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There’s a lot more to retirement incomes than super

The now-completed Retirement Income Review was asked to evaluate how the system works as a whole. But reading many submissions to the Review, you’d be forgiven for thinking there’s not much more to retirement incomes than superannuation.

Grattan Institute has analysed the 125 submissions by organisations. Overall, these submissions mentioned superannuation nearly 13,000 times, but the aged pension was mentioned only 7,500 times. And other issues that affect retirees’ living standards – such as aged care and rent assistance – were mentioned still less often.

The Centre for Future Work’s submission mentioned super 10 times for every mention of the pension, housing, rent assistance or aged care combined. The Victorian government’s submission mentioned super five times more than these other issues combined.

Obsessing about super unbalances the retirement incomes debate

Of course, superannuation plays an important role in helping people save enough for retirement, but it is just one part of Australia’s retirement incomes system.

Retirees still draw more of their income from the age pension than from super. Most retirees own their homes, and that supports their living standards. And access to universal health and aged care services supports the living standards of all retirees.

Superannuation will account for a larger share of retirement savings as the system matures, but other sources of retirement savings will remain important. Super savings still account for only 20-to-25% of the wealth of Australian households and many younger Australians continue to save outside of super.

The age pension will remain much more than just a safety net only for the poorest Australians. In fact, most younger Australians today can expect to receive half or more of their income from the age pension when they retire in three decades’ time.

An unbalanced debate can lead to poor retirement incomes policy

An unbalanced retirement incomes debate can lead to poor policy choices.

Everyone agrees Australians should be able to expect an adequate retirement income. However, some in the super industry downplay the role that the age pension plays, and will continue to play, in supporting retirement incomes for middle-income earners. They argue that not only should middle income earners have a comfortable retirement income, but that that income should come predominantly from super – and their compulsory contributions during working life should be high enough to deliver that outcome.

Yet, as Grattan research has shown, raising compulsory super from 9.5% to 12% of wages, as already legislated, would force most Australians to save for a higher living standard in retirement than they have while working. It would cost the budget more in extra super tax breaks than it saves in reduced pension spending. And it would make pensioners today worse off since the pension is benchmarked to wages, which will grow more slowly should compulsory super contributions rise.

Rather than being a sign of super’s failure, the enduring importance of the age pension to the retirement incomes of middle-income Australians is a sign of a healthy retirement system. The means-tested age pension provides valuable public insurance against longevity, returns and several other risks for most retirees.

Together with the broader tax-transfer system, the pension redistributes income towards low and middle-income retirees, reducing income inequality in old age. And recent projections suggest age pension spending will decline as a share of GDP in coming decades.

An excessive focus on super has also distorted the ways in which we try to reduce poverty among retirees. Attempts to top-up the super balances of low-income earners are not the most effective way of reducing poverty in retirement.

Instead, the best tool to prevent people suffering poverty in retirement is the income support system, specifically the age pension (and Commonwealth Rent Assistance for retirees who rent).

Whereas eligibility for superannuation top ups depends only on the income of the individual making contributions, eligibility for the pension is based on the income and assets of the whole household, including those of a spouse. And by assessing eligibility at retirement, the age pension better targets retirement incomes to those who need it most, rather than guessing who may or may not face an inadequate retirement income in 30-years’ time.

Home ownership also crucial

The best predictor today of poverty in retirement is whether retirees own their own homes. And the problem will get worse because young Australians on lower incomes are less likely to own homes than in the past. That’s why raising Rent Assistance by 40% should be the number one priority to reduce poverty in retirement, and at the least cost, yet submissions to the review mentioned super 60 times for each one mention of Rent Assistance.

A good retirement income system depends on much more than just super.


Brendan Coates is Program Director, Household Finances and Matt Cowgill is a Senior Associate at Grattan Institute. This article is general information and does not consider the circumstances of any individual.


August 19, 2020

How robust is the Super & pension analysis to the assumption that the pension continues to be indexed to wages (if higher than CPI)?

Indexing only to CPI seems a very plausible policy change in an eventual belt-tightening environment.

August 17, 2020

Counting the number of times a word (superannuation x 13,000, aged pension x 7,500 ) is mentioned in submissions does not constitute rigorous academic analysis. Research like this is superficial and intellectually undemanding.

Joost Daalder
April 06, 2023


August 17, 2020

It all sounds so "acceptable" to those that will use the information as a big stick for change...........How about looking more broadly at the problem of greed (now) across a significant part of the population. Lets reduce the benefits to 2nd, 3rd, 4th etc investment homes and the negative gearing (ng) benefits of those that can afford to spend now but not save for their future (I understand the thought that its an alternative form of super having done it myself in the past). If there was no ng relief for people with numerous extra properties............there's a good possibility that there wouldn't be as many ng properties in the market and their money would be invested for their future in vehicles such as super.
There is a whole raft of adjustments that could be made to the current system to make it more appealing and by the way.......................if (as the legislation implies) employers have to pay the increased sg from 9.5 to 12% THEN THAT'S A PAY RISE !!!

