Responding to Callaghan : Completing Australia's retirement income system

The Retirement Income Review (Callaghan) Report concluded that the Australian retirement income system is effective, sound and its costs are broadly sustainable. Its main message is supported: that we should now focus on settling the pensions phase of the system, moving on from the focus up until now on the accumulation phase. The Report provides evidence that optimal use of savings at the current 9.5% SG rate can deliver adequate retirement incomes to those on median incomes and below. But this assumes the savings will be used appropriately. Accordingly, any decision not to proceed with the legislated increases in the SG to 12% must have a quid pro quo: measures which address the outstanding problems in the pensions phase that are causing sub-optimal use of savings and leaving gaps for particular vulnerable groups.Unfortunately, Callaghan is not very helpful about the solutions to these problems.The paper examines the Report's suggested 'optimal use' of superannuation savings, suggesting it is not in fact practicable and proposing alternative drawdown arrangements to ensure adequate and secure retirement incomes. It also questions the Report's lack of support for simplifying the pension means test and for measures to improve support for vulnerable groups. It questions the Report's assessment of superannuation tax concessions and cautions against assumptions that there might be significant extra revenues available by more heavily taxing high income groups.The paper concludes with a suggested package of measures which might complete the Australian retirement income system and ensure it meets its objective. This could be the quid pro quo should the Government decide not to proceed with the legislated increase in the SG