Learning Center
Plans & pricing Sign in
Sign Out

Retirement incomes for vulnerable groups - Central Provident Fund


									 Retirement incomes for vulnerable groups - an
             Australian perspective

Paper presented to International Conference on Social Security,
Singapore, 14th and 15th July 2005.

Conference organised by Central Provident Fund, Singapore.

David Kalisch
Deputy Secretary (A/g)
Department of Family and Community Services (FaCS)

Retirement Policy Section
Seniors and Means Test Branch
Department of Family and Community Services (FaCS)

                                                         Page 1 of 36
Table of Contents

Executive Summary                                                        3

1. Introduction                                                          5

2. Australia’s Retirement Income System                                  6

3. Age Pension – an integral part of retirement income                   7

4. Superannuation Guarantee – a framework for people to save            11

5. Voluntary savings – other savings and investments                    15

6. Vulnerable groups – challenges                                       16

7. A flexible retirement benefits system                                19

8. Extra support for certain groups                                     21

9. Emerging challenges for retirement income systems                    23

10. The final element: responding to an ageing population               27

11. Conclusion                                                          30

Attachment A - Age Pension – more information                           31

Note: Dollar figures quoted are in Australian Dollars.

                                                               Page 2 of 36

The Department of Family and Community Services was asked to discuss
how defined contribution pension systems can support the retirement incomes
of “vulnerable groups”.

Australia’s three-pillar approach for retirement incomes provides an affordable
basis for generating retirement incomes while providing a minimum standard
of support for those unable to accumulate sufficient savings for themselves.

•   Age Pension provides a publicly funded minimum level of income in
    retirement, which is not based on past contributions or previous earnings
    and so provides a significant degree of protection for individuals at risk of
    not being able to accumulate significant savings for retirement.
•   Australia’s Superannuation Guarantee (SG), introduced in 1992, provides
    a framework through which people save, through employer contributions,
    for their retirement, based on their earnings from employment.
•   Retirement savings can be enhanced through voluntary superannuation
    saving and other forms of savings and investment, typically the most
    significant being the home.

Australia’s retirement income system supports individuals in a range of
employment circumstances which reduces the possibility of individuals being
unable to access superannuation benefits. Employers are required to make
SG contributions on behalf of all employees, whether full–time, part–time or
casual, with very limited exceptions. While the self-employed are not required
to make SG contributions, taxation incentives encourage them to make
voluntary contributions and many do so.

Australia’s retirement income system allows individuals to tailor their
retirement income arrangements to suit their circumstances, which can be
beneficial to individuals who have been unable to accumulate significant
superannuation through working life. For example:

•   there is some flexibility around the age at which people may begin to draw
    down their superannuation savings;
•   people may choose to continue working while drawing down their
•   people may choose to defer drawing on their superannuation while
    working (and so build further their superannuation savings);
•   people may claim an Age Pension while working; and/or
•   people may choose to defer claiming Age Pension (to receive a Pension
    Bonus lump sum when they claim).

                                                                      Page 3 of 36
The superannuation system provides specific support for groups at risk of not
accumulating retirement savings through:

•   support for low paid people to make additional voluntary superannuation
    contributions on their own behalf through a government superannuation
    co-contribution scheme;
•   encouragement for higher income partners to make superannuation
    contributions on behalf of a lower paid spouse (which usually helps the
    female partner build up superannuation savings in her own right); and
•   allowing a spouse, after divorce, to access their former partner’s
    superannuation benefits.

Much policy discussion in Australia has been about the steps needed to
ensure the economy can best manage the consequences of an ageing
population. There is growing recognition of the need to enhance workforce
participation and to enhance the productivity of the economy through a mix of
economic and social policy reforms.

A key vehicle for enhancing the retirement income circumstances of
vulnerable groups is maximising their workforce participation through their life
course so as to enhance their capacity to accumulate assets and to save for
their own retirement. Significant priority in recent years has been given to
reforms to increase workforce participation among groups with low workforce

Australia’s perspective is that protection of vulnerable groups can be achieved
through a blend of social and economic policies that help people become
financially stronger, a publicly funded Age Pension and a superannuation
system that is flexible in the way it can be accessed, both in terms of the way
people can contribute to their savings and in the way people can draw down
their benefits.

                                                                     Page 4 of 36
                             1. INTRODUCTION
The focus of the Conference is to consider the role of defined contribution
systems in pension reform. The Conference aims to explore ways in which
defined contribution retirement income systems could respond to the
demographic and labour market challenges many countries are facing. In this
context, the Australian Department of Family and Community Services was
asked to share the Australian experience in addressing the issue of coverage
for vulnerable groups, such as women, self-employed workers, and workers in
the informal sector.

