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CEPAR submission to the Retirement Income Review


Researchers of the ARC Centre of Excellence in Population Ageing Research (CEPAR) prepared a submission for the Retirement Income Review. Various CEPAR staff and affiliates contributed to this submission. Major contributors included Hazel Bateman, Rafal Chomik, Marc de Cure, Michael Keane, George Kudrna, John Piggott, Michael Sherris, and Alan Woodland.

The aim of the CEPAR submission for the Retirement Income Review is to provide facts and evidence that may support and inform its deliberations. It also interprets the facts and evidence to suggest some specific ways, listed as a series of recommendations, in which Australia’s already successful retirement income system might be improved.

There is an established evidence base to draw on

The Retirement Income Review process is explicitly seeking to establish an evidence base for policymaking. CEPAR has undertaken extensive primary research and developed supplementary material, in the form of research briefs, which provide such an evidence base.1 CEPAR Briefs contain a wealth of information that point to certain policy actions, but deliberately avoid making recommendations. In contrast, CEPAR submissions to inquiries do make recommendations.
CEPAR also refers to three submissions to the 2014 Financial System Inquiry (FSI), relating to the retirement income system. The first focused on decumulation; the second related to behaviour and guidance; and the third was on decumulation defaults. The FSI report contained many of CEPAR’s recommendations. CEPAR has made other submissions, including to the Productivity Commission on default superannuation products and to Treasury on Comprehensive Retirement Income Products (CIPRs).
CEPAR has also brought to bear additional evidence from three CEPAR-supported sets of research. These consist of: (1) the Kudrna-Woodland Overlapping Generations (OLG) model of the Australian economy and retirement system, which is an up-to-date, complete, and state-of-the-art model designed to capture the economic responses to retirement policy in Australia; (2) a large literature on lifecycle risks and retirement products led by Michael Sherris; and (3) an expanding set of literature that looks at financial decision making in superannuation led by Hazel Bateman.
This submission makes use of existing CEPAR evidence and comments on key aspects of the retirement income system under the following headings: (1) system structure; (2) parametric reforms; (3) decumulation; (4) decision guidance; and (5) equity.
The retirement income system is embedded in a wider economic and demographic context
Recommendations in the CEPAR submission assume underlying long-term macro-demographic expectations that:
  • Australia will continue to grow, with significant skill-based immigration and a stable fertility rate of about 1.7 to 1.8, which in combination will generate a steady increase in population, a slow rate of ageing, and modest per capita real income growth;
  • Interest rates will remain low in the medium to long term and investment returns may decline from historic averages along with some declines in productivity growth;
  • Life expectancy will continue to increase, but probably at a reduced rate in the longer term;
  • The mortality gradient will likely remain, and possibly increase, especially at mature ages (see Retirement Brief 2, Fig 4G and 4H). Clarke and Leigh (2011) estimate a 6-year gap between the lowest and highest income quintiles at age 20.
The retirement income system is affected by the broader economic context. But system settings can also affect the real economy (e.g., via investment and labour market effects), as shown in OLG modelling.


CEPAR’s submission draws from its research in areas of economics, actuarial studies, demography, epidemiology, psychology and sociology to put the following recommendations:

System structure

Recommendation 1: The review should recognise the benefits of the existing retirement income system structure. The review and any resulting policy changes should resist large-scale structural reform and instead focus on parametric reform (see Recommendation 2).

Recommendation 2: Following from the previous recommendation, policy changes should focus on enhancing the effectiveness and role of the existing system via parametric reform. This could include modifying means-testing and taxation rates and thresholds and dealing with inequalities and inconsistencies (see recommendations in the parametric reforms section).

Recommendation 3: Once a set of parametric settings are selected, these should be maintained as much as possible to build confidence in the system. As part of this, the Review should assess existing indexation arrangements of system parameters, including thresholds, caps, levels, and qualifying ages. Many of these are adjusted discretionarily or with an inappropriate index, which creates uncertainty, undermines confidence, and erodes the integrity of the system over time.

Parametric reforms

Recommendation 4: Age Pension asset and income test tapers should not be made shallower and could be made steeper.

Recommendation 5: Consideration should be given to considerably extending the threshold for labour earnings from the income test.

Recommendation 6: The mandated Superannuation Guarantee contribution rate should increment to 12%, as currently legislated, unless there are solid reasons otherwise. Should the increases be revisited, a possibility would be to consider auto-escalation with an opt-out for low-income workers with respect to the increased amount, up to an earnings threshold.

Recommendation 7: Age Pension support should be expanded to include substantial rental assistance for Age Pension recipients who are private renters


Recommendation 8: A plan: Government should formulate and pursue a coherent plan that will allow superannuation to provide a stream of resources in retirement that has sufficient risk management options and/or flexibility to allow for uncertain longevity and consumption patterns over retirement and to incorporate health and aged care. As part of this plan, impediments to product innovation for longevity risk should be systematically investigated and reduced as far as possible.

Recommendation 9: An institution: A supra-regulatory body should be established to facilitate retirement income product provision, allowing for a concerted effort, coordinated across responsible agencies, to prepare the financial and retirement income systems for an ageing population ageing. Such a body could also be responsible for ADI-like protections for individuals taking out long term retirement products.

Recommendation 10: Public provision of underlying instruments: The Review should investigate the options for government to provide underlying financial instruments that would support the longevity insurance market, including long duration longevity, infrastructure, and inflation linked bonds. As part of this, the government through its own agencies or an external provider should collect adequate longitudinal data to inform product and policy.

Recommendation 11: Public provision of products: The Review should assess options for the government provision of longevity insurance products through existing distribution channels and payment systems (e.g. Centrelink or Australia Post) directly to consumers, exemplified by the PLS,hazl and/or private sector providers financial institutions.

Decision guidance

Recommendation 12: Ensure that all people approaching retirement have access to and are encouraged to use standardised information to facilitate retirement planning – such as via MoneySmart, the DHS Financial information Service, or MyGov, to complement regulated information provided under financial product disclosure. Participation in a ‘guidance’ session could be a mandatory or ‘opt-out’ requirement for release of super funds.

Recommendation 13: Mandate the provision of benefit projections with member statements, including both lump sum and income stream estimates.

Recommendation 14: Superannuation funds should be encouraged (e.g., through regulatory change) to develop digital tools to facilitate general, scaled and intra-fund advice.


Recommendation 15: The Review should acknowledge that equity of the retirement income system needs to be considered in a holistic way rather than with respect to specific schemes and using simple scenario analysis.

Recommendation 16: The Review should revisit the Henry Review discussion on taxation of superannuation and consider promoting the superannuation tax reforms that were recommended there.


The following key CEPAR documents are referenced in the CEPAR submission, which can be found at given links:
Retirement Brief 1
Retirement Brief 2
Retirement Brief 3
Housing Brief