Over the past few years, more thought has been given to retirement income strategies, but the market is still relatively immature in terms of solutions available. Now, Australia’s ageing population and increasing life expectancies are bringing the post-retirement market to the forefront.

Click here to read the full report from PIMCO.

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John Brogden

The Financial Services Council has today supported the Commission of Audit’s recommendation to reduce the gap between the preservation age and Age Pension to five years.

John Brogden, CEO of the FSC said: “We commend the Commission of Audit’s recommendation to tighten the link between superannuation and eligibility for the Age Pension.”

“Many Australians starting work today will live for more than one century. Accessing superannuation at 60 is no longer viable.”

“The retirement savings of Australians are increased by $200 billion for every year the preservation age is increased,” Mr Brogden said.

The FSC has advocated for reforms which ensure the Age Pension and superannuation system meets the needs and expectations of Australians in retirement.

Mr Brogden said: “It is critical that the increased life expectancy of Australians is the driver for Age Pension and superannuation policy, so future generations of taxpayers are not burdened with the cost of our retirement.”

Changes to retirement policy recommended by the FSC include:

• Increasing the superannuation preservation age to 65;
• Tightening eligibility for the Age Pension;  and
• Linking the Age Pension to life expectancy.

“The government will have more opportunities for cost savings for the National Disability Insurance Scheme and Disability Support Pension through using the private sector,” Mr Brogden said.

“Fiscal modeling for the FSC by Deloitte Access Economics shows if the government treated private disability insurance in a similar way to private health insurance, $8.5 billion in net savings could be achieved,” Mr Brogden said.

“The FSC has recommended the government considers leveraging the life insurance sector to meet the ballooning costs of disability welfare in Australia to reduce the increasing pressure on the Federal Budget.”

“Life insurance can reduce the long-term public sector costs of the National Disability Insurance Scheme and Disability Support Pension.”

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Robust debate required before pension aged increased: SPAA

The SMSF Professionals’ Association of Australia (SPAA) says the Australian public will be best served if there is a measured debate about the suggestion to increase the pension age to 70.  The flow on effect of any change must consider the impact on other social security benefits and the age at which superannuation can be accessed.

SPAA Director Technical and Professional Standards Graeme Colley said:  “Increasing the preservation age beyond the current graduated increase to age 60 by 2024, and potentially aligning it with the age pension age, will mean there will be more pressure on cost of social security.  People will be forced to seek other types of benefit and if current rules continue with an increased pension age any amounts accumulating in superannuation are excluded for the assets test.

“Sustainability of the superannuation system is not the issue as some say but whether adequacy is able to be attained within the current settings.

“So that sustainability and self provision of retirement benefits can be achieved SPAA believes stronger links should be made to integrate the age pension system and the retirement income system.

“But as in all fields of endeavor for every action there is a consequence or reaction.  Our nation, and particularly future retirees, will be best served by mature and reasoned consideration of the issues rather than seeking out silver bullets such as simply aligning preservation age with an increased age pension age.

An increase in the pension age will mean those in labour intensive jobs whose physical condition is likely to fall behind those in less physical jobs may need to access Newstart, or some other type of social security benefit to survive. What’s saved in the cost of the age pension may result in an increase in other government social security expenditure.

Double dipping may be seen as an issue by some.  However, the vast majority of those currently nearing retirement have only a relatively small amount of super saved for their retirement.   Their superannuation is drawn as a lump sum which allows them to pay for things in preparation for retirement.

It could be expected that younger generations will be able to access a larger amount accumulated as a result of superannuation guarantee contributions over most of their working life.  This is expected around 2030 when a person who commenced work at the start of the superannuation guarantee system may be considering retirement.

Some of the lump sums being paid from many funds for anyone retiring today are so small that using them to start a pension is ludicrous and would make little of no impact.  In most of these cases the person would have qualified for the age pension or a reduced pension.  If they had saved an adequate amount for retirement they would be more likely to draw a reasonable income stream and reduce or eliminate the amount of social security benefits.

Self managed super funds (SMSFs) are well positioned to meet the adequacy requirement of retirement income policy partially due to the engagement of members who have maintained SMSFs over a reasonable period and the ability to control their retirement destiny.

We need to ask ourselves is there a need for Australia to have the highest retirement age in the OECD, which would be the consequence of moving to 70.

We need to really understand the true measurement of our retirement sector and its cost to the government’s bottom line. We need to measure Pillars 1 -government pension, 2 – superannuation guarantee and 3 – voluntary savings as well as the offset of investment returns along the retirement savings journey.

The SMSF retirement sector is working well. Those that have been able to save appropriately to self fund their retirement are managing their adequacy and how this will be met with increased longevity. They are also not reliant on the age pension or health care as much as those that don’t self-fund.

This model can assist in addressing the age of retirement and the preservation age.

Whether the superannuation system is sustainable is not the issue.  The issue is whether the superannuation system is able to be funded so that a person receives an adequate income in retirement.

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