Australia needs clarity of purpose on the entire retirement income system - not just superannuation

6 Feb 2020

Martin Heffron

Executive Director

Efforts and courage are not enough without purpose and direction.

John F. Kennedy

Using JFK’s famous quote in a blog about retirement incomes may seem a tad over dramatic but our compulsory superannuation system celebrates its 30th birthday next year and there is no clear alignment within our community on what we expect from our retirement income system and its three redoubtable pillars.

The regular policy tinkering and bickering is evidence of that. There has been a lot of huffing and puffing but no cigar.

Given that the longevity challenge we are currently facing has been predictable for many years, this lack of purpose and direction is disappointing.

Once we have decided what the system should be doing, we can decide what success looks like and measure policy outcomes against those factors.

Without this clarity:

  • It is difficult to assess the effectiveness of current policies because there is no benchmark or agreed measure of success.
  • It is difficult to design better ones, for the same reasons.
  • Retirement income (RI) outcomes are hostage to the next general election. Given the long-term nature of RI planning for the individual and increasing RI self-reliance, regular, significant policy changes undermine confidence in the system (leading to poor sustainability of the system and under or over saving by individuals) and are ethically indefensible. Whatever the rights and wrongs of refundable franking credits, the ALP rightly got burnt on this one at the last election.

The current Retirement Income Review (RIR) is an opportunity to start rectifying this.

There has been a fair bit of comment recently on the need for the superannuation system to have an agreed purpose, but the challenge is far broader than that.

The RI system itself is made up of three different components (the Age Pension, compulsory superannuation and voluntary retirement saving). If we aren’t clear on what the overall system should be doing, we won’t be able to determine goals for any of its components either. Perhaps the difficulty we have had deciding a purpose for superannuation results from this lack of understanding or agreement on what the RI system is meant to be doing - as a whole.

For example, are all the concessions currently attached to the principal place of residence desirable or sustainable? Home owning retirees currently get an extraordinarily good deal from the system.

Let’s hope the RIR acts as a catalyst for quality community debate in preparation for the decisions we need on this vital element of public policy. Our leaders are letting us down on this one and need to step up urgently. Without it, retirees and pre-retirees are making long term plans in the dark and without more clarity and certainty, some of them will probably end up there quite literally.