Video: Industry experts respond to the Retirement Income Review

Tracey Spicer

Well today we’re going to talk about the Retirement Income Review and we’re joined by one of my favourite people on Twitter. I have to admit, Stephen Koukoulas, Managing Director of Market Economics. Hi, Stephen.

Stephen Koukoulas

Good morning. How are you, Tracey?

Tracey Spicer

I’m really well. What does the review mean for any future potential rises in the superannuation guarantee?

Stephen Koukoulas

Well, it’s putting future rises at risk. Now they’ve come out with an analysis on superannuation policy. They haven’t put in firm recommendations that will automatically be taken up by the government.

There is a consultation process going on right now. And so we’ll wait and see whether the government actually embraces them. But, it does come up with ammunition, if you like, for the government who is dead against superannuation to pare back or postpone the currently legislated increases in the superannuation payment.

And the saying that there is a trade off between wage increases and superannuation increases. They are saying that there is a significant cost to the budget, because, of course, if wages don’t go up as much, there’s less income tax going to the government.

So there are a couple of excuses that they’re using. A different analysis suggests that they are not the be all and end all of analysis of superannuation because the cost of the budget is being at least partly, if not fully offset by accumulation in our superannuation balances.

And there’s no hard evidence that the superannuation guarantee rise over recent decades has coincided with weaker wages growth. In fact, on the contrary, the current period of very weak wages growth has occurred and there’s been no increases in the superannuation guarantee charge.

Tracey Spicer

Let’s dig a bit deeper on that, because both the Reserve Bank governor and the Grattan Institute say there is a trade off between a person’s present wages and the superannuation guarantee. Are they both just plain wrong in your eyes?

Stephen Koukoulas

They are selectively looking at data. I think that’s that’s the problem when it comes to the superannuation guarantee charge. And it is a very, very complex issue.

I think that what they are perhaps overlooking or perhaps deemphasising, they’re focusing on just the super increase versus wage increases, is that there are many issues that drive wages growth. It’s not just the superannuation guarantee of course. It is the skill set of our workforce that’s important for determining what wages.

We are even hearing now when we’ve got very large numbers of unemployed, we’ve got skills shortages in Australia. Gosh, who would have thought that? It’s because that we perhaps don’t have the skill set of our workforce, that those people are unemployed, don’t have the skill set or the wherewithal to go and do this work that some employers are saying they’re finding difficulty attracting the workers. That’s part of the issue.

We also know that a strong economy is very important for wage increases. And this last decade or so when we’ve had wages lucky to be increasing at 2% per annum, has coincided with what has been a sluggish economy. That from the global financial crisis 10, 11, 12 years ago now through to the onset of the COVID-19 recession, which we are slowly getting out of right now, has meant that there’s been not a lot of ability of workers to get pay increases.

And then, of course, there’s this other issue, which I think Grattan and the RBA governor are overlooking is the rapid move to the gig economy, that we’re seeing a lot of workers undertaking little bits of work here and there. They don’t have that old fashioned, if you like, 40 hours a week with sick leave and these sorts of things. So they’re doing, this gig economy work. And that, in fact, is undermining their terms and conditions of employment, including the pay rates and including the superannuation that they receive.

Tracey Spicer

You mentioned the sluggish economy just then. Is a rise in the superannuation guarantee affordable during these tough economic times, particularly for business and especially for small business.

Stephen Koukoulas

Look, I think it is we’ve got to sort of disaggregate what is still only going to be a temporary hit to our economy. The COVID recession will end soon. I don’t know exactly when and I don’t know quite the circumstances. But it’s not a permanent problem with our economy. It might be a year. It may even be two years. I’ll be pessimistic and say the last two years, but we will recover. The economy will recover from this COVID-19. And already we’re hearing Qantas is gearing up for 100% of their pre-COVID domestic capacity by early next year. So we’re going to be having lots of domestic tourism as an example of how our economy is recovering.

Superannuation is a long run structural issue. So are we going to hit superannuation on the head to fix a two year economic problem? That superannuation is about young people now entering the workforce and so that when they hit retirement age at the age of 65 or 67 or whatever it’s going to be, when they do retire having a decent retirement income so that they can live in reasonable comfort over that time.

If you start chipping away at superannuation now you have a problem in 30 and 40 and 50 years time, you may have that Band-Aid solution to the economy now, but I prefer to think that you can use fiscal policy job, JobKeeper, JobSeeker payments, infrastructure spending to fix the economy, now. Let super increase, because that’s going to be still an absolutely essential part of our ageing population, which, of course, is the dominant issue behind superannuation.

