Including the family home in the Age Pension assets test and disincentives for leaving super in a bequest are just some of the changes to the retirement income system proposed by the Actuaries Institute.
In a comprehensive review of our retirement income framework, titled Securing Adequate Retirement Incomes for an Ageing Australia, the institute says our retirement system should be fairer, simpler and more efficient. It argues that the current system leaves too many older Australians behind.
“Having a robust and effective retirement income system is crucial for the wellbeing of all Australians,” says institute chief executive Elayne Grace.
“The objective of the retirement system must be to provide for retirees so that they have a reliable, secure and adequate income, to live with dignity in retirement.”
The institute wants the federal government to introduce a series of ‘carrots and sticks’ to encourage a more equitable retirement system. It says the way the system is designed gives an unfair advantage to those who own their home.
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“There is a large gap in outcomes for those who do and those who don’t own their own home at retirement,” says Andrew Boal, head of the institute’s retirement strategy group, who compiled the review.
“There should be greater assistance for retirees who rent. The system favours homeowners; for example, the principal residence is wholly exempt from the Age Pension assets test.”
Mr Boal recommends that a portion of the value of the home be included in the assets test, and warns against the growing number of retirees who use part of their super to pay off a home loan or other large debts.
The report warns that many retirees are using their super balances to secure mortgages with long repayment periods, distorting the housing market and defeating the point of building a big super balance in the first place.
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“The adequacy of the system is now being undermined by the relative ease for older Australians to obtain a mortgage with a long outstanding term,” the report says.
“Superannuation benefits are intended to be used for retirement living rather than secure mortgages.”
The report recommends that the government introduce incentives to encourage retirees to take part of their super as a lifetime income stream and disincentives for those who want to leave large bequests.
But the changes would face a battle in the court of public opinion, with the YourLifeChoices Insights Survey showing more than 87 per cent of respondents would not support the family home being used in any way to fund their retirement expenses, whether through a tax or inclusion in the Age Pension assets test.
The survey, which drew more than 7200 responses, also revealed that only 11 per cent of Australian retirees have used part of their super to buy a retirement income product such as an annuity.
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Treasurer Josh Frydenberg strongly backs the recommendation to use super to fund retirement rather than to leave as an inheritance.
“Overwhelmingly, retirees currently do not spend all their superannuation before they die,” he said in a speech to the National Policy Forum.
“This is despite the fact that retirees today have not benefitted from a mature superannuation system their whole working life.
“By 2060, one in every three dollars paid out of superannuation will be part of a bequest. This raises the question as to whether the answer to lifting the retirement incomes of Australians is more superannuation savings or better guidance about how to maximise their superannuation savings during their retirement.”
Can you ever see the family home being included in the Age Pension assets test? Or is that political suicide? Do you aim to leave a bequest or are you intent on using your super to fund your retirement? Let us know in the comments section below.
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