Australia has a retirement income system comprising private superannuation
(which is mainly in the form of defined contribution pension schemes) backed
up by a comprehensive social support system (comprising income support
and services) that is continuing to evolve in response to changing social and
economic circumstances. Australia’s social support system provides means-
tested benefits aimed at poverty alleviation for those in need, regardless of
prior work history. Australian residents in need, have access to a full range of
working age and retirement benefits under the social support system and are
therefore protected against poverty.

Certain people may be at risk of having low levels of private resources and
savings for retirement including, for example, through disability, illness, caring
responsibilities, long term unemployment or after marriage breakdown. In
Australia this may be more likely for women, low-wage workers, and other
workers with irregular employment histories (although for some, these periods
may be transitory, rather than sustained, and others may be protected
because of access to a partner’s resources). For individuals and families in
these circumstances, Australia’s private superannuation arrangements can
provide additional savings support, access to a partner’s benefits after marital
separation or flexibility in the way superannuation savings can be
accumulated or accessed so as to best suit their individual circumstances.

This paper argues that policy solutions to enhance the retirement incomes of
individuals lie outside of, as well as within, the design of retirement income
systems. A broad mix of social and economic policy levers enhance
individuals’ and families’ financial well-being over their life course so as to
maximize their capacity to save for their retirement.

The Australian Government’s approach is to build a comprehensive and fully
integrated approach to the social policy needs of individuals, families and
communities across the life course. There is a strong emphasis on building
the capacity of people and communities to become more self-reliant across
the life course where possible and thereby preventing social disadvantage.
People who have are more self-reliant when they are of working age have a
stronger capacity for workforce participation, and therefore the capacity for
savings through superannuation and other means, leading to better incomes
in retirement.

                                                                       Page 5 of 36
Australia’s retirement income system is made up of three pillars that work
together, to provide retirement incomes for older Australians.

•    The first pillar is Age Pension. Introduced in 1909, it is a publicly funded,
     means tested payment that provides a modest but adequate income for
     people in need in retirement. It provides a flat-rate maximum level of
     payment, indexed to the Consumer Price Index and set to at least
     25 per cent of Male Total Average Weekly Earnings (MTAWE)1. The
     amount of pension payable to an individual is determined by the income
     they earn and assets they hold. Individuals with significant income and/or
     assets may receive a lower rate of pension than the maximum rate (or no
     pension). People in receipt of Age Pension have access to a range of
     non-cash benefits such as cheaper health care, medicines, car
     registration and utility charges.
•    The second pillar is compulsory employer superannuation contributions of
     9 per cent of earnings, under the Superannuation Guarantee (SG). SG
     commenced in 1992. It is an earnings-related scheme to generate
     retirement savings. Employers are required to make contributions in
     respect of their employees, with very few exceptions (mainly employees
     earning under $A450 per month2). Contributions are supported by
     taxation concessions. In the main, savings are accumulated through
     defined contribution schemes. Some defined benefit schemes still exist
     (mostly for government employees) but are being phased out.
•    The third pillar is voluntary superannuation under which employees are
     able to contribute superannuation savings over and above the 9 per cent
     SG (such savings are also supported by taxation concessions). While the
     self-employed are not covered by the SG, they are encouraged to make
     voluntary contributions through significant taxation concessions and over
     one third do so. In addition to superannuation, many individuals will
     accumulate other private savings and investments and for most, this
     comprises the purchase of the home.

These pillars work together to ensure a minimum level of protection for all
Australians. The compulsory and voluntary superannuation pillars provide a
retirement savings framework for those employed, while Age Pension
particularly provides protection for those who have been unable to accumulate
sufficient savings through superannuation. For many retired Australians, Age
Pension substantially provides, or supplements their income in retirement.
Australia’s retirement income system provides the choices, flexibility and
support that older Australians need now, and into the future.

  The maximum rate of pension paid to a single person is set to at least 25 per cent of MTAWE. For
each member of a couple, the pension rate is around 83 per cent of the rate payable to a single person.
  Earnings of $450 per month are equivalent to 12 per cent of Male Total Average Weekly Earnings.

                                                                                          Page 6 of 36
Age Pension will continue to supplement retirement incomes
Age Pension is expected to continue as a major source of income for many
Australians in the future, even though as SG arrangements mature, higher
superannuation balances will mean many will rely less on Age Pension
(because Age Pension payments are means tested).

Table 1 shows the projected impact of SG and other savings on the proportion
of people in receipt of Age or Service Pension, and whether they receive a
maximum rate of pension or a part rate of pension. Even with a mature
superannuation system, there will be a continued role for Age Pension,
particularly for those with lower levels of private savings.

