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Super objectives must reflect system

The federal government needed to develop comprehensive guidelines for an equitable and flexible system that allowed Australians to live a comfortable retirement, the Actuaries Institute said in its submission to Treasury on the objective of superannuation.

The institute noted the Financial System Inquiry recommendation to establish a clear objective that the super system should provide income in retirement, however, it wanted the definition to go further than that.

It said the government should provide objectives for the whole retirement system, including the age pension and superannuation guarantee, with complementary objectives for each component.

Institute president Lindsay Smartt said research showed most Australians would not have a sufficient amount of super to live comfortably in retirement and would require age pension payments at some period from the age of 67 onwards.

“One of the objectives of superannuation should therefore be to supplement the age pension in order to provide a combined level of income that allows Australians to live a dignified retirement,” Smartt said.

On the question of what constituted an adequate level of retirement income, the institute said rather than target a percentage, for example, 65 per cent of a person’s after-tax pre-retirement income, which favoured high-income earners, a better approach would be to target a dollar amount that was determined after taking into account the after-tax income of the majority of working Australians, as well as any relevant research into retirement living standards.

For example, a suitable variation of the Association of Superannuation Funds of Australia (ASFA) comfortable level might be appropriate, it said.

“If we can get at least 50 per cent of Australians up to the ASFA comfortable level using just their super savings and the age pension, then we will certainly be a long way towards achieving a reasonable standard of living in retirement for most Australians,” Smartt said.

The institute also said there should be a target in relation to the proportion of pensioners living below the poverty line, currently at 36 per cent, according to the Organisation for Economic Co-operation and Development.

“This might be increasing the age pension and/or specifically targeting some pensioner groups, for example, by increasing rental assistance,” it said.

“In our view, a country like Australia should lead the world in poverty alleviation.”

Smartt said objectives for the whole retirement system should take into account the need for flexibility due to different retirement needs, fiscal sustainability, adequacy, poverty alleviation, equity and fairness.

“The institute believes that an equitable and sustainable retirement income system that efficiently delivers on its objectives will not need the ongoing tinkering that has been a feature of the superannuation system for decades,” the submission said.

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