10 ways to fix Australia’s broken retirement income system

I still feel that a great missing opportunity is to have a national non-profit annuity programme. Maybe industry super funds, maybe govt guaranteed, but as far as I can see the only annuities are provided by for-profit insurance companies or the like. And that is the problem - far too much of the potential return is taken as profits and the value is pretty mediocre. If people could access not just the earnings but their underlying capital of their savings and remove the "fear of running out" issue I am sure many could have more comfortable lifestyles, rather than die with many hundreds of thousands left unspent "just in case". But the offered returns of the for-profit industry are underwhelming to say the least. Address this problem and you will go a very long way to helping solve the retirement income question. Is it too much to ask - a half decent return (commensurate to a moderate-balanced super fund account), guaranteed for life. Can any investigative journalist examine how much impact moving from for-profit to non-profit could make for annuity holders? My hunch is of the order of 40% greater income......

"national non-profit annuity programme":
'Universal' Age Pension.

"access not just the earnings but their underlying capital of their savings":
"Is it too much to ask - a half decent return (commensurate to a moderate-balanced super fund account), guaranteed for life.":

Access to all capital can result in no capital and no earnings as may adverse risks eventuating; which may result in demand for additional welfare.

If the Government wants to change super yet again to pay for its profligacy, please leave those of us who have already retired to enjoy our few remaining years in peace, under the current rules and policies. Yeah, wishful thinking, I know.

The Age Pension is taxable but rebates make it tax free if it is your only income or you have modest non super income ( over 60). A person receiving a part pension and a good level of say rent and interest could.need to pay tax.

Tax on both accumulation assets and pension assets needs to be equalised - it is crazy that one is 15% and the other is 0%. To avoid any adverse immediate consequences or outcry, it could be done over many years (just like the SG contribution rate rose very slowly over many years). Someone would have to do the sums to ensure revenue to the Government did not fall (and maybe it could be used to increase revenue in conjunction with a universal, non-means tested Age Pension?), but something like 10% tax on investment income across all super assets (and on contributions to accumulation) might be the long term goal. None of this would be retrospective. This should have been done years ago in my view. With more and more money moving into pension phase, soon tax revenue from super assets may start to fall. Again, the sums need to be done, but this equalisation will do away with account-based pensions and allow fund members to draw down an income from their super account when and as they see fit. Too many unnecessary things to think about in the current system. I wonder how many other countries have different tax rates on investment income between accumulation and pension - my guess is few if any, for good reason.

I believe the TBC is fair for the Zero tax environment from your Super in Pension phase..

I just think it should be called Total Balance Cap, not Transfer Balance Cap.

Cap Super at the TBC, no additional funds, once you reach the TBC, other monies need to be invested outside of Superannuation.

Agree, there has to be a limit to how much is in the tax advantaged super (accumulation and/or pension)…Just pick the amount…$3 tax fee? Other bids? Get the rest out of super as thats enough to advantage people

Make house values above a level also assessable…residue over $1m or even $2m assessable for pensions etc. You can always use a reverse mortgage if you really refund=se to move/downsize

And just to add to my earlier comment - I believe any additional tax on pension asset investment returns (i.e. raising the tax from from 0% to say 10%) could be partly offset by making the Age Pension non-means tested after a certain age e.g. make it universally available from age 90 (note that it's hard for anyone in their 90s to regularly deal with Centrelink - this would remove the regular reporting). That way no-one runs out of money (albeit not a huge income but it is enough to live off frugally) and there is less (or no) need for a annuity. Let's keep everything in the system simple, subject of course to costings. The problem I see with annuities is that you can generally only get them via a financial adviser, even if you want one via your industry super fund. And that complicates things for the vast majority of retirees. The industry seems to saying "let's better educate the population about retirement options" when I say "let's simplify the system so that it's easy to navigate without having to run projections, use online calculators, see a financial planner etc". The problem is vested interests will want to stop this. Is anyone out there REALLY working for a simple system for retirees?

Applaud your efforts to fix the "system" Kaye!

I worked in the Superannuation "industry" for over 40 years, the last 23 of them as a financial adviser mainly helping Baby Boomers prepare then action their retirement. Here are a few key observations from that experience:

1. Most people can afford to retire earlier than they think - this is mainly because they overlook/misunderstand the significant value of the part then full age pension they will be eligible for down the track (to Jeremy's point something approaching 90% of retirees eventually get some age pension - only a small minority remain self-funded)

2. The age pension, in my view, is our worst example of middle-class welfare - you start getting a part pension as a couple when your assets (excluding your home) fall under $1.045m! Again, most people don't know this until they get to age pension age (67.)

3. Most people don't start thinking about retirement planning until their mid-50's - they are too focused on their work, paying down their (increasingly large) mortgage and supporting their offspring who don't/won't leave home until their mid-20's. It doesn't matter how much or how attractive the education or fancy tools you offer on your website - these only gain real traction when the recipient is ready (mid-50's at earliest.)

4. Most people need someone (a human not a robot) to help not just with advice but how to action it (forms etc) This requires an army of Helpline Consultants, Intra-fund Advisers and Comprehensive advisers. I agree with Jeremy (Quality of Advice Reforms) and David that not every fund should be "entitled" to transition their members into retirement. The cost to provide this service/support is enormous so the smaller funds are kidding themselves if they think they will be able to genuinely look after members properly once they reach retirement.

5. The biggest wealth destroyer is divorce/separation particularly after age 50 :( - unfortunately it is impossible to plan for this!

Keep up the great work.

"worst example of middle-class welfare":

There should be no retired middle-class.

Those home owner couples with Age Pension Assessable Assets greater than $470,000 and less than about $1,500,000 should spend all but $470,000 of said assets, preferably on home improvement, and claim full Age Pension there by converting themselves to low-class deserving of welfare.

