Keeping Australia’s retirement income system at a sustainable level of public support should be a key focus for policymakers going forward as the government prepares to release the Retirement Income Review, the head of a financial research consultancy has said.
Addressing the All-Actuaries Virtual Summit on Wednesday, Rice Warner chief executive Andrew Boal said as well as ensuring an acceptable standard of living for retirees, the degree to which taxpayers were supporting that standard also needed to be considered.
“One of the aspects of the objective [of the system] should be about fiscal sustainability – if we had an aim that we were trying to keep the cost of the pension and tax concessions to. So in total how much is the taxpayer co-funding retirement,” Mr Boal said.
“If we were trying to keep that to, say, below 5 per cent of GDP, that would give us some clarity of how we target those measures.”
Mr Boal pointed out that despite a significant number of retirees still relying on the age pension, Australia’s retirement income system compared very favourably from a cost perspective to its developed market counterparts.
“If you have a look at what’s being spent in other nations, the OECD on average is spending about 8 per cent of GDP on age pensions – many countries in Europe are above 10 per cent,” he said.
“In New Zealand they have a universal age pension that costs around 5 per cent of GDP. Our spending on the age pension has fallen to less than 3 per cent of GDP, [and] over the next 20 years it’s going to fall to around 2.5 per cent.
“There’s also discussion around the cost of tax concessions, the cost of the contributions tax is about 1 per cent of GDP, and there’s also the investment income tax concessions that is 0.7 per cent of GDP and over the next 30 years it’s set to grow to about 1.4 per cent of GDP.
“So if you’re looking at the age pension falling to 2.5 per cent of GDP, 1 per cent tax concessions and 1.5 per cent investment concessions, it’s about the cost of the NZ system at the moment, so those numbers show that it’s quite sustainable.”
Looking at some of the key areas to target further retirement spending, Mr Boal said more attention should be given to single retirees, who were often disadvantaged when it came to both super savings and property ownership.
“With the SG going to 12 per cent we’re going to get more than half of couples getting to ASFA’s comfortable level [of income], but less than 25 per cent of single females and only a third of single men,” he said.
“Couples tend to be able to get into home ownership more easily too, so addressing the percentage of single renters is going to be difficult.
“Government rental assistance has fallen behind what’s needed, so that’s an area that needs to become more equitable in its own right – we think rental assistance probably needs to be increased by 40 to 50 per cent.”