Finance Industry calls for retirement changes

Prime Minister Tony Abbott is prioritising getting the budget out of deficit over other promises. AAP/Alan Porritt

Prime minister Tony Abbott has said pensioners will be better off because they will lose the carbon tax while keeping the compensation for it, as expectations rise of budget changes to put the pension system on a more long term sustainable basis.

Abbott told a news conference the government would keep its election commitments – which included no change to pensions - but he stressed one of the “most fundamental” commitments was to get the budget back under control and on the path to a sustainable surplus.

Treasurer Joe Hockey has flagged the possibility of moving the pension age to 70 in the very long term and overhauling indexation and asset tests arrangements.

The Financial Services Council (FSC) today urged an extensive overhaul of Australia’s retirement system including increasing the age at which people can access their superannuation to 65 and tightening eligibility to the aged pension.

The council said the age of retirement should be linked to life expectancy through a formal process guided by the government Actuary. Early access arrangements for superannuation should be available for those unable to work to a higher preservation age.

Asked specifically about the “no change to pensions” pre-election promise Abbott said: “We will keep our commitments and we will do the right thing by the people of Australia. That certainly means looking after the vulnerable, but it does also mean getting the budget back on a path to sustainable surplus”.

The Coalition decided before the election to keep the carbon compensation even when the tax was scrapped. So far, it has not been able to get the repeal through, but hopes to do so quickly after the new Senate starts on July 1.

FSC chief executive John Brogden said that a sustainable superannuation system went hand in hand with a sustainable aged pension system.

“Accessing superannuation at 60 when the pension is available at 67 [by 2023] encourages the wrong type of behaviour. Superannuation and the age pension should work together to provide an adequate retirement for Australians,” he said.

Brogden said the age pension could not be sustained in its current form. “When a couple who own their family home, have one million dollars in assets and an annual income of $60,000 are eligible to receive a part pension, it is appropriate to question whether or not this is the right way to spend taxpayers’ money.”

Brogden said the age pension needed to be linked to life expectancy.

He said that lifting the superannuation preservation age to at least 65 would improve public finances. More retirees would be self funded and the number of people on the pension would reduce.

Research for the FSC by the National Centre for Economic Modelling (NATSEM) showed that in 2013-14 Australia’s superannuation system saved the government $5.7 billion in age pension costs. These savings would increase to $11.1 billion by 2030.

The council is also urging the use of life insurance to curb costs in the disability area. It says the government could save $8.5 billion by partly privatising disability insurance - treating it in a similar way to private health insurance.

The council represents retail and wholesale funds management businesses, superannuation funds, life insurers and financial advisory networks.