August 17, 2020

Jack's point about opt-out is relevant, but in facilitating build-up of retirement savings, the policymakers cannot guarantee outcomes because of the moral hazard as well as the plain fact that they don't know the future than the savers. As policies assume an average member profile, and no one is really average (though everyone contributes to it), it would be sensible to allow those at the fringes where the average template does not apply some leeway.

It will destroy compulsion but compulsion is a means to end. Imagine a young workerdisagnosed with a terminal condition that limits life expectancy. He or should be able to focus on living the residual life better than save for retiring at 67.

August 16, 2020

The article highlights a no-brainer: to fund retirement, fungible money can from any source including super. Other sources age pension, non-super assets, adult children and adjusting expenses are all part of it. Super is a necessary component, not necessarily sufficient. In turn this highlights the current folly of interpreting super's sensible sole purpose test as preventing funds from providing advice to members (illiterate, disenagged, conscripted and swimming in hideous complexity...) on a holistic basis including non-super. A case where dogma is prioritised over desirable outcomes. Could COVID-19 (among other things) help us confront this self-inflicted constraint that hampers valuable advice taking account of all relevant factors?

August 15, 2020

I disagree with the author’s belief that sg rises slow wage rises.It’s not an either/or situation. The super guarantee increase has been postponed and postponed again and we haven’t had wage rises. We have had very low wages growth.The policy of the current government is to keep wages low and to support business including by postponing any increases in the sg as long as possible. Ironically, business is shooting itself in the foot with this agenda. Real wages growth would increase confidence, along with consumer spending. The increased demand would benefit business. More money would circulate around the economy. Real wages growth would see more people able to afford to buy their own home.

Matt C
August 16, 2020

Hi C, the question about who pays for super is an empirical question -- it can only be resolved by looking at data. That's what we did in our paper 'No free lunch: higher super means lower wages', we examined detailed microdata regarding 80,000 enterprise agreements in Australia and found a trade-off between higher compulsory super and lower wages growth.

August 17, 2020

When polarised positions push debate, common sense compromise is the casualty. In regard to legislated SG increases reducing wages, we face the futility of the Economist's 'other things being equal' qualification, but tey seldom are. Wages are driven by multiple forces including economic outlook, capacity to pay, demand and supply, union and employer power and irrationally treating some occupations as inherently more valuable (as in nursing relative to barristering).
While compulsion has its rationale in super (as in road speed limits), at the margin why not leave the option to individuals through opt-out? So an employee who values cash will opt out of compulsion, and another who values the future nest-egg accept the trade off.
The current conundrum is designed to go on forever without a solution. Like asking a couple planning parenthood if they would accept a future funeral for the unborn. Insensitive and impractical.

August 17, 2020

Hi Ramani, if we offered opt-out on super, it loses its essential feature of compulsion and the very people who are forced to save for a better future would not build their retirement savings.

Ian Thomson
August 15, 2020

Ease the pension means tests so less people manipulate their finances to receive it. Then recover some of this cost to the government with a death duty on inter generational transfers of estate including the family home.

August 15, 2020

No mention of why housing costs are so high. Maybe attention is needed to the generous tax breaks for investment in housing, where CGT relief and negative gearing have driven prices to unsustainable and unattainable levels form market entrants.
It is natural for more commentary about super than the Aged Pension since this is the political hot potato in the sights of the current Federal Government. Ex politics, a universal pension for all is the most cost efficient system, augmented by a compulsory super system with some tax breaks, but we must focus of what’s possible rather than what’s required.

August 17, 2020

With respect Tony, our housing construction costs are the most competitive in the developing world. The real issue is the ever increasing cost of land for housing. Governments (3 levels) are hell bent on restricting the release of suitable land to ensure the values stay high as this where they generate their incomes. Council, water, sewerage rates, stamp duty, ESL, LAND Tax etc etc are all based on the value of the land. JMT

Lionel W
August 15, 2020

Free pension fund earnings and the pension itself tax-free. Whoopee. How long do you think that will last.
More likely that Pension and accumulation will disappear and all will be taxed. Then further down the track, the pension will be taxed. The growing "older people bubble" makes this a realistic and "reasonable" option for a future govt struggling to find money. Covid has brought this scenario forward by whole lot of years

David M
August 15, 2020

Raising rent Assistance and increasing the stock of government retirement housing is essential to avoiding a horrendous poverty for some older Australians. Many have been unfortunate, some a background of disadvantage and others simply poor choices. But let’s show some compassion.
It would be interesting to see some research on paying a retirement income to all and simply taxing retirees the same as other citizens. Including actual or a notional taxable income from super may also be logical. Why is it that we allow retirees a higher taxable income threshold and exempt super? Let’s hope we can apply some logical and reasonable analysis.

