The current age pension is in need of reform and is not achieving its purpose, according to a discussion paper by the Institute of Actuaries of Australia.
Entitled ‘New Ideas of Age Pension Reform’, the discussion paper reviews the age pension structure and looks at its costs going into the future.
The co-author of the paper, Geoff Dunsford, said the pension is not achieving its purpose and a major review of its efficacy is long overdue.
According to Dunsford, while the retirement income’s ‘three pillars’ system of compulsory private, voluntary private and state provision has long been touted as one of the world’s best, in practice, because each has developed independently of the other “rather than being the basis of a consistent and integrated retirement policy , they make for an incoherent and dysfunctional whole”.
“Australia has the very desirable ‘three pillars’ policy for retirement incomes. However, the pillars are not integrated, which causes a few problems, such as an inadequate focus on retirement incomes. We have super benefits which are very risky. We have messy regulations administration, a highly complex mean testing system, and a complex super tax system,” he said.
According to Dunsford, it could be said that it was irresponsible for the Government to support a private superannuation policy that effectively requires retirees to have their benefits subject to all the risks of investment fluctuations, inflations and longevity, providing the only safety net in the form of the age pension.
“A major review is overdue, only because the costs of age pensions are increasing — 2.9 per cent of gross domestic product (GDP) and rising to 4.4 per cent of GDP in 40 years time,” he said.
Dunsford writes that ideally the Government should be moving towards a model which “focuses on lifetime incomes and better integrates private superannuation and state funded benefits”.
