Submissions will soon flow in for the Retirement Income Review. The purpose is to establish a “fact base” around the system and the timing is tight: the final report is to be handed to the government by June.
It appears that there is little room for opinion – the review is seeking facts from the industry which will then be presented to the government. These will relate to the effectiveness of the retirement income system across Australia, the three pillars and how they interact, and the impact of current policy and public finances.
Will those making submissions be able to hold fire and stick to the facts? Facts are difficult to establish in a complex system and they can be difficult to distinguish from beliefs. What may appear to be small differences in assumptions can make a large difference to the assessed outcomes of the retirement system. The ongoing debate between the Grattan Institute and Mercer over retirement adequacy is a case in point.
There are many areas to explore. Australia’s retirement system is complex yet lacks a clear objective. Globally it is highly ranked, but its taxation structure is considered upside down compared to other countries. And there is arguably a market failure with respect to consumers being placed into quality retirement solutions.
As we have worked through our submission, we share some early reflections.
One, all pillars of the retirement system (age pension, home, savings) focus on the household except for superannuation which focuses on individual accounts. It is difficult and complex for households to have a clear picture of their retirement position. This must surely impact confidence in their retirement. Financial planning and guidance appear the solutions here, but both are challenged.
Two, the Productivity Commission coined the term “lottery effect” to describe the different outcomes consumers experience based on the performance of the super fund they are defaulted into. Unfortunately, there are a range of other effects ranging from the guidance a fund provides to its members through to provision of retirement solutions.
Finally, the role of the home is fascinating. The financial advantages of home ownership are tremendous (taxation and means testing particularly). But current elevated house prices mean that ownership will be far less accessible across the broader population. It is important to fully assess the value of home ownership in retirement and consider future accessibility to ownership, and the role of rental assistance programs.
It will be fascinating to see what else comes out of such a broad review. Undoubtedly adequacy and age pension taper rates will be hot topics, but there are a lot of other areas which provide the opportunity to improve retirement outcomes for Australians.
Investment Magazine’s Retirement Conference will be held on March 31, 2020 at The Fullerton Hotel, Sydney. Please register here.