Table 1: The age pension age population – now and in 2050
                                         2004               2050
Maximum rate Age Pension                     54%            33%
   Part rate Age Pension                     26%            42%
  No government pension                      20%            25%
             Total                       100%               100%
Source: Treasury projections and FaCS data

The Government spends about $21 billion annually providing Age Pension to
over 1.8 million recipients (which equates to 2.9 per cent of Australia’s Gross
Domestic Product (GDP)). Projected expenditure in 2041-42 is 4.6 per cent of
GDP. The projected increase of 1.7 per cent of GDP over this period is
relatively modest compared with most other OECD countries and the
Australian Government considers that increase will be affordable to the
budget (Intergenerational Report, 2002-03, p69).

                    RETIREMENT INCOME
Age Pension is funded from general government revenue. It is designed to
alleviate poverty and to supplement retirement incomes in a way that is
fiscally sustainable for Government now and into the future. It is targeted at
those most in need in retirement through income and assets tests (collectively
referred to as the means test).

Age Pension provides a flat-rate maximum level of payment and may be paid
at that level, or at a lesser, part-rate, depending on the level of a person’s
other income and assets. It provides pensioners who rely on Age Pension
with a modest but adequate income in retirement.

Adequacy of Age Pension is of major importance to the community, especially
for people relying on the payment as their sole source of income. A focus on

                                                                    Page 7 of 36
adequacy of Age Pension coupled with keeping the system affordable is of
ongoing concern to the government and policy makers.

Pension rates are not referenced to purchasing power but to a minimum
acceptable standard of the community (Flanagan, 2000, p18). Pension
indexation is the primary means of ensuring the adequacy of pensions.
Supplementary payments in the form of rent assistance, ‘add-on’ allowances
and pensioner concessions also contribute to adequacy of income for people
who rely on the pension as their main source of income.

Adequacy measures in place include indexation twice yearly to increases in
the cost of living as measured by the Consumer Price Index and to increases
in wages as measured by Male Total Average Weekly Earnings (MTAWE)
provided by the Australian Bureau of Statistics. (Generally speaking, male
wages are higher than female wages in Australia). Legislation ensures that
the maximum single rate of pension is set at, at least, 25 per cent of MTAWE.
This figure is generally seen to have struck a balance between adequacy of
benefits and cost to Government.

Unlike retirement incomes systems in many other countries, Age Pension is
not related to past earnings or contributions. Age Pension has an important
redistributive function for people who have not been able to accumulate
adequate retirement savings through superannuation schemes or other
means. This may include low-income earners and women with limited or
broken workforce participation (Dolan and Wallace-Green, 2004, p3).

The Age Pension means test is comprehensive and aims to provide
consistent treatment of people in similar circumstances. Means testing
adjusts the level of assistance to each person’s needs by allowing part-
payment of the pension at a rate that takes into account the other resources a
person has. Details of the income and assets test are at Attachment A. The
means test arrangements, which have broadly been in place since 1909,
significantly reduce Age Pension costs. They are expected to play a major
role in moderating the long term cost of Age Pension in the face of the ageing
of the Australian population.

Men qualify for Age Pension from age 65 and women from age 63 years (at
1 July 2005). The qualifying age for women was originally 60 but is
progressively increasing to age 65 by 2014.

While, as noted, Age Pension income and asset testing arrangements aim to
keep Age Pension affordable to the budget, they are generous and allow the
vast majority of retirees to access some pension at either the maximum or a
part rate. As at June 2004, 77 per cent of the Australian population over
qualifying age for Age Pension received a maximum or part-rate Age Pension
or a similar means-tested income support payment from the Department of
Veterans’ Affairs. Of the people receiving Age Pension, two thirds receive the
maximum rate of pension and one third receive a part rate (FaCS, 2004,
p214). It is important to note that new Age Pension claimants are coming on
to pension with more wealth than their predessessors. As at March 2005, only

                                                                   Page 8 of 36
52.6 per cent of new Age Pensioners (in receipt of age pension for less than
one year) are receiving pension at the maximum rate.

The lower qualifying age for women, coupled with a longer life expectancy,
means women make up a greater proportion of people receiving Age Pension
(59.4 per cent in June 2004). Women receiving Age Pension are less likely
than men to have accumulated income and assets for retirement and because
of their longer life expectancy, have to spread their wealth over a longer
retirement period. 65.5 per cent of women receiving Age Pension receive the
full-rate compared with 61.6 per cent of men (FaCS, 2004, p214).

Role of means testing in targeting Age Pension payments
All Australian income support payments are targeted to those in need via
means testing. A sophisticated system has developed over the years to
administer the means test to ensure the objectives of the system are being
met. This is achieved through applying a means test that embraces broad
concepts of income and assets (a key exception being that the family home is
not included in asset testing).

The amount of superannuation assets held by a person can impact on their
Age Pension either by way of their superannuation holdings being assessed
under the Age Pension assets test or by way of their income from
superannuation being assessed under the income test. This helps to ensure
that Age Pension payments continue to be targeted at those most in need,
and helps to keep Government outlays on Age Pension manageable.

