Pension reforms must look beyond cost cutting

Lower government spending on the Aged Pension does not necessarily mean retirees are better off, according to the CPA. Richard Webb, CPA Australia superannuation lead, said Australia risks focusing too heavily on reducing Age Pension costs rather than ensuring retirees enjoy adequate retirement incomes.

Webb said comments from Treasurer Jim Chalmers at the Super Members Council (SMC) Super Summit on Wednesday, 9 September, highlighting Australia’s projected decline in pension spending compared with other developed economies, overlooks a fundamental difference between retirement systems.

The Treasurer said new Treasury projections indicate the number of Australians over Age Pension age will almost double to around nine million by 2066, but the Intergenerational Report analysis shows the share of older Australians receiving a pension or income support payment is expected to fall, from 66 per cent last year to 52 per cent by 2066.

“The real test of a retirement system is whether it delivers dignity, security and adequate incomes in retirement,” Webb said.

Webb noted that New Zealand’s recent proposal to increase KiwiSaver contributions to 12 per cent, matching Australia’s Superannuation Guarantee, highlights the different paths being taken by the two countries. New Zealand is moving towards the same compulsory savings rate as Australia, but its pension system operates very differently.

Unlike Australia, New Zealand does not subject most retirees to complex means testing before they can access the state pension. Webb said universal access to NZ Super (the Age Pension equivalent) provides retirees with greater certainty when planning for retirement.

“In Australia, retirees can spend decades building their superannuation balances only to face a complex interaction between superannuation, income tests and asset tests when they retire. By contrast, New Zealand retirees have greater confidence about the level of government support they’ll receive alongside their retirement savings,” he said.

Webb cautioned that policy makers should be careful not to frame falling Age Pension expenditure as the primary objective of retirement policy. A sustainable budget is important, but retirement policy should be judged on whether it provides adequate incomes and financial security for older Australians.

“The objective shouldn’t simply be reducing pension spending. It should be ensuring Australians can retire with confidence and maintain their standard of living.”

As Australia has built one of the world’s largest super systems, the next phase of reform should focus on improving retirement outcomes rather than solely reducing future government liabilities. Webb said, “We have done a remarkable job building retirement savings. The next challenge is making sure Australians can turn those savings into secure and reliable retirement incomes,”

He added that New Zealand’s approach is a reminder that retirement adequacy comes from the combination of private savings and a predictable public pension, not from either one in isolation.