Tracey Spicer

Of course, the review didn’t only look at superannuation, it also looked at things like pensioners homes. And the review said there could be a cap on the value of pensioners homes above the median price to, ‘reduce inequitable outcomes’. How likely is any government to do this, given the expected electoral backlash?

Stephen Koukoulas

You summed it up perfectly. The electoral backlash makes it just about impossible to include the family home. With my strict economists cap on for a moment. It is absolutely essential that we do include the family home because we do know of many examples of the what we call the asset rich, income poor retirees.

They may have bought their house 50 years ago for twenty five thousand dollars and it’s now worth a million and a half or in some cases even more so. But nonetheless, they don’t have a lot of assets to give them an income.

So in a sense, there’s this discussion in the paper that was released on super and retirement incomes that says, well, perhaps people should be withdrawing cash from your house. So how do you do that? Of course, is the big question. There are things like reverse mortgages that people can withdraw a little bit of money out of the value of their house. And so when they pass away, whatever debt has been accumulated is taken out of the estate.

So for the beneficiaries of the estate, they may not be quite so happy, but it actually gives the older person some dignity and some financial security in retirement. So that’s one thing that can happen.

There’s also a bit of discussion about whether we have the Age Pension, like HECS, you know, the higher education contribution scheme, where if you get a pension over and above the basic pension that’s being paid, again you accumulate that and after certain thresholds and means testing of course.

That is paid out of the estate when you pass away. So there’s things that you can do to sort of free up that wealth that so many retirees have in their house. But they can’t at this stage easily access it to give them a decent income in their retirement.

Politically. Oh, gosh, I don’t think either side would touch it with a barge pole, unfortunately.

Tracey Spicer

Stephen Koukoulas, thank you so much for your insights.

Stephen Koukoulas

Thank you.

Tracey Spicer

The Retirement Income Review covers three pillars the Age Pension, compulsory superannuation and voluntary saving. Brendan Coates from the Grattan Institute joins us now to unpack it all. And I’m glad you’re doing that, Brendan, because it’s a rather huge document. What should most Australians take away from this review?

Brendan Coates

Thanks for having me. It is a very big document. 650 odd pages. I think what most Australians should take away from the review is that, you know, the retirement income system is working pretty well for most people. So you look at retirees today and they have as good a living standard in retirement as what they had while they were working, they are under less financial stress than younger Australians. And so the system as a whole is working pretty well, except if you’re a renter. And I think that’s something we can talk about.

When we look at that, thinking about what’s going to happen to retirees in future. The modelling the review has done and the modelling is very comprehensive. So these things always depend on the assumptions. And what they have done is they have tested every single assumption. And how it might vary if you tweak this number or that number in a way that I think we haven’t seen in Australia before. I think that’s really worthwhile.

What it shows is that the average Australian is on track to have as good if not, a probably in most cases, a better living standard in retirement than what they had while they were working. So the benchmark we tend to use, or at least in the reviews case they’re using, is have you got a post-tax income of 65-75% in retirement of what you had while you’re working.

And on the whole, people are higher than that. So your typical single workers is at 88%, the typical couple is 82%. So they’re saving more probably in fact than they may well need to sort of be as well off, which is the point of the system.

Tracey Spicer

That’s a lot of good news there. Let’s dig a bit deeper, because often the devil’s in the detail. One of the controversial areas is the legislative rise in the superannuation guarantee. Labor Treasury spokesman Jim Chalmers said the argument that freezing super would boost wage growth, ‘does not stand up to scrutiny given wages were historically stagnant after the last time this government froze the super guarantee’. Is he correct?

Brendan Coates

Look no we don’t think so. I think we now have very good evidence from a number of sources. From the Reserve Bank, from Grattan’s own research of 80,000 enterprise bargaining agreements over the last three decades, research that was commissioned by the review from researchers at ANU.

So again, all three cases, independent, not linked to the industry at all, have found that when super rises, then wages growth grows more slowly. Think of it this way. In the current environment, firms are not giving very large pay rises.

They weren’t in the five or six years leading up to COVID. And the argument that says you’re going to get this as an extra amount of money is to say your firm, your employee that was not willing to give you a pay rise is all of a sudden going to give you the extra the SG 0.5% each year and give you the same pay rises that were going to give you previously.

Now, why would a firm do that? That’s the the key point here is the mechanism doesn’t guarantee in any way that you get that pay rise. And the evidence is certainly in our case, every time super has gone up, 80% of it’s come at the cost of wages growth within two to three years, the long term impact tends to be closer to 100%. That’s what the international literature shows. So, look, I think this is one where the ALP wants the increase to go ahead and wants to argue that it won’t come from wages. But I think the evidence is on the other side of the bargain.

