Lower pension spending should not be the sole measure of retirement success

Richard Webb

Australia risks focusing too heavily on reducing Age Pension costs rather than ensuring retirees enjoy adequate retirement incomes, CPA Australia says.

CPA Australia Superannuation Lead Richard Webb said comments from Treasurer Jim Chalmers at the Super Members Council (SMC) Super Summit yesterday highlighting Australia’s projected decline in pension spending compared with other developed economies overlook a fundamental difference between retirement systems.

“Lower government spending on pensions does not automatically mean retirees are better off,” Mr Webb said.

“The real test of a retirement system is whether it delivers dignity, security and adequate incomes in retirement.”

Mr Webb said New Zealand’s recent proposal to increase KiwiSaver contributions to 12 per cent, matching Australia’s Superannuation Guarantee, highlights the different paths being taken by the two countries.

“New Zealand is moving towards the same compulsory savings rate as Australia, but its pension system operates very differently. Unlike Australia, they don’t subject most retirees to complex means testing before they can access the state pension.”

Mr Webb said universal access to NZ Super (the Aged Pension equivalent) provides retirees with greater certainty when planning for retirement.

“In Australia, retirees can spend decades building their superannuation balances only to face a complex interaction between superannuation, income tests and asset tests when they retire. By contrast, New Zealand retirees have greater confidence about the level of government support they’ll receive alongside their retirement savings.”

Mr Webb said policy makers should be careful not to frame falling Age Pension expenditure as the primary objective of retirement policy.

“A sustainable budget is important, but retirement policy should be judged on whether it provides adequate incomes and financial security for older Australians.

“The objective shouldn’t simply be reducing pension spending. It should be ensuring Australians can retire with confidence and maintain their standard of living,” Mr Webb said.

Mr Webb said Australia has built one of the world’s largest superannuation systems, but the next phase of reform should focus on improving retirement outcomes rather than solely reducing future government liabilities.

“We have done a remarkable job building retirement savings. The next challenge is making sure Australians can turn those savings into secure and reliable retirement incomes.”

“New Zealand’s approach is a reminder that retirement adequacy comes from the combination of private savings and a predictable public pension, not from either one in isolation.”