August 15, 2020

"In fact, most younger Australians today can expect to receive half or more of their income from the age pension when they retire in three decades’ time."

With the greatest of respect to the authors, you're absolutely dreaming, very trusting or extremely naive. If you are Gen-X, you obviously aren't as cynical as the rest of us who saw companies lay off our parents after years of loyal service when they got too old, hence, trust of the establishment and big business is in short supply in our generation.

The Government has just (AFR Weekend, front page, 15/8/20) put back (again) the increase to the SG, and here's the simple maths - there just won't be enough taxpayers paying into the State pension system to keep it at the same level (let alone increase it). Where will the money come from ?

Yes, it might be political suicide / unpopular etc. to cut the pension, but there's ways to do so by stealth or insidiously (as is happening with the SG above; probably no one even realises it because they don't think about their super); you can raise the qualifying age, alter the assets / means test, keep the pension level where it is and let inflation do the work or you can always conveniently blame something or someone else (such as a pandemic) that was completely out of your hands etc.

When someone as wise and as senior as Noel Whittaker says "Does anybody really believe the age pension will continue at its present very generous levels!!!" then surely, you HAVE to take note, but seemingly, some don't.

Matt C
August 16, 2020

Hi Chris, The 2015 Intergenerational Report projected that the cost of Australian Government Age and Service Pensions would rise from just under 3% of GDP in 2015 to around 3.5% of GDP by the middle of this century. This isn't a massive increase. As older people come to comprise a larger share of the population -- and therefore the electorate -- it is implausible to me that the pension will become significantly less generous.

August 18, 2020

The cost depends upon GDP; to say it is not a massive increase depends upon the other figure that you are talking about and that assumes that GDP either grows or stays the same, i.e. the cost (which I take to be "how much the Government gives as the pension to people) must also stay roughly the same or grow in line with it. Also, we've just had six months where the economy has been absolutely trashed and will take years to come back again.

Just because something such as the aged pension is sustainable, doesn't mean that it is a golden ticket. Mark my words, access to it will become harder. The Government has changed the rules around superannuation so much, why would they not do so around the pension, before I retire in another 20 years time ?

The "older people" that you talk about are Gen X. The boomers will be dead. There will be less people, because our generation was smaller and so is Gen Y and Gen Z. Maybe these people will come from immigration, but there's a lot of people that I see who aren't having kids nowadays, and if they do, it's maybe 2 (so the net result is the same), not 3 or 4. I just don't see a return to the old days of "five workers to every pensioner", when we could support a pension (and people usually died around 67, hence the pension age) without gouging the generations under Gen-X with higher taxes to support their pension, which they also had access to superannuation for, and that was meant to replace it.

Again, I have to ask, if the aged pension was so great, then why would anyone need superannuation in the first place, either as a replacement or a supplement ? THAT is the real question.

Errol Davey
August 15, 2020

80%+ of those who took out $20,000 of their accounts will put their hand out for the full age pension upon retirement!
The principal of superannuation is to fund your retirement ONLY!

August 15, 2020

It's not going to be there, and if it is, you're not likely to qualify for it. The Government just changed the rules to the increase to the you REALLY think they won't mess with the rules again before another 30 years ?

August 14, 2020

I would love to know the real cost of having an army of well paid public servants to administer the old age pension. Probably cheaper to just give everyone a pension when they reach the correct age. We've all contributed.

August 15, 2020

Agree, the asset etc tests must cost govt enormous amounts in bureaucracy etc. Much lower cost would be universal pension for all aged and just include them in the normal tax system on ALL income - Simpleness

August 14, 2020

Rely on the measly aged pension ? are you kidding me ? of course we could go the way of some European countries and bankrupt the country with overly generous pensions....funded by a shrinking workforce.... sheesh !!

Andrew Smith
August 15, 2020

Agree, and Grattan's focus is upon the now. As anyone who looks outside of Australia will see in e.g. Europe danger signs with emerging state pension crises, not being supported by regular payments by those working (ex. Germany, Switzerland and Denmark).

Further, Grattan Institute seems to ignore demographics, that is increasing numbers of retirees and potential pensioners versus declining numbers of workforce age paying taxes; our permanent population like Europe is ageing and declining.

It is the reason that Australia encourages temporary long term residents e.g. students, backpackers, workers etc. to pay and support the tax system but most with out a chance to become permanent, hence, unable to access pensions and related state benefits.