Tracey Spicer

What about another aspect of superannuation? Should the government curb Australia’s generous superannuation tax breaks?

Brendan Coates

Yes, we do think that that is an issue that is being brought back into the public debate by the review. These tax concessions, depending on how you measure them as costing the government something like $30 billion to $35 billion a year. The majority of the benefits are going to roughly the top 20% of income earners. And they are the reason why the system is less sustainable than it should be, so the cost of those tax concessions is expected to exceed Age Pension costs by about 2050.

It’s why the fact that when you increase compulsory super, you actually don’t save the government any money. It actually costs the government money out for about another 40 years. So those tax concessions don’t look like they are consistent with the purposes of super, which is to provide income in retirement to supplement or substitute for the Age Pension, because most of the money is going to those that will never get the Age Pension at all. And so you should curb them.

The most obvious way to do that, the simplest way would be to cap the amount of money that people can have in superannuation, a tax preferred super environment to stop people getting $5 million, $10 million in their super accounts. But you probably need to go beyond that. You probably need to look at the tax-free status of most super earnings in retirement. It is incredibly generous and probably out of step with the kind of COVID budgetary situation we find ourselves in.

So if you were thinking about where do you start to fix the budget situation, post-COVID, super tax breaks are probably just about the first thing up against the wall. Cutting those back wouldn’t hurt the economy very much. It would save a lot of money, particularly in the long run. And those tax breaks, they look like they are skewed towards high income earners in a way that probably isn’t consistent with the purposes of super.

Tracey Spicer

Speaking about that kind of skew, Treasurer Josh Frydenberg says the family home won’t be means tested for the Age Pension assets test. Does this unfairly benefit wealthy retirees?

Brendan Coates

Look, if you’re going to have a means test for the pension as we do, then it should include all the assets in it. At the moment, we kind of have it the wrong way around. Effectively, the first $200,000 is included in the assets test because you had this difference between the asset free areas, the pensioners who own their own home and those that don’t. And that means the person who has a $3 million house in Toorak the same share of their home is included in the assets test as like my grandad in Bendigo. That doesn’t seem particularly fair or equitable.

Look, it’s a very hard reform to introduce because it would be very politically controversial. But it’s probably something that we will need to do in time because the pension, as home values rise, the pension is less well targeted to those that really need it. And it’s increasingly unfair as there is a growing divide between the housing haves and have nots.

Home ownership is falling, so home ownership amongst older Australians is expected to fall pretty dramatically over the next couple of decades, few decades. Because younger generations, people in their 30s and 40s, a growing number don’t own their own their homes at all. And so by about 2050, we expect something like only two in three older Australians to own their own homes, down from about 80+% today.

Tracey Spicer

So what does the future look like for retirees who rent?

Brendan Coates

Well, this is I think the thing that the review has really exposed, is that if you rent in retirement, you are in deep trouble, if you’re a pensioner. So the pension is broadly set at the level that stops people from being in poverty in retirement. Rates of financial stress are low amongst pensioners. It’s not an extravagant lifestyle by any stretch, but they’re getting by reasonably well relative to the rest of the population.

But if you’re renting, your rates of financial stress and poverty are incredibly high, and it’s because rent assistance, the supplement to the pension that is paid alongside the pension to renters has only risen by inflation for the last 20 years and rents have risen faster. So that’s eroded the value of the payment to the point where the typical pensioner in a major city, if they’re a renter, will struggle to afford housing and have enough left over for the other essentials in life. And this problem is going to get worse.

So the review didn’t say what should be done, but there’s a couple of broad ways you could do it. I think the most obvious way, it needs to be a substantial boost in rent assistance payments. There’s very little evidence that will actually be priced into higher rents. It’s much more likely to flow through to the individual as higher income, that then they can choose to spend on lots of different things.

But raising it by 40%, which we think is the bare minimum, would cost you  $1.7 billion across all Australians, or about 400 million for older Australians. It’s obviously a lot of money, but it’s something that we’re going to have to do. Otherwise this problem is going to get a lot worse.

Tracey Spicer

Thanks so much, Brendan Coates from the Grattan Institute.

Brendan Coates

Thank you.

Tracey Spicer

Now to talk about some of the insights from the Retirement Income Review, we’re joined by Andrew Boal, CEO of Rice Warner. Andrew, what does the review tell us about the future of the legislated increase of the superannuation guarantee?

Andrew Boal

Back to the superannuation guarantee. We’ve talked about it for a long time, and one of the things this is a great report to bring out some facts, to educate everybody about what we’re talking about.

