Final Report: Detailed Analysis
A2. Retirement incomes
The retirement income system is facing challenges that will test it as the 21st century unfolds. These challenges include the ageing of the population, longer life expectancies and more people interacting with the system.
The Review made some key findings and recommendations on the retirement income system in its strategic report released in May 2009 (AFTS 2009). The report assessed the retirement income system against the following five objectives:
- It should be broad and adequate, in that it protects those unable to save against poverty in their old age and provides the means by which individuals must, or can, save for their retirement.
- It should be acceptable to individuals, in that it considers the income needs of individuals both before and after retirement, is equitable and does not bias inappropriately other savings decisions.
- It should be robust, in that it deals appropriately with investment, inflation and longevity risk.
- It should be simple and approachable, in that it allows individuals to make decisions that are in their best interests.
- It should be sustainable, in that it is financially sound and detracts as little as possible from economic growth.
The key finding of the retirement income report is that the three-pillar architecture of the current system is well-suited for a balanced and flexible response to the challenges it faces and should be retained. The three-pillar architecture consists of the means tested Age Pension, compulsory saving through the superannuation guarantee and voluntary saving for retirement.
The retirement income report recommends maintaining the superannuation guarantee at 9 per cent and gradually increasing both the Age Pension age and the superannuation preservation age to 67. The retirement income report deferred some issues until this Report:
- the taxation of superannuation;
- arrangements for dealing with longevity risk;
- public awareness of the retirement income system;
- a single means test for income support payments; and
- the interactions between the tax and transfer systems and aged care.
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