Age Pension payments are based on the current needs of individuals. While
individuals commencing retirement with significant private income and/or
assets may initially qualify for no or limited Age Pension, they may be able to
qualify for more Age Pension later in retirement if they run down their wealth
during retirement.

The means test parameters are kept under constant review to ensure they are
meeting the requirements of the community for well-targeted income support.
Recent examples of major changes to the means test include:
• In 1998, income streams were reclassified on the basis of their
   characteristics for means test purposes, providing fairer and more
   consistent treatment. A full or partial assets test exemption applies to
   certain income streams. This is part of broader Government policy to
   provide incentives to encourage retirees to draw down on their assets in a
   steady and predictable manner in retirement.
• In 2000, relaxation of the pension income test occurred through a
   reduction in taper rates from 50 cents in the dollar to 40 cents in the
   dollar. Pensioners with private income now keep more of their pension.
• In 2002, changes occurred so that people who hold their assets in private
   trusts or private companies receive equal treatment under the means test
   to those customers who hold their assets directly.
• The range of income streams that qualify for taxation and social security
   concessions was broadened in 2004 to include market linked income
   streams. Also, the assets test exemption was reduced from 100 per cent

                                                                     Page 9 of 36
    to 50 per cent for certain income streams purchased after 20 September

Supplementing retirement incomes through pension concessions and
add-on allowances
Non-cash benefits and concessions available to pensioners improve the
spending capacity of elderly households. Pensioners may be eligible for a
range of additional benefits and allowances, depending on their

•   All pensioners, including those on a part-rate of pension, are automatically
    issued a Pensioner Concession Card (PCC) that entitles cardholders and
    their dependents to pharmaceuticals listed on the Pharmaceutical
    Benefits Scheme (PBS) at the subsidised rate (currently $4.60 per
    prescription). This is around 16 per cent of the amount charged for the
    general population for PBS medication.
•   State and Territory Governments provide a large range of other
    concessions with core concessions being reduced fares on public
    transport, reduced property and water rates, reduced energy bills and
    motor vehicle registration charges.
•   Pharmaceutical Allowance is paid to all pensioners to limit out of pocket
    expenses for medicines listed in the Pharmaceutical Benefits Scheme.
•   Pensioners receive a Utilities Allowance ($100 per year for singles, and
    $50 for each eligible member of a couple) to help pay for the cost of
    utilities such as gas and electricity.
•   Rent Assistance may be paid to pensioners who rent accommodation in
    the private rental market in recognition of the extra costs they face
    compared to home-owners. About 10 per cent of Age Pensioners receive
    Rent Assistance, which reflects the high level of home ownership among
    people of age pension age.
•   Telephone Allowance is paid to pensioners to assist with the cost of
    having a telephone.
•   Remote Area Allowance may be payable to pensioners living in remote
    areas. It assists with some of the higher costs associated with living in
    remote areas.

Support for retirees outside the Age Pension system
While nearly 80 per cent of retirees receive Age Pension (or an equivalent
service pension), a further 10 per cent (approximately) receive some support
in retirement from the social security system through the Commonwealth
Seniors Health Card (CSHC).

The CSHC was introduced in 1994 to support and encourage self-provision in
retirement for people of Age Pension age whose income or assets mean they
do not qualify for Age Pension. The CSHC is available to “self-funded” retirees
(that is, those who do not receive Age Pension) with income over the Age
Pension income test limits but up to $50,000 a year for single people and
$80,000 a year for couples (combined income). The CSHC is not asset

                                                                    Page 10 of 36
The CSHC allows cardholders (but not their dependants) to access the same
health and medical concessions that are available to people receiving Age
Pension, a $200 a year Seniors Concession Allowance, access to Telephone
Allowance and some concessional fares on long distance rail travel.

Meeting the health needs of pensioners
All Australians have access to free and/or heavily subsidised health care
through Medicare, which provides access to:

•   free treatment as a public (Medicare) patient in a public hospital; and
•   free or subsidised treatment by practitioners such as doctors, including
    specialists, participating optometrists or dentists (specified services only).

While taxpayers make contributions to the health care system, based on their
income level, through the Medicare levy (1.5 per cent of taxable income),
pensioners, and many other older Australians, pay no tax and are exempt
from the Medicare levy. Australians with adequate means are encouraged to
take up private health cover through a range of incentives.

Pensioners and CSHC holders receive extra assistance with health care
costs. They:

•   may be ‘bulk billed’ by Doctors (costs charged directly to Government);
•   have access to a Medicare Safety Net of 80 per cent of out-of-pocket
    costs for medical services provided out of hospital after a threshold of
    $306.90 per family or single per calendar year is reached (more generous
    than safety net for general population); and
•   pay $4.60 per prescription listed in the Pharmaceutical Benefits Scheme.

