The Final Report found that Australia’s income system overall was effective and that its costs were sustainable. However it identified a number of areas in the system requiring improvement.

The reported noted that the system is complex and that misconceptions and low financial literacy have resulted in people not adequately planning for their retirement or making the most of their assets when in retirement.

“Adding to complexity is the interaction with other systems, such as the aged care and the tax systems. People need better information, guidance and good, affordable advice tailored to their needs,” it stated.

It also argued that a clear objective for the system is needed to held guide policy, improve understanding and to provide a framework for assessing performance of the system.

Inequity issues

The review also considered the performance of the retirement income system in relation to equity.

The report noted that there are very large superannuation balances in the system that were built up under previous higher contribution caps and are expected to stay in the system for several decades.

“At June 2018, there were more than 11,000 people with a balance in excess of $5 million.These people receive very large tax concessions on their earnings. A superannuation balance of $5 million can achieve annual earnings tax concessions of around $70,000,” the report stated.

Overall, superannuation tax concessions increase inequity in the retirement income system, while the age pension helps offset inequity in retirement.

“However, the combination of a system where people on higher incomes achieve the largest superannuation balances, combined with tax concessions on superannuation contributions and earnings, means that higher-income earners receive more Government support than other income groups over their lifetime,” it noted.

“Further improvements in targeting superannuation tax concessions would improve the equity of the retirement income system.”

The report suggested that making changes to earnings tax concessions would increase the system’s cost effectiveness.

“Changes to superannuation earnings tax concessions would improve equity, and in turn boost public support for the system,” the report stated.

The report also found that the retirement income system does not appear to be delivering an appropriate standard of living for many retiree renters.

“Although Commonwealth Rent Assistance provides additional support to retiree renters, it is far below the level that would bridge the gap in their living standards compared to home owners,” it said.

The report also noted the significant size of inheritances in the system and that most people die with the majority of the wealth they had when they retired.

“They are not distributed equally and increase inequity within the generation that receives the bequests,” it said.

“If this does not change, as the superannuation system matures, superannuation balances will be larger when people die, as will inheritances. Superannuation is intended to fund living standards of retirees, not to accumulate wealth to pass to future generations.”

Response to the final report

Treasurer Josh Frydenberg said the review “provides confirmation of the policy direction being pursued by the Morrison Government with respect to the importance of increasing the efficiency of the superannuation system and lifting home ownership rates – both identified as key drivers of an adequate retirement income”.

“The government will continue to carefully consider the observations made in the Review together with the findings of related reviews including the Aged Care Royal Commission and remaining recommendations of the Productivity Commission’s report into superannuation,” said Mr Frydenberg.

Commenting on the report, CPA Australia general manager of external affairs Dr Jane Rennie said the suggestion that Australia’s existing retirement system is fine, glosses over some known deficiencies.

“We are concerned that the government will use the report as justification for maintaining the superannuation guarantee at its current level,” said Dr Rennie.

She noted that a signficant cohort of Australians is not achieving what CPA Australia believes is an adequate retirement income and that it’s arguably going backwards.

“The adequacy of retirement incomes has been slipping in Australia in recent years. Some demographics are increasingly vulnerable, such as older single women who are the fastest growing cohort of homeless in Australia today,” she said.

SMSF Association chief executive John Maroney said some of the areas for improvement identified in the report have also been previously highlighted by the association.

“It’s to be hoped this report will provide the necessary evidence to ensure that many of the suggestions relating to making the SMSF sector less complex can be implemented,” said Mr Maroney.

“The Review also issued a fresh call for superannuation to have a clear Objective to guide policy, improve understanding and provide a framework for assessing its performance. Our submission also made having an objective a priority, so it is pleasing the Review has endorsed this position.”