The power of an investigative review

3 Oct 2019

Martin Heffron

Executive Director

In any society that has seen an unprecedented and rapid increase in longevity, the ageing and retirement income policy settings are crucial. For this reason, the Government’s Review into the Retirement System is to be welcomed.

Asking the Panel to establish facts rather than make recommendations is an interesting innovation. It turns the Panel into a team of investigators rather than a team of consultants. Politically, the Government sees this as less risky because they will not be faced with a portfolio of recommendations they either must accept or reject. I’m not sure that’s right and have explained why below.

The terms of reference (ToR) imply that the goals of a retirement income system are primarily the delivery of adequate retirement incomes in a fiscally sustainable way. 

The ToR also refers to providing appropriate incentives for voluntary savings, but I would have thought that was a means of efficiently achieving fiscal sustainability rather than being a goal of the system on its own. Having a retirement income system that delivers adequate retirement incomes sustainably seems like a sensible societal goal to me so that’s a good start.

However, in order to deliver a system that does this, we first need to decide what is meant by adequate. We need some kind of target. If this premise is not clearly established at the start, the results of the review are at risk of being criticised by those who share a different view on what is meant by adequacy. It’s a challenging question. I have given my thoughts on this before in an earlier blog.

  1. My first piece of advice to the Panel therefore is to decide up front what they mean by adequate. Fiscal sustainability is more of a relative thing so I don’t think we need a target because one set of policy settings will simply be more sustainable than another. It’s clearly up to Government to decide what is fiscally sustainable or not. Given that, the review doesn’t need a target, it needs a measure. For example, it could be measured as the proportion of GDP that government spends on delivering retirement incomes (mainly the Age Pension and tax expenditures, such as superannuation tax concessions).

  2. My second piece of advice to the Panel is decide what measure (or measures) they are going to use as an indicator of fiscal sustainability and tell us how they propose to measure that. The origin of this review came from the Productivity Commission’s (PC) Superannuation: Assessing Efficiency and Competitiveness Report. The PC is focussed on efficiency. Presumably then the Panel will also need to come up with a measure of efficiency. For example, a given dollar of average retirement income that gets generated for each dollar of government money spent on supporting that retirement income generation.

  3. My third piece of advice to the Panel is to decide what measure or measures of efficiency can be used to determine the overall competitiveness of our system. If the Panel was able to provide the context of an adequacy definition and measures of fiscal sustainability and efficiency against which a given set of policy proposals could be assessed, what a wonderful contribution that would be to our community. It would be a major piece of work.

Once that’s done, the Panel could get on with the job of looking at our current policy settings and determine how effective they are against those benchmarks.


The Treasurer has already said the current government will not be including the family home in the means test for the Age Pension or increasing the retirement age. For me that’s disappointing because in my view the generous treatment of the family home in Australia for tax and benefits purposes is one of the most fiscally unsustainable things we do and contributes to the sharp increase in homelessness we witness on our city streets every day.

However, his comments and the Government’s stance on retirement income policy are irrelevant to this review because the Panel is only establishing facts. There is nothing to stop them reporting on the impact that these family home friendly policies have on adequacy, sustainability and efficiency. Ironically then, limiting the Panel to the establishment of facts rather than making recommendations means they are unconstrained by what the Government either does or doesn’t want.  

I hope the Panel has the courage to use the power that has (probably inadvertently) been bestowed upon them and wish them well in their important work.