Commentary on the Age Pension is poorly researched or presented without context and Challenger and the Grattan Institute research are no different, according to Rice Warner.
In its latest analysis the research firm found that Age Pension research was often misleading, such as Challenger claiming that half of people aged 67 did not receive the Age Pension, meaning that superannuation was doing its job.
“While the conclusion is correct, many of those not receiving a pension are still earning income, so they are not self-funded retirees and may receive the Age Pension when they stop work,” the analysis said.
It also pointed to the Grattan Institute that said the increase in the Superannuation Guarantee (SG) would cost the Government money by not reducing the Age Pension sufficiently relative to the cost of tax concessions, and those on middle incomes would not benefit from any legislated increase due to a reduction in eligibility for Age Pension payments.
However, Rice Warner’s modelling found that super would do its job in reducing the reliance on the Age Pension.
“The cost of the Age Pension is expected to reduce from 2.6 per cent of GDP to 2.1 per cent by the end of the century. Our national spend on State pensions, as a percentage of GDP, is amongst the lowest, and is trending down whilst the trend in most other countries is up,” it said.
“The future experience is conditional on strong real GDP growth of 2.5 per cent per annum. in the long term, which is itself dependent on continued immigration which slows down the impact of population ageing.”
It noted that while dependence on the Age Pension would fall it would still be an integral part of retirement income for most people.
This was due to the design of the means test, and the level of compulsory savings.
“We have estimated a [compulsory super] rate of 15-20 per cent would be needed to provide most people with full independence of the Age Pension throughout retirement,” Rice Warner said.
“A rate of 10-15 per cent would shift the burden primarily to super with some support from the Age Pension, and this is more appropriate.”
Rice Warner also said that policy changes made in isolation had increased the complexity of the system and undermined confidence in superannuation.
“The upcoming retirement incomes review is an opportunity for an integrated approach but will fail if it contributes to the growing mountain of ‘technical debt’ from decades of ad-hoc policy development,” it said.
By Jassmyn Goh
26 August 2019