Superannuation Guarantee
Up until 1987, superannuation coverage was around 40 per cent and was
largely restricted to the public sector and some ‘white collar’ workers.
Superannuation Guarantee (SG) legislation was enacted to make
superannuation contributions mandatory and to increase superannuation

The SG legislation resulted in compulsory, concessionally taxed savings for
retirement through an employment-based system. This system commenced
in 1992 and is fully funded for the person who receives the benefit. SG
contributions progressed from 3 per cent of salary in 1992 to the maximum
level of 9 per cent of salary in 2003.

Superannuation funds are managed in the private sector. The funds operate
as trusts with a board of trustees. Each superannuation fund is required by

                                                                      Page 11 of 36
law to comply with the equal member and employer representative
requirements and is liable under both criminal and civil law to the fund
members (Flanagan, 2000, p49).

As at September 2004, there were 26.7 million superannuation accounts in
Australia (some people have multiple accounts), and 297,819 separate
superannuation funds, managing almost $648.9 billion in assets (APRA, 2004,

Compulsory superannuation is supported by a strong regulatory regime that
encourages and ensures very high levels of employer compliance and
superannuation coverage in respect of eligible employees. Employers who
comply with their SG requirements can claim the SG as a cost of business
and reduce their business taxation. Employers who fail to meet their
obligations to make superannuation contributions on behalf of their employees
are subject to the Superannuation Guarantee Charge (SGC) administered by
the Australian Taxation Office. The SGC is equivalent to the shortfall in
superannuation contributions plus interest and an administrative fee and is not
tax deductible.

SG covers close to 90 per cent of employees and applies to a comprehensive
income base with only limited exceptions. SG does not apply to:

•   workers who earn less than $450 a month, because the administrative
    complexity outweighs the benefits;
•   workers over age 70, as people of this age would normally be expected to
    draw down superannuation benefits;
•   part-time workers under the age of 18 (generally full-time students); and
•   self-employed people.

Superannuation coverage is very high
Australia’s superannuation system has resulted in significant increases in the
number of people who are accumulating savings for retirement, due to its
compulsory nature, and effective collection and compliance arrangements. A
broad coverage of employment circumstances beyond full time employment is
important in a labour market where people increasingly work in casual and
part time jobs, and helps to ensure protection for a broad range of people.

SG coverage is estimated to be high – around 90 per cent of all workers, 96
per cent of full-time employees and 77 per cent of part-time employees are

In respect of the exemption from the SG for employees earning under $A450
a month, many of these are likely to be young employees engaged in casual
jobs (ABS, 2001). In 2000, some 42 per cent of jobholders aged 15 to 24
years were self-identified as working in casual jobs and 80 per cent of these
worked less than 30 hours per week. Of self-identified individuals working in
casual jobs, 77 per cent of those aged 15 to 19 and around 35 per cent of
those aged 20 to 24 were still at school or undertaking full-time study (ABS,
2002). It is therefore expected that many of the casual employees not

                                                                    Page 12 of 36
covered by SG will, over time, begin to accumulate superannuation savings
under the SG system as they move into better-paid jobs.

Chart 1 shows the high level coverage under the superannuation system for
male and female employees by income level.

                                                                     By weekly
                                                                     August 2003

Australia’s retirement income system is still in a transitional phase as many
individuals have only accumulated superannuation savings for part of their
working lives, since 1992, and some of these savings were accumulated at a
lower rate (contributions started at 3 per cent in 1992 and increased gradually
until 2003 when they reached 9 per cent).

Protection of small superannuation balances
Member protection ensures that fees and charges applying to small
superannuation accounts (accounts with less than $1,000 invested) are not
more than the investment earnings of the account.

This measure commenced in 1995 and is of benefit to part-time, casual and
seasonal workers, particularly when their superannuation savings are first

Choice of superannuation fund
From 1 July 2005, new Super Choice legislation means that many Australian
employees will be able to choose which fund their SG contributions are paid

Allowing employees to choose the fund into which their contributions are paid
gives employees more choice and flexibility – and allows them to take their
own circumstances and risk preferences into account in making these
choices. It will also enhance competition within and between superannuation

                                                                   Page 13 of 36
funds, which should in turn lead to increased returns and put downward
pressure on fund administration charges.

Access to superannuation
Superannuation savings (compulsory and voluntary contributions) are taxed at
a concessional rate compared with other savings. The provision of taxation
concessions for superannuation is a significant cost to Government, estimated
by the Department of the Treasury to be around $12 billion in 2004-05
(Department of the Treasury, 2004, p8-9).

