Australia's Future Tax System

Retirement Income Strategic Issues Paper

1. Introduction

The retirement income system plays a critical role in redistributing income through individuals' lifetimes and between individuals, including across generations.

At the request of the Treasurer, the Panel has brought forward its consideration of the retirement income system so the Government can take into account these considerations in addressing pension adequacy in the 2009-10 Budget. The terms of reference for this review are at Appendix A.

In this advance report, the Panel presents its broad strategic views of the retirement income system. The Panel's views have been informed by the findings of the Pension Review undertaken by Dr Harmer.

The retirement income system is a key part of the broader tax-transfer system. A range of issues that were raised in consultations are not expressly dealt with in this report. They will be taken into account in the final report due in December 2009, as they should be considered in conjunction with the Panel's recommendations on the broader tax-transfer system. The Panel has not considered issues such as the system's prudential regulation, or product specific issues such as fees and charges, which lie outside its terms of reference.

The development of this report has taken place in the context of the global financial crisis which became evident in 2007 and has radically worsened since September 2008. This is a priority issue for governments around the world. This crisis significantly affected the economy and adversely affected actual and potential retirement incomes of many people. The global financial crisis presents an immediate challenge for many people in retirement and about to retire. It could change perceptions of the system, and preferences and conduct within it, even with a return of more stable investment conditions. The risks inherent in Australia's retirement income system and the need for its structure to be robust have been highlighted. In forming its views, the Panel has taken this into account, along with the longer term challenges facing the system.

The structure of the report is as follows:

  • Section 2 describes the three-pillar architecture of Australia's retirement income system;
  • Section 3 outlines the emerging pressures and ways that the system can be enhanced;
  • Section 4 provides an assessment of the retirement income system against the objectives — broad and adequate, acceptable, robust, simple and approachable, and sustainable; and
  • Sections 5 to 7 elaborate on three of the key recommendations for change in the report.

This report has been developed with the help of many people, in particular those who provided, at short notice, valuable submissions and/or participated in direct consultations with the Panel and the Secretariat. The public consultation meetings also offered valuable information on issues of concern to the community about the retirement income system. The Panel records here its gratitude to all who have worked so diligently on this task, or taken time out to attend consultation meetings. Appendices B to E list the consultation questions and provide detail on the outcomes from the consultation process.