Actuaries Institute Pre-Budget submission says super must be simpler and its purpose clear
Jefferson Gibbs
In a pre-Budget submission to federal Treasury, the Actuaries Institute has urged the Government to simplify Australia’s superannuation regulations, review areas where retirees need extra support and legislate to make the overall objective of the retirement income system clear.
The submission was lodged with the federal Government on 29 January.
The Institute believes Australians should be able to confidently live their retirement with dignity.
The submission states Australians should be able to get good financial advice at an affordable price and funds should be able to confidently develop retirement income products ahead of changes due in 2022. Trustees should develop default retirement products and be required to consider providing longevity protection along with appropriate information that outlines its benefits.
The appropriate superannuation guarantee (SG) rate is likely to be between 9.5% and 12%, but the submission states setting the levy is complex. Some of the complex interactions that need to be considered include the government’s overall objective for the compulsory SG system, its interaction with the Age Pension, rental assistance and other forms of assistance that support older Australians.
In determining adequacy, assumptions around retirement income indexation, broken work patterns and involuntary early retirements also need to be considered.
The linkages with savings in other assets, such as housing, are also important to understand.
The Actuaries Institute submission also says the Government should consider simplifying regulatory requirements, such as merging the asset and income test, potentially including a portion of home ownership. It has also called for a review of rent assistance for retirees who are not home-owners.
“Along with retirement policy, the Pre-Budget submission addresses climate change and the need for measures to help Australians develop greater resilience to extreme weather; intergenerational inequity, which is wider now than it has been at any time in the previous two decades; and the rise of gig workers as a significant part of Australia’s economy,” said Jefferson Gibbs, President of the Actuaries Institute.
He said measures can be taken to limit the impact of climate change on Australia’s communities.
The Institute publishes the Australian Actuaries Climate Index each quarter, which is a measure of extreme weather and sea levels. It shows temperatures are warming, sea levels are rising, and extreme dry conditions are more frequent. Funding mitigation works and strengthening building codes, where cost effective, could lessen the devastation caused among communities, businesses and the economy.
Climate change risks can be physical, as a storm or tidal surge ruins homes and infrastructure; a transition risk, as businesses change direction to lower their carbon emissions; or a liability risk, which directors and trustees must consider. The Institute urged the Government to consider these risks as it prepares its 2021-22 Budget.
The submission also called on the Government to improve the data it collects on gig workers.
A larger gig workforce, which the Institute estimates grew nine-fold between 2015-2019, capturing $6.3 billion in food delivery and ride share spending alone, has implications for policy, including the diminution of near-universal superannuation, and likely future increased Age Pension costs.
The Government needs better data to gain deeper insight into gig workers’ conditions, and the best policy options, especially for young workers who may spend longer in the gig economy, where insurance, superannuation, holiday and sick pay may be scant or non-existent.
It also pointed to greater inequality between Australia’s generations. The widening gap, shown in the Australian Actuaries Intergenerational Equity Index, shows asset price rises left older Australians 87% better off compared to a 20% increase for those aged 25-34.
Government spending, including the Age Pension and health care, has skewed to older Australians over time. Younger Australians are not buying houses because getting into the market is difficult, but homes are a huge store of wealth for Australians. This highlights the importance of understanding any linkages between savings levels in different types of assets, acknowledging the role that supply-side factors play in the levels of home ownership.
A rise in net government debt is considered a burden on future generations. And changes to the climate, including adverse trends in rainfall and biodiversity, are seen as negative factors for young people who inherit a diminished environment.
“Actuaries have a long tradition of participating in public policy across a wide range of sectors that affect Australians, their communities and private enterprises,” said Actuaries Institute Chief Executive Elayne Grace. “We look forward to actively contributing to the debate where we have relevant experience.”
