Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 111

The need for retirement income reform

The decision by the Hawke-Keating Government to introduce the superannuation system, which allowed the majority of workers to receive income to supplement the age pension, was visionary. It was not however led unilaterally by the Government but rather emerged from an extended process of engagement and consensus building.

Many critical elements of the system were far from ideal. The decision to apply tax at the contributions phase rather than only at the benefit phase was driven by the desire to bring forward revenue collections rather than effective tax design principles.

No overall grand design

Since that time the superannuation system has been subjected to frequent and significant changes such as annual changes to super contribution caps. These changes have not been part of a grand design (more often than not they have been in conflict), but rather were based on short-term budgetary or political circumstances. The frequency of the changes has created uncertainty and undermined confidence in the system.

It is hard to make and sustain good policy if there is confusion about the objectives of that policy. And in the case of the retirement income system, there is an unfortunate lack of clearly articulated goals and objectives that has contributed to a number of fundamental problems:

Poor targeting – whichever way you measure it, the value of super tax concessions favours high-income earners. Equally concerning is the availability of part pension payments, and associated health card in-kind entitlements, to retirees with substantial assets.

High complexity – The superannuation tax and pension systems have evolved largely independently without sufficient consideration given to their interactions. This was less of an issue in the past when the vast majority of retirees were either subject to the pension system or the tax system but not both. With the majority of retirees now being part-rate pensioners, the interactions between the systems takes on an added significance.

Waning community support – Most superannuation members are not highly engaged. This has been linked to low financial literacy and the difficulties of decision making within a highly complex system. Support for the system relies on engagement, certainty and stability all of which are lacking.

Limited sustainability – The cost of assistance to the aged has risen by more than 50% in the past decade outstripping real GDP growth. The cost of superannuation tax expenditures is also large and rising.

Poor longevity risk management – the system provides no incentive for lifetime annuities so that longevity risk is left to individuals to manage with the age pension acting as a minimum guarantee. As people live longer, there is a growing risk that they will exhaust their assets before they die or live overly frugally and (intentionally or unintentionally) leave unused superannuation savings to their estates.

The need for sustainable retirement income

The system has therefore evolved into what can be better characterised as a government-subsidised wealth generation vehicle. What we need is to refocus the system on the provision of sustainable income throughout the years of retirement.

Articulation of goals for the retirement income system which are broadly accepted, including for superannuation as recommended by the Murray Inquiry, would guide future policy development and ensure the coherence of the whole system. It would also help to counteract calls for using superannuation for other purposes – infrastructure, housing, and education - that undermine the system’s ability and stability to fulfill its fundamental purpose.

Australia’s public policy record shows that real reform can only be brought about through broader acceptance of the need for change and agreement on essential features of a reform programme. If we are to leave behind piecemeal changes and move towards a coherent retirement income system, greater agreement is needed among the Australian community on the reform agenda.

Instead, a comprehensive reform would encompass a balanced package, after considering all the following aspects of the retirement incomes system:

  • Age of access to the age pension, and how income from part-time work might be assessed in future.
  • Means testing, especially the deeming arrangements and whether and how pensioners' homes should be brought to account.
  • The adequacy of the age pension and superannuation pensions when the present scheme matures, and the interaction with other elements of the welfare system including health, aged care and rental housing.
  • The generosity, efficiency and fairness of the tax concessions for superannuation saving, much of which is compulsory.
  • The extent to which it should be a requirement to use superannuation payments to generate a retirement income, and how the longevity risk of living longer than expected can be best handled.

With most people now spending 30 to 40 years in retirement, good policy is too important to leave to the vagaries of political cycles and short-termism.

 

Patricia Pascuzzo is the Executive Director and Founder of the Committee for Sustainable Retirement Incomes (CSRI). The CSRI is an independent platform bringing together government, industry, media and community leaders to debate retirement income issues and allow the alternative perspectives to be heard. The Committee for Sustainable Retirement Incomes Leadership Forum in Canberra on 2-3 June provides the first step in an informed and purposeful retirement income reform agenda for Australia. See www.csri.org.au.

 

RELATED ARTICLES

Is Gen X ready for retirement?

So, we are not spending our super balances. So what!

Addressing the gender super gap

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.