C3: Future of retirement savings

C3: Future of retirement savings: Critical
policy decisions
Michael Davison
Senior Policy Adviser – Superannuation
CPA Australia
Thursday 20 November 2014
3:30PM - 4:20PM
Future of retirement savings
- critical policy decisions
Michael Davison
Senior policy adviser – superannuation
CPA Australia
Australia’s retirement savings system
a ‘role model’ for the developed world
accumulation phase is well developed
The retirement (decumulation) phase is underdeveloped
No long-term vision or goal
The three pillars
• The age pension
• Compulsory superannuation guarantee (SG)
• Voluntary superannuation
Projections of superannuation assets and age pension coverage
Source: Treasury projections, Intergenerational Report 2010
The three pillars
• The age pension
• Compulsory superannuation guarantee (SG)
• Voluntary superannuation
The international comparison
• Melbourne Mercer Global Pension Index
• Denmark
• Australia
• Netherlands
• Global AgeWatch Index 2014
• Australia 13th overall
• 61st for income security
Australia’s retirement savings policy
• Long-term vision
• Improve adequacy
• Encourage retirement income culture
A long-term vision and goal
Primary objectives
• Encourage self-funded retirement savings
• Target government assistance at low and middle income earners
• Insure against risk
Primary characteristics
• Simple
• Sufficient
• Sustainable
A long-term vision and goal
Poverty alleviation or income / standard of living maintenance?
Adequacy target
Appropriate encouragement – incentives vs compulsion
Level of government support
Interaction between super and age pension
Non-super investments
Remove from political cycle
Fine-tune accumulation
• Flexible lifetime contribution caps
• Remove age limits for contributions
• Remove ’10% rule’ for deductibility
• Extend SG to self-employed
• Remove minimum $450 pm SG threshold
• Retain low-income superannuation contribution
• Extend co-contribution scheme
Encourage a retirement incomes culture
Pension plans not savings plans
Income during retirement not lump-sum at retirement
Retirement benefit projections
‘Superannuation for life’
Discourage lump-sums through incentives or limits
Innovative flexible retirement income products
Default super pensions – MyPension
Competing financial needs for retirees
• Access to capital
• Access to good returns
• Protection from risk
Current retirement options
• Lump-sum benefit
• Account-based pension
• Age pension
Future retirement income options
Lump-sum benefit
Superannuation income stream
Deferred income stream
Age pension
Non-superannuation savings
Lump sum benefits
• Discourage or restrict access to lump sums
• Need some access to lump sums
Superannuation income streams
Account based pensions
Flexible annual drawdowns
Allow lump sums
Subject to investment risk
Don’t effectively address longevity risk
Subject to age pension income and assets test
• Need innovation and default income streams
Deferred income streams
• Allow deferral of consumption of retirement savings
• Deferred lifetime annuities (DLAs)
• payable for life
• Protect against longevity and investment risk
• Guaranteed income
• However, no return of capital
• No tax concession during deferral period
• Subject to age pension test during deferral period
• Need pooling
The age pension
• Safety net or cargo net?
• Eligibility age?
• Eligibility tests?
Non-superannuation savings
• The family home
• Other assets
The ideal retirement solution
• Default superannuation income stream
• Longevity insurance / deferred income component
• Limited access to lump sum
Regulatory impediments
• Deferred annuities not tax exempt during deferral period
• Inflexible SIS pension and annuity rules
• Annual payment levels
• Indexing
• Residual benefits
• No long-term bonds or investments
A long-term plan
• Awaiting reviews
• Financial System Inquiry
• Review of retirement income stream regulation
• White paper on the Reform of Australia’s Tax System
First steps
• A long-term bipartisan vision for retirement savings
• Address regulatory impediments for income streams
• Encourage income stream culture
• retirement income projections
• education
• - ‘Super for life’ – appropriate flexible saving incentives and
encourage default income streams
Longer-term considerations
• Reconsider taxation of lump-sums
• Overall level of super tax concessions – do they need to be
• Age pension age and eligibility?
• Preservation age?
• Appetite / need for compulsion
• Collective pooling?

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