The government recently announced the first major look at Australia's savings system in 30 years. It will examine the interaction between the age pension, compulsory super and voluntary savings. The wide-ranging review would examine "the current state of the system and how it will perform in the future as Australians live longer and the population ages", Treasurer Josh Frydenberg said.
The review was announced after the Productivity Commission last year recommended the Government to undertake a review before any increase in the superannuation guarantee rate. The guarantee, which is the amount of compulsory super that must be paid to employees, is scheduled to rise from 9.5 per cent to 10 per cent by 2021, before reaching 12 per cent by 2025.
Frydenberg released the terms of reference for the inquiry, which will cover the age pension, voluntary savings including the family home, aged-care funding, franking credits and the role of the powerful $2.9 trillion superannuation industry. Crucially, Treasurer Josh Frydenberg has ruled out including the family home in an assets test for the aged pension, when he announced the review.
The media release which accompanied the announcement said review is designed to establish a fact base of the current retirement income system that will improve understanding of its operation and the outcomes it is delivering for Australians.
"It will be very important in helping to determine future policy positions by creating a fact base of what is happening in the system, particularly as we have an ageing population, people are living longer and our superannuation pool is growing dramatically over time," Mr Frydenberg said.
Speaking to Fairfax media, Council on the Ageing chief executive Ian Yates said the review "would have a lot of ground to cover" and the pressure on the government to act on its recommendations would become "quite substantial". Mr Yates said he expected the review to investigate the level of compulsory super, the asset level at which pensions were reduced, housing and aged care. "It's quite a powerful ‘terms of reference’…I think clearly taxpayers' money is not being used as well as it could be to achieve best outcomes. There are different bits that don't fit together at the moment."
The details of the terms of reference restrict the review to establishing facts, rather than making recommendations. This point could be seen to add further independence to the review because it means any potential findings would not necessarily be subject to the same political pressure that would otherwise be the case.
Independent Retirement Income Review: Terms of Reference
Australia's retirement income system is based on three pillars:
- a means-tested Age Pension
- compulsory superannuation; and
- voluntary savings, including home ownership.
It is important that the system allows Australians to achieve adequate retirement incomes, is fiscally sustainable and provides appropriate incentives for self-provision in retirement.
The Review will establish a fact base of the current retirement income system that will improve understanding of its operation and the outcomes it is delivering for Australians.
The Retirement Income Review will identify:
- how the retirement income system supports Australians in retirement;
- the role of each pillar in supporting Australians through retirement;
- distributional impacts across the population and over time; and
- the impact of current policy settings on public finances.
While the review is hoped to be comprehensive, it will follow a relatively tight timeline, with a consultation paper being released in November this year and the final report to be provided to government by June 2020.