The Australian retirement income system lacks both a general consensus about the adequacy of income levels and methodology of assessing what those levels should be, according to the Retirement Income Review (RIR).
In a consultation paper released for stakeholder input the three member RIR panel asked what should be considered when assessing the adequacy of the retirement income system.
It prefaced the question by commenting that “no consensus exists on what is the best metric to measure an adequate retirement income” but added the issue of adequacy will vary between individuals, based on their personal preferences and circumstances, including income over their working life.
“Despite this, a measure of adequacy can provide a reference point for Australians to help them understand their needs in retirement and the level of savings required to support those needs.”
“Adequacy measures are also useful for assessing whether outcomes delivered to different groups by the retirement income system are appropriate,” the paper stated.
The paper noted there were relative and absolute measures related to adequacy. The former estimated retirement income requirements by defining benchmark replacement rates based on an individual’s income or expenses prior to retirement, and the latter attempted to place a dollar value on the income or expenditure required to support a particular lifestyle in retirement, with no reference to the individual’s pre‑retirement lifestyle.
The RIR panel noted there were weaknesses in both models and called on stakeholders to address the relative strengths and weaknesses of different measures of adequacy and the circumstances where one measure of adequacy was superior to the other.
In doing so it outlined its aims in seeking the information, stating, “the Panel proposes to assess the extent to which the system delivers fair and adequate outcomes for different individuals and groups. Factors which may have a particular bearing on the adequacy of retirement incomes include gender, marital status, longevity, health and aged care costs, and, for non-home owners, accommodation costs”.
“Analysis of adequacy in this context will be supplemented with consideration of measures of financial hardship for individuals and groups with different characteristics. This will help identify whether or not the system delivers adequate retirement incomes for such groups.”
The RIR has also questioned whether consumers have a proper understanding of the purposes and objectives of the retirement income system and has asked for information as to the current levels of understanding among the Australian population.
