This paper argues that Australia's current retirement income system is inadequate for meeting the longevity challenge, does not allow people to sufficiently manage longevity risk, and promotes financial inequality.
Out of the myriad of issues that relate to increased life expectancy and ageing, money looms large. Will people have sufficient private savings to stretch across longer lives? Will governments be able to pay for rising health and welfare expenditure? The prevailing feeling is of uncertainty, not least because people recognise that they are likely to live longer, but also because they don’t have a gauge of just how long tha t is likely to be.
This report is concerned with incomes in later life and securing a minimum baseline standard of living for people in that phase. It stems from a normative position that all people in our society are entitled to a good quality of life across longer lives, with a minimum income that keeps them out of poverty.
Australians are living much longer than either they or the policy-makers ever contemplated. Not a couple of years longer, but whole decades longer. Private savings and public benefits have to stretch further.
For some Australians the prospect of longer lives won’t matter too much. They will float along into retirement as if nothing much changed; their lives will look much the same as they did before. In fact, from their vantage point things look very good indeed.
For a whole other group of Australians, the changing conditions are keenly felt. Although the social compact promised them a decent standard of living across their lives, things just didn’t work out that way.
This class of Australians is the most financially vulnerable in later years. They are the women who have had children, carers, the long-term unemployed and those who are in part-time, casual or contract work. Their income has been patchy and, when they are earning, it is often below the average wage, meaning that their superannuation payments are sporadic and low. At various times during their lives they have been paid no superannuation at all. They are the people who are more likely to have rented property rather than being homeowners and, while they would have liked to have worked into their 60s or later, they struggle to retain or find work.
Unsurprisingly, the amount of superannuation savings which this section of society retires on is not enough to provide an adequate standard of living. Even when you take into consideration that the superannuation system will mature and private savings will accrue across whole working lives, the nature of their circumstances during working life prevents them from saving enough.
The result of inadequate private savings is a lower standard of living. But what does this mean in human terms, in the experience of everyday life? It means putting on the heater for only an hour a day in the middle of winter. It means saying no to the invitation to go out for dinner, or to see a film. It means only buying meat or fish once a month. It means putting off that doctor’s appointment, again.
This paper argues that the current retirement income system is inadequate to meet the longevity challenge. It does not allow people to sufficiently manage longevity risk and it promotes financial inequality. It is manifestly unfair that people who do not need public money should receive it, through either the age pension or superannuation tax concessions, when others who are more needy are struggling.
So, what of it? What does it matter that certain people have less in retirement, when these are the same people who are most likely to have had less all their lives? It matters because our retirement income system was established so that all Australians would have enough for a modest standard of living in retirement.
It matters that the system is not fulfilling its aims. A second reason, which informs the former, is that there is a moral basis for saying that vulnerable people should be able to live their later years with a decent standard of living. This is a question of ensuring that all people age with dignity.