Retirement review needs to capture member’s entire life

The Retirement Income Review should undertake modelling from an individual member’s perspective over a lifetime to fully capture a member’s interaction with the system, according to PwC.

In a submission to the review, PwC said the model needed to allow for a proportion of taxes paid to be treated as a “contribution” to the retirement incomes system and should also examine cohorts to examine potential intergenerational inequities.

“Much of the current modelling conducted measures the impact on Government finances separately to the outcomes an individual is likely to achieve,” it said.

PwC said this could lead to sub-optimal policy decisions as it did not measure the relative efficiency of saving in retirement in advance (through the superannuation guarantee (SG)) versus contributing on a Pay As You Go (PAYG) basis (through the Age Pension).

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“Comparison of the Net Present Value (NPV) of payments in, against benefits received would allow for an improved public debate and could measure:

• The relative efficiency of the use of the Age Pension or SG to provide retirement income
• Equity considerations, including:

• Intergenerational equity
• Socio-economic equity
• The appropriateness of public support.”

The submission noted that the panel needed to consider gender, marital status, longevity, health and aged care costs, and accommodation costs (for non-homeowners) when assessing the adequacy of the retirement income system.

“We encourage the Panel to also consider when assessing adequacy:

• Retirement age – most of the modelling produced by Treasury and other commentators has historically assumed a retirement age of 67 even though the majority of retirees will cease work prior to pension age. We encourage the Panel to consider different groups of retirees who will likely retire before, at or after the pension eligibility age.
• Longevity – most modelling of adequacy assumes retirees live until life expectancy, and often drawdowns are optimised to extinguish assets at life expectancy. When considering adequacy, we encourage the Panel to explore cohorts of members who will die before and after their estimated life expectancy.
• Aboriginal and Torres-strait islanders – face unique challenges in retirement and deserve consideration in the measurement of adequacy,” the submission said.