Because of the significant taxation concessions provided to superannuation,
the Government imposes restrictions on access to Superannuation
contributions. Preserved superannuation benefits cannot be withdrawn in
cash until a person has reached the ‘preservation age’ of 55 (which is set to
increase to age 60 for people born after July 1960. The 10 year transition
period for these changes will commence in 2014 and end in 2024). A person
can access superannuation savings earlier than preservation age in limited
circumstances in the case of severe financial hardship, on compassionate
grounds or when people who have lived temporarily in Australia are returning

On reaching preservation age, superannuation benefits can be taken as a
lump sum, an income stream or a combination of both. There are strong
concessions (through the taxation system and through means testing rules
applicable to Age Pension) for people to convert particularly large lump sums
into income streams that cannot be cashed out ahead of a term equal to
average life expectancy.

Chart 2 shows how superannuation balances are expected to grow over time
as the SG system matures, for different age cohorts. By 2030, when many
individuals will have accumulated significant SG savings, superannuation
balances will be more than double those observed in 2000. The estimates
assume future SG contributions are made at the 9 per cent rate.

Chart 2: Projected superannuation balances

                                   Projected superannuation balances by age,
                           $180   2000
 Superannuation balances

   1999 dollars ('000s)

                           $140   2020
                           $120   2030
                                  15-24     25-34       35-44       45-54      55-64
                                                      Age group

Source: NATSEM Projections in Kelly, 2003, p19

                                                                                       Page 14 of 36
The third pillar of the retirement income system - voluntary superannuation
contributions and other private savings and investments is also supported by
taxation concessions for voluntary superannuation similar to those provided
for compulsory superannuation.

Approximately 20 per cent of all employees with at least one superannuation
fund are making some form of voluntary personal contributions, and this
increases to over 25 per cent when evaluating the results for employees who
also receive employer support (Bingham, 2003, p8). The median voluntary
contribution is around 4 per cent of salary (Bingham, 2003, p13).

Voluntary superannuation contributions could be made by individuals wishing
to have more income in retirement than the SG and Age Pension can provide,
by individuals not covered by the SG or by individuals who wish to make up
for earlier periods out of the workforce when no contributions may have been
made (such as women returning to work after child rearing).

Around 276,500 people are self-employed (ABS, 2001, 1321.0). Around 35
per cent of these are estimated to make voluntary superannuation
contributions (ASFA, 2002, p62). Contributions from self-employed people of
up to $5,000 per year are fully tax deductible and 75 per cent tax deductible
for amounts over $5,000. Treasury’s Retirement Income Modelling Unit (RIM)
has found that the patterns of saving for self-employed people are different to
those for employees. Self-employed people choose to put their savings more
into financial assets (shares and managed funds) and housing rather than into

The take up of voluntary superannuation is a topic of ongoing interest for
government, superannuation organisations such as the Association of
Superannuation Funds of Australia (ASFA) and investment companies. A
number of surveys have indicated that many people wish to have a higher
standard of living in retirement than the SG can provide. Educating the
community about the standard of living that can be expected from compulsory
superannuation, and promoting voluntary superannuation as an option for
increasing retirement savings, has been occurring over recent years.

Non-superannuation retirement investments
Non-superannuation investments such as home ownership and financial
investments can provide a significant boost to retirement savings. Often,
loans and debts such as home mortgages are repaid using investments and
indirectly result in higher levels of disposable income in retirement.

Australians value owning their own home. As discussed earlier, older
Australians have a high home ownership rate. Home ownership rates are
currently 71 per cent for all ages and 83 per cent for households where the

                                                                   Page 15 of 36
head is aged over 65. Outright home ownership for the group over age 65 is
80 per cent (ABS 2002, p216 and 224). This makes an important contribution
to the adequacy of retirement incomes and a pensioner’s well being in
retirement, as home ownership reduces the cost of accommodation.

Data on the percentage of people owning properties for investment purposes
is not currently available, but a 1996 survey of taxpayers showed that
11 per cent received income from investment properties (Tinnion, 1998, p24).

As financial literacy grows in the community, so too does the level of
investment in managed funds and Australian and overseas share markets.
Because these investments are not specifically held for retirement, there are
limited tax advantages in holding these products, in comparison with
superannuation products.

Table 2 shows the estimated range and value of assets held by Australians at
different age groups in 2000.

