The Retirement Income Review panel appears unlikely to address whether the value of the family home should be included in the means test for the Age Pension. Nor is it clear that it will address the hotly debated issue of an increase to the superannuation guarantee.
The Retirement Income Review consultation paper released last week acknowledges that outright home ownership supports retirement income by reducing ongoing expenses but does not address whether it should be included in the asset test.
According to the Actuaries Institute the need to include the value of the principal residence in the means tests, whether in its entirety or above a threshold, has been recommended a number of times by the Henry Taxation Review in 2008, the Harmer Pension Review in 2009 and by the Productivity Commission in 2011, 2013 and 2015.
In addition, the paper does not address if there should be an increase in the superannuation guarantee increase from 9.5 per cent to the scheduled 12 per cent.
This topic is widely debated in the government and in industry by institutions such as Rice Warner and Grattan Institute.
The panel, chaired by Michael Callaghan, is tasked with establishing a fact base of the current retirement income system and the interaction of the three pillars in supporting Australians through retirement.
The three pillars are the Age Pension, compulsory superannuation and voluntary savings including the family home.
The paper says: “For the retirement income system as a whole to deliver for Australians in their retirement the pillars of the system need to interact effectively and be flexible and responsive to allow individuals in diverse circumstances to achieve adequate retirement incomes.
The terms of reference for the Review state: “It is important that the system allows Australians to achieve adequate retirement incomes, is fiscally sustainable and provides appropriate incentives for self-provision in retirement.”
The panel will look at principles of adequacy, equity, sustainability and cohesion for assessing performance. It is calling for submissions on a number of questions relating to the our principles.
The Actuaries Institute’s Green Paper argues that the exemption of the principal residence from the assets test discourages homeowners from downsizing as the proceeds of doing so would become subject to means testing.
The Retirement Income Review consultation paper does address the equity of non-home owners and says they can have around $210,000 more in assets than a home owner before their pension is affected by the assets means test.
There is an emphasis on reducing reliance on the Aged Pension with the ageing population. The Review acknowledges that more needs to be done to ensure that there is no financial pressure on younger generations.
Where one generation is required to fund their own retirement as well as the retirement of a previous or future generation they may view this as inequitable.
The paper says: “Australia’s ageing population means there will be a declining number of workers for every retiree. It is therefore important the retirement income system does not place an undue fiscal burden on future generations.”
Craig Bingham, chief executive of Bennelong Funds Management is calling on the government to act. He says: “There seems to be a reluctance to embrace retirement income strategies. We are waiting on the government to come up with policy.”