To support Kaye's quick fix recommendation, in 1985 I attended a mandatory pre-retirement seminar run by Defence Force Retirement Benefit Fund (DFRDBF) for all eligible Defence Force members in their 19th year of service. The Defence pension was available after 20 years service. It was a great help to have the various options and outcomes laid out by knowledgeable people.

I'm wondering how exactly we are supposed to afford to fund a universal age pension? Even assuming some savings from removing the bloated and inefficient bureaucracy that is Services Australia, it is going to cost a tremendous amount of extra money to give everyone an aged pension. And there is absolutely zero chance of the amount of the age pension reducing, so no savings there either. I guess the answer will be that we just pass the debt down to future generations, which in fairness is the current system, just for lesser amounts.

Hi Aussie HIFIRE (love to hear the derivation of this name), I would be looking at the concessions on superannuation as well as the reduction in Services Australia delivery costs. The cost to the country of super concessions have (or are about to) overtaken the cost of the Age Pension. Yet the benefits are disproportionately allocated to those with enough to live a reasonable retirement. That doesn't seem logical or fair. I realise there is an argument that those with a lot have worked hard to get it, and those with not much simply didn't try hard enough. But I don't buy that, and research tends to suggest otherwise when it comes to life course disadvantage. warmest Kaye

Hi Kaye,

I’m a member of the FIRE movement and want to lead a pretty comfortable life in retirement rather than a more modest one. The acronym stands for High Income Financial Independence Retire Early.

If we were to look at the concessions on superannuation presumably in the interests of fairness we would also consider eliminating mandatory contributions to super for employees? I believe part of the original bargain with superannuation was that you were forced to contribute, but in order to make up for being forced to do something you received a concessional rate of tax on the contributions and earnings in the fund. Certainly this or some other tax concession is the standard in most other major developed economies around the world. If that bargain is to be restruck and there are to be no tax concessions, or at least less generous ones, why should employees be forced to give up money now that they can’t touch again until 60-65 depending on their circumstances?

I"m with you Kaye. Firstly having had the benefit of a free uni education courtesy of Gough, now to get these super concessions on top, courtesy of Costello, puts me and others in too favourable a position compared to the younger generation coming through.

"zero chance of the amount of the age pension reducing":

'Mercer senior partner, Dr David Knox, said a universal Aged Pension with the right tax structure would be feasible without a substantial impact to the budget.':
https://www.moneymanagement.com.au/news/superannuation/universal-age-pension-will-incentivise-aussies-save

The change required is a few thousand dollars per year over all Age Pension eligible; less per taxpayer. Tax reform could result in increased economic activity, incomes and tax.

So basically it would be funded by taxing the age pension, as well as more tax on superannuation in pension phase.

Given that the current age pension is a fairly basic standard of living as things are (it's liveable but if you don't have anything else and you need to buy a new car or replace a roof etc then you're in trouble) taxing it would mean needing to increase it so that the poorest Australians still have enough to live on, in which case we're back where we started but with more complexity. And then taxing the money in pensions that people were assured would be non taxable upon retirement.

I don't see either of those as being politically popular, but I suppose that some grand bargain might be possible. Or more likely we do what governments have traditionally done, kick the can down the road and leave it for some future government to solve.

'making the government pension “universal” would increase the cost of Age Pensions from $24b to $35b' [ 2008 +$11b ]
https://actuaries.asn.au/Library/MELB%20FINAL%20Paper.pdf

'Nearly 20.5 million active tax file numbers (TFNs) were registered to individual taxpayers in Australia as at 30 June 2022. Of those, around 15.4 million were registered to individuals not in business.29 Oct 2024'
https://www.ato.gov.au/about-ato/research-and-statistics/in-detail/research-for-individuals-and-families/tax-and-individuals-not-in-business

= 11,000,000,000 / 15,000,000
= ~$700 / registered taxpayer.

From a very quick skim of the paper, the figures that those costings were based on are nearly 20 years old now. So the dollar figure would definitely be higher due to inflation, and I believe that although the proportions of retirees receiving a full/part/no age pension are still roughly the same, the population as a whole is older so the dollar figure would also be higher due to that factor.

And given the current cost of living crisis, I doubt very much that anyone is lining up to pay more tax, particularly if much of the proceeds are going to go to retired couples who own their own home and have a million dollars in investments!

"higher due to that factor":
Plausible but needs greatly more data to know to what degree. A change in one area can have difficult to predict effects in another due to many variable interdependencies.
The abolition of means tests might be all that is required to generate more economic activity and tax greater than the former 'savings'.
Requires modelling not supposition to be better informed.

"And given the current cost of living crisis, I doubt very much that anyone is lining up to pay more tax, particularly if much of the proceeds are going to go to retired couples who own their own home and have a million dollars in investments!":
Likely, so the money must come from those who will benefit: oldies; future ones in particular. Sounds like taxes on Super.

"funds are keeping members with low balances from moving into the tax-free phase of super by setting a minimum balance required to open an ABP":

If they have too little after consolidating super, their returns are likely less than the personal tax free threshold.
They could withdraw the lot from super.
Advice should be: 'No need for a disbursement ('pension') account.'

Almost no comment that will save the country money. Plenty of ideas that will cost more.

Our current tax system rewards passive income and smashes hard work.

Necessary change will not make everyone happy but for younger Australians it is an absolute necessity.

"save the country money": 'Universal Age Pension' + other tax reform could make the country money.

"Our current tax system rewards passive income and smashes hard work"
Isn't it the other way around because income from passive investments (bank interest, dividends,etc.) gets added to income from hard work and is taxed at the marginal rate of the recipient, ie. the tax free threshold can only be used once.