More Change Looms for Australia’s $1.9 Trillion Pension Industry
More Change Looms for Australia’s $1.9 Trillion Pension Industry
(Bloomberg) --
Australia’s A$2.7 trillion ($1.9 trillion) pension industry could be on the cusp of another round of reforms as the government receives a long-awaited review of the retirement income system on Friday.
The review was ordered last year after an earlier inquiry found that superannuation -- the system of mandatory employer contributions -- was beset by a litany of problems including high fees and chronic under-performance by some funds.
While the government has begun addressing many of those issues, it’s been waiting for the review of the overall retirement system, including the means-tested state pension and voluntary savings, before making further changes. Submissions to the inquiry have highlighted pressing matters to be addressed as Australia, like other developed nations, grapples with an aging population and a wave of baby-boomers entering retirement.
“We have one of the world’s best accumulation systems in the world, but like many others we still struggle with the post-retirement period itself,” said Andrew Boal, chief executive officer at consultant Rice Warner. “We need to have a more robust retirement income framework.”
The review, which examined the incentives for people to self-fund their retirement and the system’s long-term impact on government finances, received more than 280 submissions from pension funds, advisers and members of the public.
Superannuation, under which companies pay 9.5% of a worker’s gross salary into a retirement fund, comes under fire in a string of submissions. The system is overly complex for people with low levels of financial literacy, resulting in a general level of apathy, according to Rice Warner.
Public policy think tank The Grattan Institute questions whether superannuation can achieve its goal of easing pressure on the state pension. It argues the system is a burden on the budget, costing more in tax breaks than it saves on the pension. It also argues against the gradual rise in compulsory contributions to 12% that is due to start next year.
Others argue that superannuation isn’t equipped for the gig-economy, as companies are only required to make payments if an employee earns above A$450 ($320) per month.
The system is also failing women who typically retire with 40% less savings than men, according to consultant Mercer.
The review will also examine the preferential treatment given to the family home in the retirement system. While owning a house can be a key pillar for a comfortable retirement, spiraling property prices have seen rates of home ownership drop for younger people. Meanwhile, retirees with million-dollar mansions are still able to claim the state pension as the family home is largely excluded from the means test.
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