United Nations Economic and Social Commission for Asia and the Pacific, Regional Survey on Ageing 2011: Australia
Attachment A - Australia: Retirement Incomes
The broad goal of retirement incomes policy is to provide Australians with adequate standards of living in retirement. As individuals’ circumstances and needs vary, retirement incomes policy aims to provide a framework that supports a basic level of retirement income which is supplemented by additional savings (both compulsory and voluntary) depending on the needs and capacity of individuals.
Retirement income policy in Australia is based on three pillars comprising: the age pension, the compulsory Superannuation Guarantee system; and voluntary retirement savings. The basic objective of superannuation system is to give Australians the opportunity and the incentive to accumulate a level of private savings which will enable them to achieve a higher standard of living in retirement than would be possible from reliance on the age pension alone.
First pillar - Means tested Age Pension
In 1909, the age pension was introduced under the Invalid and Old-Age Pensions Act 1908. Currently, the Social Security Act 1991 (the Act) governs Australian social security income support payments, concessions and allowances, including the Age Pension.The Australian Age Pension is a fundamental part of Australia’s social security system. It is a non-contributory scheme and acts as a safety net for seniors with few other resources and supplements the retirement incomes of those with lower levels of private savings. It is targeted through the social security income and assets tests to those most in need.
The Age Pension is available to all Australians who meet the residence, means and age criteria. Pension age for men is 65 years and for women 64.5 years (rising to age 65 by 1 January 2014). The general qualifying age for the Age Pension will increase from 65 in 2017 to 67 by 2023. A person must reside in Australia at the time of the claim and have 10 years of continuous residence (5 continuous years if the total residence period exceeds 10 years). The pension is payable abroad indefinitely if the pension begins before the pensioner leaves the country. The pension benefit may be reduced after 26 weeks.
In 2009, the Government introduced the most significant reforms to the pension system in its 100-year history. The base rate of pension was substantially increased and indexation arrangements were improved to better reflect changes to pensioners’ costs of living.
At June 2011 it is estimated that:
- 68.5 per cent of people over pension age were in receipt of full or part-rate Age Pension;
- 8 per cent of people over pension age received other income support payments such as veteran’s service pensions;
- 9 per cent of people over pension age who do not receive income support had the Commonwealth Seniors Health Card, which entitles them to pharmaceutical concessions, some transport concessions and a supplement to help with household expenses; and
- the remaining 25 per cent of the population of pension age were fully self-funded retirees.
In addition to the Age Pension, the following additional assistance is available to age pensioners:
- subsidised prescription medicines under the Pharmaceutical Benefits Scheme;
- subsidised aged care;
- subsidised health care and related products;
- assistance for people who rent accommodation;
- assistance for people in remote areas through an additional allowance; and
- concessions to pensioners by state and territory governments. These concessions include subsidies for council/land and water rates for home owners, utilities including energy and sewerage, public transport and motor vehicle registration. Through the National Partnership Agreement on Certain Concessions for Pensioners and Seniors Card Holders, the Australian Government provides targeted funding to the states and territories for these concessions and for providing reciprocal transport concessions for Seniors Card holders.
Tax concessions for people of Age Pension age including the Pensioner Tax Offset (which ensures that maximum rate pensioners do not pay income tax) and the Senior Australians’ Tax Offset (which reduces tax liabilities) mean that many seniors pay no tax or Medicare levy.
The Commonwealth Seniors Health Card is available to Australians of Age Pension age who do not receive income support. It is targeted through an income test and gives holders access to reduced cost prescriptions and medical services, and concessional travel.
The Social Security Act 1991 may be accessed at:
http://www.austlii.edu.au/au/legis/cth/consol_act/ssa1991186/ The Act also provides financial assistance for the carers of frail older people (see Q9e.)
Second pillar - Compulsory private superannuation
The Superannuation Guarantee system is crucial to increasing people’s saving for retirement and ensuring adequate retirement incomes. It requires employers to pay a minimum percentage (currently 9 per cent) of eligible employee’s ordinary time earnings into superannuation. The percentage of workers covered by the Superannuation Guarantee has grown from 39.4 per cent of employees in 1986 to 93.0 per cent in 2008.The Government has announced that the Superannuation Guarantee will be incrementally increased to 12 per cent. Under the current superannuation settings, a woman with average earnings who currently is 30 years old and retires aged 67 years can be expected to have a replacement rate of 70.4 per cent. Taking into account the increase to 12 per cent, the same woman’s replacement rate would be 75.9 per cent. The replacement rate compares an individual’s spending power after retirement with that before retirement.
Unlike the returns on most other taxable savings, savings invested in superannuation are generally not taxed according to the individual investors' personal tax rates; they are taxed at 15 per cent. Benefits from a taxed superannuation fund are paid tax free from age 60 years. Superannuation contributions and earnings are generally concessionally taxed.
The value of superannuation tax concessions provided to contributions and earnings is estimated to be around $AUD27.6 billion in 2010-11, increasing to over $AUD37 billion in 2013-14.
The Superannuation Guarantee (Administration) Act 1992 may be accessed at
http://www.comlaw.gov.au/comlaw/management.nsf/lookupindexpagesbyid/IP200401299?OpenDocument
Third pillar - Voluntary savings
The third pillar is supported by taxation concessions for voluntary savings. People have many options for voluntary saving including interest-bearing deposits, shares and other equity instruments, owner occupied housing, investment property, their own business and superannuation. Most household savings in Australia is concentrated in property and superannuation – both of which are concessionally taxed (e.g. exempt or lightly taxed).Individuals are encouraged through various incentives to make voluntary savings to superannuation to supplement mandatory Superannuation Guarantee contributions in order to achieve their specific retirement income objectives. This is particularly relevant to groups that may not benefit or fully benefit from the Superannuation Guarantee, such as the self employed, people with broken working patterns (including many women), mature workers and those with higher retirement income expectations.