C3: Future of retirement savings: Critical
policy decisions
Michael Davison
Senior Policy Adviser – Superannuation
CPA Australia
Thursday 20 November 2014
3:30PM - 4:20PM
#CPACONGRESS
Future of retirement savings
- critical policy decisions
Michael Davison
Senior policy adviser – superannuation
CPA Australia
Australia’s retirement savings system
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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
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Poverty alleviation or income / standard of living maintenance?
Adequacy target
Coverage
Appropriate encouragement – incentives vs compulsion
Level of government support
Accessibility
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
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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
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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
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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
capped?
• Age pension age and eligibility?
• Preservation age?
• Appetite / need for compulsion
• Collective pooling?
Questions?