One of the key things that came through that was highlighted by the review was the relevance of CPI versus wages indexation on future increases in payments to retirees. And that’s a critical assumption that most of the industry has assumed that people would want to maintain their standard of living through retirement at community standards of living, which means that you would increase their payments to you with wages.

But Grattan and others, including this review, has been concentrating more on CPI adjustments. And so that’s a really critical assumption if you’re looking at CPI adjustments. And Grattan and others would argue that 9.5% or 10% is enough. If you’re looking at wages, then you’re more likely the 12% will be required. And that’s a critical assumption. I think we’ve got to do some more research to show what do people in retirement actually spend in retirement, and how much do their payments or how much they spend each year? How does that change from year to year?

Tracey Spicer

That’s interesting. The review also seems to indicate that a more efficient use of savings perhaps would be better than a rise in the super guarantee. What are your thoughts on that?

Andrew Boal

Well, it’s well known for some time that people are dying, leaving large bequests, and that’s an inefficient use of retirement money. The best way to improve the efficiency of people spending in retirement is to have an annuity or some form of guaranteed income at the back end of life. And that way they can have more confidence about spending their money in the early part of retirement, especially in the early years when they’re healthier.

At the moment when somebody retires at 67, they don’t know how long they’re going to live for.

And so they spend conservatively to ensure they have something to last to the very end, which if we can secure that last piece with some form of insurance called an annuity, then they’ll give them the confidence to spend. I’ve got 15 years between now and then I can spend the rest between now and then, and it gives them much more confidence.

Tracey Spicer

And what about mechanisms like reverse mortgages?

Andrew Boal

Home equity is the other area that we haven’t tapped. There’s, apart from reverse mortgages there’s also the government Pension Loans Scheme. And that was boosted last year from 1 July 2019 so that a retiree can actually access up to 150% of the Age Pension, using the extra amount is going off as a deficit against their home equity.

The same thing, very similar to a reverse mortgage. And in that situation, if a couple was entitled to the full Age Pension, they’d be entitled to about $37,000 a year of income. And from 1 July last year, if they wanted and owned their own home, they can actually take it up to $55,000 a year, with the excess being used as a credit or debit against their home equity.

Tracey Spicer

This is quite a weighty review, some 600 pages. How will that create change when there were actually no recommendations contained within it?

Andrew Boal

Well, it’s a great education document and a great place to go to for ideas about what to do. So I think you’ve already hit on a few of them. Home equity was one that they did focus a lot of attention on, the level of the superannuation guarantee.

Another one was around tax concessions and what that, an area that they might focus on there. And they showed that the tax concessions did go quite weightily towards the top 20% of income earners. And that one way to get around that might be to introduce a tax on investment earnings, particularly in the post retirement period. That would have a mutual effect that if we’ve got a 15% tax on investment income pre-retirement, if we also introduced a 15% tax on investment income post-retirement, it simplifies the system to a large extent. It gets rid of a lot of the capital gains tax issues that go through the pre and post retirement period, and so there are a few ideas like that. For those that have been in industry for as long as I have, you can find those little snippets quite easily about what they’re trying to get to.

Tracey Spicer

It sounds like an interesting idea for industry but would a government ever be bold enough to do something like that and risk the electoral backlash?

Andrew Boal

Look, I think part of the issues around what you’re doing in this area has to be solved, and I think that’s a political lesson to be heeded from the last election. That if you’re going to make changes, you have to, people have to understand why? Now why is this needed and what will that fix?

And in this situation, I think it was obvious that the tax on investment earnings was mostly impacted wealthy retirees and it was, they were still getting something that’s quite beneficial but not as beneficial, I think it can be solved .

Tracey Spicer

Just while I’ve got you Rice Warner just released a report to the cost of running self managed super funds. What did it find?

Andrew Boal

Well, I think the self managed super fund industry has gone through quite a dramatic change over the last five plus years, but mostly the last five years. I think one of the things I did find is that they are quite cost effective, over $500,000.

And people say the self managed super funds at that level, they don’t have the same scale as an APRA regulated fund. But one thing you do forget is that you can acquire scale. And so what happened has happened in that industry is that the platform providers do have scale themselves.

They provide their service to the self managed super fund owners. And those platforms have really, really improved out of sight over the last five years. And so that’s really cost effective to the extent that a five hundred thousand dollars self managed super fund is about the same cost as an APRA regulated fund and you can even go down a little bit below that to get to still be quite competitive.

Tracey Spicer

Fascinating. Thanks so much for your analysis, Andrew Boal.

