Retirement Income Review

By Michelle Levy, Geoff Sanders, Stephanie Malon, Ally Crowther
Financial Services

Effective, sound and broadly sustainable... with room to improve 8 min read

Just in time for some light weekend reading, the Government released its highly anticipated (and 648 page) Retirement Income Review report on Friday. The report assesses the performance of Australia's 'retirement income system', which is said to traditionally encompass three pillars: compulsory superannuation, a means-tested and publicly funded age pension and voluntary savings (including home ownership).

While the report does not make any recommendations, there has been plenty of speculation over the weekend as to how its findings will inform government policy for the retirement income system for years to come.

In this Insight, we summarise our own takeaway points (with a focus on the superannuation implications in particular).

A brief history

In September 2019, the Government announced it had commissioned an independent review of the retirement income system. The review was recommended by the Productivity Commission in its 2018 report Superannuation: Assessing Efficiency and Competitiveness.

The Government stated that the scope of the review was to establish a 'fact base' of the current retirement income system, in order to improve understanding of its operation and the outcomes it delivers. To that end, the review took a 'consultative and research-based approach' to identify:

  • how the retirement income system supports Australians in retirement;
  • the role of each 'pillar' of the retirement income system in supporting Australians through retirement;
  • distributional impacts across the population and over time; and
  • the impact of current policy settings on public finances.


The report sticks closely to its is 'fact base' terms of reference. In a nutshell, its findings are that the Australian retirement income system is effective, sound and broadly sustainable, but that it can be improved.

A number of observations are made across each of the system's pillars and, more generally, a suggestion is made that the objective of the system should be to deliver adequate standards of living in retirement in an equitable, sustainable and cohesive way. If some of the report's observations are taken to their logical conclusion, we may see a radical shake up of certain aspects of the system, particularly with respect to how retirement income is funded. Others (eg that there is inequality in the system) are less surprising, but nevertheless arm future policymakers with the important evidence needed for change.

Some of the report's key observations include:

  • increases in the superannuation guarantee (SG) rate result in lower wages growth and would affect living standards in working life;
  • more efficient use of savings in retirement can have a bigger impact on improving retirement income than increasing the SG rate;
  • most retirees leave the bulk of the wealth they had at retirement as a bequest, despite the fact that superannuation savings are supported by tax concessions for the purpose of retirement income (and not purely for wealth accumulation);
  • there has been insufficient attention on assisting people to optimise their retirement income through the efficient use of their savings; and
  • people with very large superannuation balances receive very large tax concessions on their earnings.

Of course, observations are not recommendations and the Review Panel – Michael Callaghan, Deborah Ralston and Carolyn Kay – reiterate that the report's aim was to contribute to more informed decisions by improving understanding of the operation of the retirement income system with supporting facts and evidence. Ultimately, as the authors conclude, it is 'up to the Australian community — through the Government — to decide on the settings for the retirement income system'.

Our takeaways

There is of course a lot of water to go under the bridge before any of the 'observations' in the report are used to inform government policy, let alone become law. That said, they do provide some important clues on what the Government may focus on.

For us, some of the takeaways on the superannuation aspects of the report are:

Objective for the retirement income system back on the table

This is not the first time the idea of an 'objective' for superannuation has been floated. In October 2015, the Government announced it would develop legislation to enshrine the objective of superannuation (see our Insight here), but the Bill introducing it (the Superannuation (Objective) Bill 2016) lapsed, and the objective was never legislated.

Support for a retirement income covenant

As part of the 2018-19 Federal Budget, a new 'retirement income covenant' was proposed to be included in the Superannuation Industry (Supervision) Act 1993 (Cth), which would require superannuation trustees to formulate a retirement income strategy for fund members. While this had originally been scheduled to commence from 1 July 2020, introduction of the covenant was delayed in May this year 'to allow continued consultation and legislative drafting to take place' following the COVID-19 pandemic.1 The Review Panel seem to agree that a covenant is a good idea, noting that superannuation funds currently play only a 'limited role' in guiding people to get better retirement incomes from their savings. The report makes a number of references to the part the covenant is expected to play in addressing issues in the system in future and, in particular, its role in advancing a more efficient use of superannuation assets. See our most recent Insights (here and here) for more on the retirement income covenant.

Support for Comprehensive Income Products for Retirement (CIPRs)

The Review Panel's view is that the retirement income system should be cohesive in that all its drivers, processes and incentives contribute to the achievement of the retirement income system objective. With that in mind, it observes that the pre-retirement phase has substantial compulsion and defaults (eg super guarantee and MySuper) but that the retirement phase is complex with little guidance to help people choose their retirement income products. It suggests that CIPRs could lead to a better drawdown strategy and greater take-up of products that efficiently manage risks (such as longevity risk), lending support in favour of the advancement of these products. See our most recent Insights (hereherehere and here) for more on CIPRs.

Encouraging or mandating faster drawdowns

The report points to evidence that indicates that retirees (particularly those with a higher balance) tend to hold on to their assets and leave significant bequests, even though when surveyed, this wasn't a high priority for them. Behavioural factors that are suggested to contribute to this include adopting the minimum drawdown rates, reluctance to consume the 'nest egg' and concerns and about future health or aged care costs and outliving savings. All this, the report finds, runs counter to the intention of the superannuation system (ie to fund the living standards of retirees, rather than to accumulate wealth for future generations) and has a negative effect on retirement outcomes. In terms of addressing this, a number of 'soft' measures were called out, such as educating people about the subsidies that exist for health or aged care costs, or emphasising the safety net of the Age Pension. That said, the report also paves the way for possible changes to require faster draw down and encourage consumption in retirement, including changes to the minimum drawdown rates.

Support to address barriers to trustees giving advice or guidance

The report observes that superannuation funds are uniquely placed to provide advice and guidance before and at retirement, but are reticent to do so given the current regulatory framework. It suggests that giving funds the confidence to provide limited and targeted guidance to members without needing to comply with the legal obligations associated with financial advice would likely improve people’s retirement outcomes. It goes on to say that the benefits associated with drawing down more retirement savings and higher standards of living in retirement, coupled with effective regulation, would likely outweigh any potential impact from conflicts of interest. The form any such relief, should the Government decide to pursue it, would clearly require close consideration.

Support to pare back tax concessions for high earners

If the suggested objective of the retirement system includes delivering standards of living in retirement which are equitable, one inequality which the Report has identified as a concern is the superannuation tax concessions available to high earners. Its modelling finds that 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.

Even more suggestions on super guarantee rules

Leaving aside the much-debated topic of whether the SG rate should increase in accordance with the current legislative timetable (which is a whole topic in and of itself) – the report also moots other possible changes on SG, such as:

  • whether different SG rates should be applied across different workers, given the variety of people's circumstances; and
  • whether it is a means of addressing issues of gender inequality – eg removing the threshold $450/month earnings rate and requiring employers to pay super on overtime and paid and government parental leave.

Certainty needed

There has been little rest for the superannuation sector in Q4 2020, with the release of the Government's Your Future, Your Super paper in October and the introduction of the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 earlier this month. Plenty of other tabled reforms are still pending in various forms (eg draft legislation on advice fees in superannuation and the financial accountability regime).

Given all this and the considerable interest in the report's findings, it will be important for the Government to close out the debate and give the industry some much needed certainty as to next steps. We look forward to being able to bring you that update – hopefully soon.


  1. Senator The Hon Jane Hume Media Release, 22 May 2020.