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Retirement debate overlooks taxpayer funding

retirement income

The debate on how to fund retirement income needs to focus on adequacy issues first, while keeping in mind it is wholly funded by taxpayers.

Ongoing debates around retirement incomes obscure the fact pensions and the superannuation guarantee are funded by taxpayers and the primary aim is to create a system that produces an adequate retirement income, a superannuation expert has said.

PwC Australia director Nathan Bonarius said the lack of a legislated objective for the retirement and superannuation system has created a framework where debates are focused on the super guarantee rate, the cost of government-funded pensions and the use of tax concessions for people who save for their own retirement.

“We are often distracted in these debates, compared to the real issue at hand. Ultimately, every single dollar of retirement income is funded by Australians,” Bonarius said.

“It does not matter if it is an age pension, superannuation or tax concessions. We are all paying for that.”

He said retirement income debate can focus on segments of the sector, such as what is the cost of superannuation or pensions to government, or what is the cost of tax concessions and their size compared to the age pension.

“The cost is the cost, and we need to look at the total cost across all the pillars and if that is affordable to produce retirement income that is adequate, and then focus on which funding mechanism is more efficient,” he said.

He added secondary issues, such as affordability and equity, can be addressed once the question of adequacy has been resolved and this would include questions around the impact on wage growth, the cost to the federal budget and taper rates.

These issues, however, were being argued from different policy positions based on a draft objective for superannuation that aims to “provide income in retirement to substitute or supplement the age pension”, he said.

“This sounds nice in theory but it is an objective that has arisen out of the fact that no one can agree what the objective of super is,” he noted.

“On one side we have people who might want funding for the superannuation guarantee all the way up to 15 or 20 per cent to make sure everyone has adequate income and on the other side are people who want to dismantle the system completely.

“In the end we got an objective that was non-specific, in that we can either substitute or supplement the age pension.

“You could say we are going to supplement the age pension and you do it voluntarily so it will be zero per cent or you could say we are looking to substitute it completely for many people and that might justify a rate all the way up to 20 per cent.”

In August 2019, Rice Warner also warned that single issues within the retirement income system should not become the focus of the Retirement Income Review which should focus on the interplay between superannuation, the age pension and tax concessions.

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