Andrew Boal

My pleasure. Good to see you.

Tracey Spicer

What does the Retirement Income Review mean for you? For some analysis, we’re joined by ACTU president Michelle O’Neil. Michelle, there’s been a lot of analysis and discussion on whether the federal government is going to scrap the legislated, increase in compulsory superannuation to 12%. What would this mean for workers if it was scrapped?

Michelle O’Neil

Well, Tracey, we’re really concerned about what the impact would be for working people if those increases that our due next July to start didn’t go ahead, because you have to remember that these have already been delayed for nearly eight years. So they due to actually be well done by now. We should have had a 12 per cent superannuation rate many years ago. But Tony Abbott throws it back seven years ago. And he promised at the time that, oh, well, we can’t afford to have your super go up, but workers would see this in their wages.

And then let’s just look at the facts about what happened. What has actually happened is we’ve had stagnant wages, the lowest wage growth in history in Australia at the same time as having superannuation frozen. So all that we are facing is workers not getting a super increase and not getting a wage increase.

Tracey Spicer

And yet both the Reserve Bank and the Grattan Institute, as well as the review itself, say unequivocally that such an increase in the super guarantee would mean lower growth in wages right now hurting workers. Why are you advocating for something that might potentially have the unintended consequence of hurting people when they need the money the most?

Michelle O’Neil

Well, firstly, I query a number of the ways that that analysis has been done. So, for example, I know the Grattan Institute was looking at was what was happening in enterprise bargaining. And what we know is that a shrinking number of workers are covered by enterprise bargaining in Australia. And if you look at what happened with those people on the minimum wage over that same period of time that I was just talking about, their increases did not go up. You didn’t get higher increases in the minimum wage while the superannuation has been frozen.

In fact, it’s been lower than what it was when super was going up. So I think you have to look at the models they’re using to make that assumption, but also the facts. And we know already that so many people are retiring with not enough in their super. And this is a real problem for women in particular. So the idea that you would somehow stop super going up now and not see or understand the very real consequence for poverty for many people in their old age, we think is very short sighted.

Tracey Spicer

It’s not just the Grattan Institute though. Broader research from the ANU, which was used by the review, found the workers bear at least 71%, in some cases more than 100% of the cost of higher compulsory super via lower growth in wages. Some critics are suggesting the ACTU’s position is purely ideological to align with the Labor Party. What’s your reaction to that?

Michelle O’Neil

Well, there’s in fact quite a few things that we have very clear differences with the Labor Party on this issue. But also what I would say is that our interest and who we represent is working people. So what we’re looking at is what’s in the best interest of workers today, but also really importantly and this is why we were some of the architects of the superannuation scheme, is that we were worried that people and we knew the reality was that people were retiring in poverty.

There was only a very few elite people that actually were surviving with enough money once they retired. And it was our world leading superannuation system that has turned that around. There’s more to be done and there’s more improvements. And our … example for women here. We should be having superannuation paid on everything that’s earned including things like when you’re on parental leave or maternity leave, we should get rid of that threshold where you don’t get super until you’ve earned $450 in a month because it’s women and low paid workers that are really suffering from that.

And today, if you’re a woman, you retire with half the amount of super that a man does. So to fix that, we need to look systemically about making sure that we have a fair system. We’re not opposed to making superannuation fairer. In fact, we’re champions of it. But cutting it, making it harder for the very people who need it, assuming that people are going to be able to do things like sell their family home as an option when they’re older, we do not think is about having a fair or equitable system that means people are going to live in dignity in their old age.

Tracey Spicer

A lot of people in low paid industries and women, as you mentioned before, end up with a situation where they’re renting. They don’t even have equity in their homes to be able to draw on when they retire. What does the review tell us about renters? Is there much in there for people in that demographic?

Michelle O’Neil

No, I don’t think it tells us much about that at all Tracey. And I think there is a sort of assumption about homeownership and inheritance here, which, of course, is, again, a shrinking number of people in Australia. We know that the highest rate of homelessness for people under the age of 55 is older women. We know fewer and fewer people are able to enter the home ownership market. And so we need to do something about housing and homelessness that we don’t think that the superannuation system, it’s a trade off here, that you need to deliver that.

We need to make sure that people have got secure housing and affordable housing. But we also need to make sure that they’ve got enough to live on. And it doesn’t make sense economically either, because we’ve seen a big improvement in productivity that hasn’t been shared with working people. The cost of that 0.5% increase for a retail worker next year, it’s going to be just over $4 a week. That’s a cup of coffee per week it’ll cost the employer to give that amount. But when that young person retires, they’re going to see $62,000 more in their superannuation when they retire for the cup of coffee per week for their employer.

