The Actuaries Institute has released a green paper calling on the federal government to give consideration to the interaction between the age pension, superannuation and aged care in the upcoming review of Australia’s retirement system.
The paper, “Options for an Improved an Integrated System of Retirement”, was written by Dr David Knox, Dr Anthony Asher and Michael Rice and criticises the current system for being complex, producing unfair outcomes, being intrusive and incorporating perverse incentives.
“The best system would take an integrated view across all sources of income and expenses for retirees,” Actuaries Institute chief executive Elayne Grace said.
“This includes the age pension, superannuation, the family home, aged care and health costs.
“The current system, though world-leading in some respects, falls well short of that.”
The green paper stipulates the retirement system should provide individuals with a regular income stream, protection against identifiable risks such as those associated with longevity, inflation and market movements, and a level of savings to cover unexpected expenses.
Further, the authors noted the system should be simple enough to understand and navigate without the need for financial advice and should include decumulation incentives to ensure retirees allow themselves a dignified standard of living.
In addition, the paper pointed out the system must achieve fairness to the extent that the burden for taxpayers to fund it has to be shared equally across the difference generations.
Potential improvements to the system suggested include simplifying the age pension with better integration between it, superannuation and aged care, revisiting age pension means testing to amend inconsistencies caused by the family home exemption, and embedding automatic adjustments to the superannuation preservation age and the age pension eligibility age to guard against longevity risk.
The institute said a simpler age pension means test incorporating the ability for individuals to “buy the age pension” or a combined assets and income test could potentially correct the identified problems above.
The paper calls for the discussion to improve the retirement system to begin immediately.
“If it does not, Australians may lose the opportunity presented by the fiscal headroom of the declining age pension costs and the lead time we have to prepare for known longer-term changes, such as those to patterns of homeownership and work, longevity and growing health and aged-care costs,” it said.