Further, Australia's retirement income system is deemed to be in the top three or five most sustainable, in the world.

Grattan Institute is looking for a problem with superannuation to allow a solution, i.e. employers to avoid (higher) superannuation guarantee contributions?

Matt C
August 16, 2020

1) We're not saying that the age pension alone will be sufficient for most people to achieve an adequate retirement income. Rather, we're saying that the age pension is an important component of retirement incomes and it is under-covered in submissions to the review (and discussions of retirement incomes policy generally).

2) The 2015 IGR projected that govt spending on the age pension would rise from just under 3% of GDP in 2015 to about 3.5% by mid-century. That doesn't seem unsustainable to me.

3) Grattan is not anti-super. The purpose of this post is not to denigrate super, but rather to point out that the debate on retirement incomes should acknowledge the important role that other 'pillars' (pension, home ownership, non-super savings) play in retirement.

Trevor Giblin
August 14, 2020

Is anyone depending on the age pension - only? Are you honourable?
I'm both.
Trevor G

August 13, 2020

A good start to get young people’s super balances up in the long run would be to get them fully invested in growth assets. Why do people decades away from retirement invest any of their money in conservative assets?

Noel Whittaker
August 13, 2020

Does anybody really believe the age pension will continue at its present very generous levels!!!

August 13, 2020


Financial expert
August 14, 2020

Yes, both politically and economically. It's political suicide to cut them back. Australian government issues its own currency, and its not fixed to a precious metal or forced to convert to a foreign currency.

August 15, 2020

If the aged pension was so great, then why would anyone need superannuation in the first place, either as a replacement or a supplement ? THAT is the question.

August 15, 2020

I think the amount of pension received will remain roughly the same, but eligibility is likely to be tightened further through the assets test, and possibly the income test as well. It is quite frankly bizarre that a couple who have $800,000 in financial assets, and $50,000 in lifestyle assets like cars and contents gets financial support from the taxpayer.

August 15, 2020

Not only that, but own a $5 million home to pass to the kids tax free.

August 19, 2020

How much income do you think you can generate on $800,000???? At $60,000 per annum, that capital will draw down heavily and whatever the assets test upper limit is, the retiree will end up down there anyways.

Rudi Van Hamburg
October 09, 2021

Yes they need to as even the young employed of today still won’t have enough super to support a average retirement at there retirement age ,and I think it’s very naive to think that everyone will have enough super to retire on in another 40 - 50 years or so . Yes by all means cutout the super perks for the rich , that should assist the Government in supporting hose of need in years to come .
And maybe cut out some politician perks that may also assist in saving money in future yeas but leave the poorer pensioners alone .

August 12, 2020

While we still have the current taxation system which is heavily skewed to Super due to the tax effectiveness of this vehicle, most middle income earners will continue to invest in Super compared to other vehicles.

August 12, 2020

Is a word count of 'super' v other words a good measure of the quality of the debate, or whether a submission is disproportionately pro super as implied by this article?

Matt C
August 16, 2020

You're right that the word count approach is relatively crude. But our intention wasn't to gauge whether submissions were "pro-super" but rather get a sense of how much they discussed super relative to other topics. Most discussed super much more than other topics, which we think is a little out of whack.

August 12, 2020

If you have ever run a business you know that wages will not increase simply because SG does not Increase - just look what happened when SG rate was frozen post GFC. The pension is a safety net and unless we slow the rate of boomers getting access to it the costs will be too high for a smaller workforce and add to the burden of the young. We need more self-funded and partially funded retirees and increasing SG to 12.5% is a good way of achieving that goal and stopping taxes going up.

Matt C
August 16, 2020

Hi Peter,
I'd recommend our paper from earlier this year on the super-wages tradeoff:

We don't claim that freezing the SG will raise wages growth. Rather, we find that when the SG has gone up in the past, wages have grown slower than (we estimate) they otherwise would have grown. The fact that wages growth was slow in the last five years doesn't disprove this.

August 12, 2020

And there is lot more to super than the impact of the SG rate on wages....

Matt C
August 16, 2020

Indeed! Grattan has a lot to say on various aspects of retirement incomes policy, not just the super-wages tradeoff. I'd recommend Grattan's submission to the retirement incomes review if you're interested:

August 12, 2020

Fair enough, but I'm guessing that most people who read a newsletter like Firstlinks are not planning for life on an aged pension.

Matt C
August 16, 2020

The point of this article is not that the pension alone will deliver an adequate retirement income for everyone. Rather, it's to highlight that the pension plays an important role in underpinning retirement incomes for many people, and that this is often ignored in the debate about retirement incomes.


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