So it actually is a very smart way of using money to ensure that we don’t have to pay more taxes in the long run because we’re going to have more and more people reliant on the Age Pension.

Tracey Spicer

Michelle O’Neil, thanks so much for your analysis today.

Michelle O’Neil

Thanks very much Tracey

Tracey Spicer

So what do finance experts think about the Retirement Income Review? David Orford is Managing Director of Optimum Pensions, which made two submissions to the review. David, were you satisfied with the results?

David Orford

Oh, look, I guess they haven’t made recommendations. They have covered a lot of ground and it’s all interesting stuff. So given full marks, they’ve covered the ground, they’ve listened to the industry and they’ve come up with some interesting findings. I think so, yes. Full marks.

Tracey Spicer

What are some of the positive side of the review, some of the negatives and what more should be done?

David Orford

There’s a lot more should be done. I don’t think there are too many bad things some people will say doesn’t favour my sector or so. But there’s a lot in equity release products, now they have not being popular in Australia. But, you know, I think there are more important things that we should be doing before we get to the equity release product. That should be a last resort – a big industry in the UK.

I think the good things are the understanding of longevity products. The greatest risk post retirement, the two. One is dying too early and dying with lots of assets. And they draw attention to that fact that with the account based pension, most people die with it still intact. And that’s that’s going to their beneficiaries, their children. What was never intended. That’s an unintended consequence. The super fund was set up for the member and their spouse, not for their descendants after they’re dead.

The second risk is living too long. And of course, that’s a great fear of Australians. You know, if you take an account based pension, the money you get, the income will decline in real terms a bit after your life expectation. So if you live too long, you run out of money and possibly live in a caravan in your daughter’s back yard and be fed food scraps. So it was good that they got onto that and mentioned that superannuation is not meant to be a wealth transfer mechanism.

Tracey Spicer

So what is your one key message to the government ongoing in this area, because none of us has a crystal ball?

David Orford

It’s interesting. I think the problem that industry has not picked up on lifetime income stream products is just inertia and fear. The government’s done its best. It’s come out with a CIPR product and the industry said we can’t do it, it’s too hard. Well, it’s not too hard. If they can administer an account based pension, they can do this.

So I’m not too sure what the government could do. But in other countries and there are four countries around the world where 80% of the population voluntarily take lifetime income streams. Two of those, the union movement got on board and said ‘we’re going to negotiate for an increase in their contributions and incidentally, we want to have lifetime income streams as the benefit’. In those countries the union movement was successful. They negotiated with the life insurers they got a good deal and then the rest of the population saw what they’re doing and said, we’ll have some of that, too.

Now, that would be nice if we had something like that in Australia. Just people understanding more about lifetime income streams that, if you take them out, you avoid the two risks. If you die too early, doesn’t matter you’re dead. If you live too long, you get paid an income.

So the survey, the Melbourne Business School’s done, it’s called Annuities Across International Retirement Context looks at a whole lot of countries. But some of the people in those countries understand the big risk is living too long and running out of money.

Tracey Spicer

David Orford thanks so much for your time and for explaining to us about lifetime income streams.

David Orford

Can I make one more point, Tracey?

Tracey Spicer

Yes sure.

David Orford

One of the interesting things that is in the review is that it says that if you leave the SG rate at 9.5%, and people take a longevity product, then they will have more income in retirement than if the superannuation guarantee remained at or was increased to 12% and they took the account based pension. So that just shows you the power of a lifetime income stream versus account based pension.

It basically provides 30% more income. And it does that because there’s no benefit to the children on somebody’s death. That money stays in the pool and provides the income for the long livers. It’s a good social system. That’s what the Age Pension is based on. We’re all in this pool, some die early, some live long. If you die early, doesn’t matter you can’t take it with you. If you live a long time, you need the income.

Our children will look after themselves. Standards of living have been increasing. They’ll have a better life than we will. So why should we leave money to them? We’ll leave them their houses  we don’t need to leave them our super. So I think that’s a really good understanding in the review that they’ve come to. And I guess it’s up to really the industry to try and take it on board. I think governments set the scene and that’s all governments are meant to do. It’s up to industry to take it forward.

Tracey Spicer

We’ll wait and see what they do, David Orford. Thanks so much for your time.

Tracey Spicer

Well, today we’re putting a gender lens on the Retirement Income Review that was released last week, and we’re joined by Sandra Buckley, CEO of Women in Super, which put in a submission to the review. Hi Sandra what’s in the review for women?

