Australia's Future Tax System

Retirement Income Consultation Paper

Appendix C: World Bank multi‑pillar retirement income system

The World Bank has recommended a multi‑pillar retirement income system including a guaranteed government pension plus a mixture of compulsory and voluntary saving. Holzmann and Hinz (2005) propose the following multi‑pillar framework for retirement income systems.

  • A non‑contributory pillar: provided by government to deal with poverty alleviation.
  • A mandatory first pillar: a contributory pension linked to pre‑retirement income financed from government revenue.
  • A mandatory second pillar: a fully funded individual savings account.
  • A voluntary third pillar: discretionary savings which provide greater flexibility than exists in mandatory pillars.
  • A non‑financial fourth pillar: access to informal support (such as family support), social programs (health care and housing) and other individual financial and non‑financial assets (such as home ownership and reverse mortgages).

The World Bank considers that a retirement income system should incorporate as many of these elements as possible. However, it states this should depend on the preferences of individual countries. Australia has all these elements except for the mandatory first pillar, which is equivalent to a social insurance model.