The basic structure of Australia’s pension system, with its focus on poverty alleviation, indexation to community living standards and prices, and means testing, is sound, according to this report.

However the system faces challenges in both the short and long term and reforms are needed:

• Pension rates do not fully recognise the costs faced by single pensioners living alone and the
approach of paying ad hoc bonuses does not provide financial security. Additionally many pensioners
who rent privately have high costs and poor outcomes.

• Indexation arrangements for pensions need to more transparently link pensions to community living
standards and better respond to the price changes experienced by pensioners.

• Complexity needs to be reduced as it can undermine the financial security of pensioners, and inhibits
the flexible delivery of payments.

• Services are an essential complement to the pension system and can respond to the diversity of needs
in ways an income support system cannot. However, they need considerable review and reform to
more effectively and sustainably perform this role.

• Workforce participation by pensioners over Age Pension age should be better supported while a
stronger participation focus is needed for those of working age.

• In the face of demographic change long term sustainability is critical. The situation of pensioners with
low to moderate reliance on the pension is different to those who are wholly reliant on the pension,
and there is scope for targeting any increases to those who need it.

• An increase in the Age Pension age needs to be considered as a response to the rapid increases in the
life expectancy of Australians and the growing duration of retirement.