Sandra Buckley

Hello, Tracey, and thank you for doing this interview with me today. Well, look, we definitely welcome, obviously, the release of the Retirement Income Review report because it’s been a long time coming. I’ll start off by saying it’s great that it found that our superannuation system was effective, sound and sustainable. So we’re really pleased to note that because superannuation has done a lot for women in that we had two thirds of women before compulsory super with no super and now we have one third that has. So it’s great to see that they actually said that it has been an effective, sound and sustainable system.

But, one of the things that the report highlights is that persistent structural and systemic issues that the system has actually had in place since its beginning, that obviously has led to completely different outcomes for women vis a vis men.

And I think we all know that the system was created when the Australian worker was predominantly male rather than female. You’ve got so many more women working nowadays. So I think it’s fair to say that, you know, when the system was set up, it never really considered the unique working patterns of women. And women don’t work in the same way as men. They work more in a part time basis. They don’t have a full time permanent job lasting 40 years.

They don’t necessarily receive more and more income as time goes by because they’re not generally in the workforce for that 40 years to keep getting promoted. So they tend to move in and out of the workforce and do many different roles.

But, we are disappointed with some things in this. So as I said, we’re glad that it recognised that it is a sustainable system. But we’d like to in many ways, I sort of I guess I feel that what it has done is it’s put improving women’s retirement outcomes into the too hard basket again. And I think that’s really disappointing. And I think the women of Australia would certainly like something to be done to mend the system, to make it more user friendly I suppose if you’re female.

And, by saying that I think it’s put it into the too hard basket has been a couple of things they’ve highlighted which are very specific to women. So they’ve made comments along the lines of removing the $450 monthly threshold before super is payable. Or indeed, paying superannuation on paid parental leave will both make such a minor difference to women’s retirement outcomes.

And although that’s probably true on the whole grand scheme of things, the point is that one third of women retire with no superannuation, and that women are retiring on average with less than half the super of men. So we need to recognise that these are actually barriers or gaps in the system that prevent women from actually accumulating super.

So, no, it’s not going to mean that women are going to retire with what we would hope to see as an adequate retirement amount in their superannuation account. But if you’re not earning sufficient to actually get superannuation, then you obviously don’t get any superannuation. And I think we’ve had a discussion before Tracey where we talked about that $450 monthly threshold is particularly unique to women in the sense that many women work multiple jobs and you have to meet that criteria from one employer. So if you’re working multiple jobs at multiple employers, you don’t actually meet the $450 monthly threshold before super is paid. So you don’t get any superannuation.

And then the point about the paid parental leave and no superannuation currently being paid on the government paid parental leave scheme is that this is a very symbolic issue for me. It’s women who predominantly take paid parental leave and at the point at which they actually go on parental leave is the point at which their superannuation account balances start deviating from those of men. And I think that’s obvious as to why, because they then start that caring responsibility, they start doing part time jobs.

So I think to say that they simply just won’t add up and won’t achieve an adequate retirement balance for women just puts it into that too hard basket. We know they won’t give women the amount that they actually should have to retire in dignity, but it’s about much more than that. It’s about recognising that these actually lock women out of the system and that we need to do something about including women in the system and effectively reducing that one third of women that retire with no superannuation.

Tracey Spicer

Sandra the initial terms of reference of the review make no mention of women. So is this putting it in the too hard basket, ideological or inadvertent?

Sandra Buckley

Well, that was one of the points that we campaigned really, really hard on at the start when the terms of reference were introduced because women are retiring with less than half the superannuation of men. So if you suddenly remove that gender lens in looking at the retirement income system. Then you can come out with completely different outcomes and you effectively aren’t looking at why is it that women are not retiring and what is it that we might need to do going forward?

I mean, obviously, this report doesn’t make recommendations, and we knew that, which is a disappointment in itself, but the government made a great big issue around the fact that it was going to be evidence based. What we would say, how can it be evidence based if it effectively only looks at 50% of the population and excludes the other 50% because you cannot do cameos modelled on one working pattern. Women have very different working patterns to men.

And you need to look at both and you need to look at how their interactions with the system work. And indeed, it’s not just with superannuation. It’s obviously the Age Pension and the other voluntary parts of the system, too, that make up the third pillar.

So it’s looking at it overall and saying what is happening? Why is it happening and what evidence have we got to actually look at it? So I think if you remove that gender lens and you don’t include it, then you’re just doing a great disservice to the superannuation system as I said, because it was established in the early 90s when the workforce participation rates of women were very, very different to what they are today.