Table 2: Estimated average family wealth by asset type and age, 2000
                                         Total asset value held
Age of       Cash       Shares      Equity in     Rental      Superannuation     Net
family      deposits                 home        property                       wealth
head                                              equity
               $            $           $            $               $             $
15-19         900           0           0            0              500          1,400
20-24        2,200         200         600          200            3,500         6,600
25-29        5,700        2,300       7,100         900           13,400        29,400
30-34        9,300        9,200      27,400        2,700          24,300        72,800
35-39        9,900       20,800      53,300        7,300          37,800       129,000
40-44       11,000       36,800      86,200       13,000          55,900       271,000
45-49       14,000       49,300     114,700       17,500          75,500       271,000
50-54       17,600       59,200     151,400       19,400          93,100       340,700
55-59       20,700       61,300     165,000       18,900          91,700       357,500
60-64       30,100       37,500     164,600       12,900          89,100       334,200
65-69       53,000       19,900     151,300       12,200          33,500       270,000
70-74       48,900       13,700     139,400       10,500          9,400        221,800
75+         24,400        4,900     104,000        5,200          1,000        139,500
Average     16,600       23,400      82,100        8,800          39,400       170,200
Source: NATSEM - Kelly, 2003, p17

Australia’s three-pillar retirement income system with a maturing SG system
means people will have better retirement incomes in the future. Retirement
incomes will be funded through a mix of compulsory savings (SG), voluntary
superannuation and other private savings and investments, and some Age
Pension for those in need.

However there are some people at risk of having low incomes in retirement
because they have not been able to accumulate sufficient savings through
superannuation and other means. These are generally people who have had

                                                                         Page 16 of 36
less attachment to the workforce through their working lives than others (this
can be women who have been out of the workforce because of caring
responsibilities, people who have been sick or disabled, people who have
been unemployed or employed in low paid employment). Those who are
unable to accumulate significant levels of savings are more likely to rely
heavily on Age Pension for their retirement income.

Table 3 shows average superannuation balances by gender, age group and
employment status. Average balances differ markedly between and among
men and women, and according to employment status.

Table 3: Average Superannuation Balance
                            Average Superannuation Balance ($)
                 Age Group      Employed     Employed      Unemployed                 Not in the
                                Full-time    Part-time                                Labour Force
Men                 15 - 24         7,800        1,100          6,400                      250
                    25 - 34        28,600       14,800          5,100                     6,300
                    35 – 44        69,600       23,600         28,000                     8,900
                    45 - 54       122,200       66,700         44,800                    43,300
                    55 - 64       165,500      160,100         38,900                    85,000
                      65+          74,700       78,000            -                      45,900
                     Total         78,067       57,383         24,640                    31,608

Women               15 - 24            7,200            1,000             300              450
                    25 - 34           26,900           13,700            2,800            8,100
                    35 – 44           53,800           23,500            3,600           13,200
                    45 - 54           83,400           43,700           34,500           20,300
                    55 - 64           76,800           57,800           30,900           41,800
                      65+             86,300           79,400                            13,000
                     Total            55,733           36,517           14,420           16,142
Source: Clare, 2004, p5. Data drawn from Unit Record File, 2002 data collection of Household Income
and Labour Dynamics in Australia (HILDA) survey.

As one would expect, men in full-time employment have much higher
balances than those in part-time employment, who in turn have higher
balances than those men who are unemployed.

Average balances for women are generally lower than those for men, whether
they are in full-time or part-time employment, or unemployed. Women can be
disadvantaged both by higher rates of part-time work, and not being in the
labour force. Even for full-time workers, the average superannuation account
balance is lower for women than it is for men, and the disparity starts to widen
for the cohort aged 35-44. This may be attributed to lower wages on average
for women, and periods spent out of the workforce because of caring
responsibilities (Clare, 2004, p5).

For older men and women a lack of access to superannuation before the SG
was introduced means they may not have had the opportunity to accumulate
significant savings for retirement.

While we expect this to change over time, as women’s labour force
participation increases, there are still challenges for some groups.

                                                                                     Page 17 of 36
Lower income workers tend to have relatively low superannuation balances,
as SG contributions are drawn from a lower earnings base.

Table 4 shows that the differences between men and women in
superannuation account balances are smaller for people of similar incomes.
However, it is interesting that balances for women still tend to be lower than
for men, even when current income is not dissimilar.

Table 4: Superannuation Balances by Age group, Gender and Level of Income
                       Average Superannuation Balance ($)
                Age Group    Low Income      Medium Income               High Income

                                (Gross income      (gross income $15,000 (gross income >
                                <$15,000)          to 49,999)            $50,000)
Men                 15 - 24             500              10,000                 8,000
                    25 - 34            9,000             20,100                 39,400
                    35 – 44           13,600             40,500                93,400
                    45 - 54           34,500             70,700                164,700
                    55 - 64           55,500             104,200               252,000
                      65+             16,200             78,700                196,000
                     Total            21,550             54,033                125,583

Women               15 - 24             600              6,200                  6,600
                    25 - 34            7,900             14,900                 49,800
                    35 – 44           10,400             26,800                82,300
                    45 - 54           18,000             40,300                156,300
                    55 - 64           22,900             74,800                127,000
                      65+              6,500             39,200                77,600
                     Total            11,050             33,700                83,267
Source: Clare, 2004, p6. Data drawn from Unit Record File, 2002 data collection of
Household Income and Labour Dynamics in Australia (HILDA) survey.

