An objective for the age pension is needed alongside an objective for superannuation, because the latter system should build on the former, according to Mercer.
David Knox, senior partner and actuary at Mercer, is concerned a defined objective for superannuation only looks at part of the retirement income system, and as such, he wants clarity on the other pillars – including age pension and voluntary contributions – so the system works holistically.
“I’m concerned we will end up with an objective for super without an overall objective for the system,” Knox said at a CFA Institute seminar on Tuesday. “Once you determine the purpose of the age pension and its funding, then it makes sense to build the compulsory system on top of it, and the voluntary system on top of that.”
In Knox’s view, the primary purpose of the age pension should be poverty alleviation, but currently there is no defined objective that policy changes can be judged against.
In last year’s budget, the government adjusted the assets-test taper for the age pension, which changed the position of retirees, and therefore “theoretically” changed the positon of superannuation, according to Knox.
“If we then say the age pension is primarily there for the alleviation of poverty, so people aren’t left in the streets, we then run the question of ‘How is it reduced as you get more income or assets?’
“How does the assets-test taper work? How does the income-test taper work? And when does it run out? So you’ve got these issues, and this then builds a platform for the purpose of super, because it would be silly for the age pension to go from the full pension to nothing just because you earn an extra dollar,”
“That’s why it’s important not just to look at the objectives of super, but what’s the pension trying to do. That starts to develop the purpose of the pension and the purpose of super together.”
Conexus Financial will be hosting the Post Retirement Conference at the Ivy Ballroom, Sydney, on March 9. It will showcase new retirement products and the latest research on optimal retirement approaches for superannuation funds. To register click here.