And we need to look at why it is that women are achieving the outcomes they are achieving and what we might need to do going forward to ensure that we don’t keep having this issue where we’ve got one third of women retiring with no superannuation.

Tracey Spicer

The review posited that a rise in the superannuation guarantee would come at a cost to real wages now. Wouldn’t that disadvantage women who already suffer because of the gender pay gap anyway?

Sandra Buckley

Do you mean the not having the rise in pay? Or do you mean not having a superannuation guarantee rise.

Tracey Spicer

Not having the superannuation guarantee rise?

Sandra Buckley

Yeah, absolutely. And I mean, the report made the point that the superannuation guarantee will actually, what were the words that they used, that it would deliver an intolerable equity gap between men and women. But the point is, we already have well, I believe if you’re retiring with less than half the super of your male colleague, that’s already an intolerable equity gap.

So to just simply say that it’s going to deliver the same, well, we know that if we increase the superannuation guarantee, we continue with that gender super gap, because obviously, if women receive more, men receive more. You know, we’re not saying that’s not going to be the case, but the point about this is if we increase the superannuation guarantee, as has been legislated, we actually enable women to retire with more superannuation than they currently do.

And the point about that is we have so many women at this point in time, as I said, retiring with no superannuation or retiring within a very short period of time, especially if their partner dies. They’re facing things like a retirement of poverty. And we need to start looking at why is that happening and what can we do to prevent it.

And one of the ways we can prevent that is the fact that we can actually increase as we’ve legislated the superannuation guarantee. We want women to retire with more superannuation, not less. And if we don’t increase the superannuation guarantee then women will continue retiring with the low balances that they are retiring with.

And I think it’s also really important to call out the fact that the majority of women that we see retiring with no superannuation or very small superannuation balances are actually those who are working in those critical jobs that we found out during COVID. They’re in those part-time casual, insecure work, whether it’s retail, hospitality, tourism. But they’re also women such as nurses and aged care workers who work under award agreements. And they will only ever get paid whatever the minimum is legislated.

So whether that’s the pay rate or whether that is the superannuation guarantee rate, they’re not in a position to bargain for more. They simply get what the minimum legislated rate is. So for many of these women, if they do get superannuation and do meet that $450 monthly threshold, they only get the basic minimum.

They’re not in a position like many of us who might get a couple of percent more indeed, like our politicians, our university lecturers, et cetera, who can get up to 15 percent superannuation. They don’t. They’re currently getting the 9.5%. So if we can constantly keep moving them up to 10 and et cetera all the way up to 12%. These women are absolutely going to come out with more superannuation at the end of the day.

Will we get rid of the gender super gap? No, but no one lever is going to get rid of the gender gap. We definitely need to look at doing multiple pulling, I guess, multiple policy levers to do that. No one thing is going to get rid of the gender super gap. And we need to have a I guess, a plan, a strategy in place to get rid of it. As I said, if we just change one thing, it doesn’t lead to reducing it or getting rid of it. We need to have a look at it overall.

And one thing the report did call out was the caring responsibilities. And this is really at the crux of why women retire with less super than men is the fact that they do carry the load when it comes to caring responsibility in Australia today, the majority of carers are women. And if you continue to have huge numbers of women taking time out of the workforce or reducing their capacity to work because they need to care. Whether that is for a child, whether it’s an elderly parent, whether it’s in fact an elderly in-law, which happens to, or a sick partner, it’s their superannuation balances and their income that’s taking a hit.

So we really need to think as a country about what we’re going to do for that. And that’s one of the things that I am pleased about in this report, is that so many times we have shied away from having that discussion in Australia about what do we do around caring responsibilities. I’m really pleased to actually see that it’s in there. And they made reference to the fact that other countries have introduced measures to overcome this.

These have to be intervention type measures. You can’t just simply say, well, we’ll do this little thing here on the side, which might be a little benefit. No, we actually need to have that strategy in place and these policy measures that back one another up that will hopefully, therefore lead to those women who take time out of the workforce, but are doing that unpaid work, as I call it, and really valuable unpaid work that is saving the economy a lot of money. But we don’t want them, as Liz Broderick said many years ago when she was the federal sex discrimination commissioner, if your reward for a lifetime of caring is a lifetime of poverty in retirement. And I don’t think that’s what we want to achieve for the next generation of women.

We currently have the current generation retiring into poverty and we see the fastest growing group of homeless is women 55 and over. And single older women are particularly at risk of homelessness. We need to do something about that before we see the exact same thing happening with the next generations coming through.

Tracey Spicer

Sandra Buckley, thanks so much for your time.

Sandra Buckley

Thank you, Tracey. Lovely to talk to you again.