While the superannuation industry can well be grateful for the Government’s initial response to the report of the Tax Review Panel, under Ken Henry, the broader community looking for significant tax reform cannot.
Following quickly from its decision to postpone an emissions trading scheme, the Government’s scant endorsement of the Review’s recommendations was widely recognised yesterday as an election-year response – that is, nothing which might upset too many people.
The more patient among us, however, may take some heart from the comment by the Sydney Morning Herald economics editor, Ross Gittins, that the similarly difficult recommendations of the Asprey inquiry into Australia’s financial system in the mid-1970s were initially ignored but eventually adopted, about 25 years later.
The Institute of Actuaries, which has a long history of being the most dispassionate of industry lobby groups, perhaps befitting the nature of its membership, said yesterday that it applauded the super proposals but was disappointed the issue of longevity risk was not well addressed.
Melinda Howes, the Institute’s chief executive, said the biggest missing piece in the Government’s announcement was around longevity and retirement incomes.
She said: “The Institute strongly believes Government should let the private market provide annuity products for younger retirees and focus their efforts on being the longevity insurer for Australia’s older retirees aged 75 plus.
“For example, the Institute has proposed introducing a deferred age pension whereby people who are eligible for the pension delay taking it and receive higher future pension payments as a reward. The longer the person delays the pensions (up to 10 years from age 65-75) the higher the ultimate annual pension received.”
According to calculations by the Institute, such a proposal would almost double the amount of age pension received by retirees at zero net cost to the Government.
The Henry report recommended that the Government support the development of privately provided annuity products, but the Government seemed to interpret this as suggesting it needed to provide funding for them and rejected it.
Towers Watson pointed out that the Government could facilitate the offering of deferred annuities, for example, and this should be a priority.
The firm said yesterday that increasing the SG to 12 per cent should end the adequacy debate for the majority of Australians who earn less than the average wage, which would enable the industry to focus its attention on how best to structure the post-retirement phase and improving the efficiency of using those savings in retirement.