also makes a number of key observations with respect to each of the system’s three pillars, including:
- The Age Pension, compulsory superannuation and voluntary savings results in most Australians achieving adequate retirement outcomes.
- The Age Pension provides a strong safety net to those who retire with small superannuation balances.
- The Age Pension reduces income inequality among retirees, as low income retirees receive the largest Age Pension payments.
- Superannuation assists middle income earners to smooth their income over their lives. Without compulsory superannuation, middle income earners would not save enough for retirement.
- More efficient use of savings in retirement can have a bigger impact on improving retirement income than increasing the Superannuation Guarantee (SG).
- The weight of evidence suggests an increase in the SG rate will result in lower wages growth, impacting standards of living.
- There are a number of ways that individuals can significantly boost their retirement incomes without having to increase their superannuation contributions, including more effectively drawing on superannuation assets, achieving better-after-fee returns and accessing equity in their home.
- Voluntary contributions provide flexibility for those outside the compulsory system to contribute to superannuation, such as the self-employed and those who have had interrupted working careers.
- The Government’s early release policy, enabling Australians to access up to $20,000 of their superannuation across two years, has cushioned the economic impact of COVID-19.
Through its work, the review has established a fact base that will improve understanding of how the retirement income system operates, better informing public policy and the retirement outcomes delivered to Australians.
Importantly, the Review provides confirmation of the policy direction being pursued by the Morrison Government with respect to the importance of increasing the efficiency of the superannuation system and lifting home ownership rates – both identified as key drivers of an adequate retirement income.
Specifically, the Government’s ‘Your Future, Your Super’ reforms will simplify and enhance member engagement with their superannuation and increase the efficiency of the superannuation system through lowering fees and improving returns, benefiting Australians by $17.9 billion over the next 10 years.
Additionally, given the importance of home ownership to the financial security and wellbeing of Australians in retirement, the Government will continue to support measures to allow more Australians to buy their first home sooner, including through our First Home Loan Deposit Scheme, First Home Super Saver Scheme and HomeBuilder.
The Government will continue to carefully consider the observations made in the Review together with the findings of related reviews including the Aged Care Royal Commission and remaining recommendations of the Productivity Commission’s report into Superannuation.
The Government thanks the independent panel comprising of Mr Michael Callaghan AM PSM, Ms Carolyn Kay and Dr Deborah Ralston and the Secretariat and its head Robb Preston, for their outstanding work in undertaking the review and consulting extensively with stakeholders, notwithstanding the significant logistical challenges posed by the COVID pandemic.
The Review can be found via www.treasury.gov.au