Periods out of the workforce, and earlier retirement, also mean a person may
have a lower superannuation balance, as SG contributions have been
accumulated over shorter periods. Almost half the people coming on to Age
Pension do so from another income support payment, and many of these
people will have been reliant on income support payments for a long period.
This reduces both the period of their potential contribution to superannuation
and the period those contributions could compound to provide a higher
superannuation balance.

While self-employed people are not covered by the SG, as noted earlier, over
one third of the self-employed are estimated to make voluntary
superannuation contributions. The patterns of saving for self-employed
people have been found to be different to those for employees. Self-
employed people choose to put their savings more into financial assets
(shares and managed funds) and housing rather than into superannuation

                                                                                  Page 18 of 36
(Bingham, 2003, p19). This means they may be less likely to be at risk of
lower income in retirement.

These challenges for particular groups mean it is important to provide a
flexible system that provides support for people in a range of different
circumstances to continue building superannuation past traditional retirement
age, and allow choice about the age at which, and way in which, people draw
down their superannuation. This enhances the capacity of people to improve
their savings, according to their individual circumstances and preferences,
and provides additional support for those who might otherwise be at risk of
low income in retirement.

These challenges emphasise the importance of increasing workforce
participation of vulnerable groups, to the extent possible, so any current
disadvantages do not persist and form long-term difficulties that continue
through senior years. This highlights the importance of work and savings in
younger years, and government policies that contribute to improved work and
savings outcomes, as critical to retirement income outcomes.

Retirement incomes depend, in part, on workforce attachment
A critical factor in determining the level of retirement income is the extent to
which a person is engaged with the workforce. This underpins the importance
of enhancing workforce participation as a way to boost the retirement incomes
of individuals.

Analysis undertaken by RIM Unit indicates that SG and Age Pension will
deliver substantial spending replacement rates for senior Australians, as a
group, over the longer term, particularly for those with a longer working life.

It is estimated that a single male retiring in 2032 who has earned average
weekly ordinary time earnings throughout his working life, will have the
following spending replacement rates in retirement3:

•      63 per cent, after 25 years in the workforce;
•      67 per cent after 30 years in the workforce; and
•      73 per cent after 40 years in the workforce.


Flexibility and choice helps individuals in diverse circumstances
A key feature of Australia’s retirement income arrangements is the flexibility
and choice they provide around ways individuals can add to their
superannuation savings and draw down on those savings. While there is a
minimum age at which people can access their superannuation (55 years)
and claim Age Pension (65 years for men, 63 years for women), there is

    Average retirement expenditure compared with expenditure in last year of work.

                                                                                Page 19 of 36
considerable flexibility in the ways people can access retirement benefits.
The flexibility of the retirement income system is illustrated in Box 1 below.

Box 1: Retirement Income Choices

    •   Draw down some or all superannuation as a lump sum or income stream
        at any age after preservation age (55 years) but no later than age 75.

    •   Continue to contribute to superannuation (up to age 75).

    •   Claim Age Pension at any age after 65 years for men or 63 years for
        women or, if working, defer and later claim a pension bonus.

    •   Superannuation and Age Pension can be received while working (pension
        subject to means testing).

The flexibility can help individuals who have not accumulated sufficient
superannuation savings through working life to tailor their retirement income
arrangements to suit their individual needs and preferences. For example:

•   individuals can defer accessing their superannuation (and Age Pension)
    while continuing to work (and in so doing further build their
    superannuation savings and to accumulate a pension bonus); or
•   individuals could choose to receive a blend of superannuation income,
    income from part time or casual employment and, if over age pension
    age, a maximum or part rate of Age Pension as appropriate.

Working longer can help people to accumulate more retirement savings,
supplement their retirement income and reduce the amount to which they
draw down their savings, helping to smooth the transition from full-time work
to retirement, and improve the adequacy of their retirement income in their
later years.

The possibility of deferring Age Pension relates to the Pension Bonus
Scheme, which was introduced in 1998. It is a voluntary scheme that rewards
people of age pension age who defer claiming Age Pension and instead
continue working for at least one year. The maximum bonus is payable after
an eligible scheme member defers Age Pension for at least five years and
receives maximum rate Age Pension when they eventually claim. More details
on the Pension Bonus Scheme are at Attachment A.

Since 1 July 2005, under the “transition to retirement” scheme, a person who
has reached their superannuation preservation age (currently age 55 but
rising to age 60) will be able to access their superannuation as an income
stream without having to advise that they are “retiring” permanently from the
workforce. Allowing people to access superannuation benefits in this way,
while continuing in part-time or casual work, will give them the option of
supplementing their retirement incomes, and enable greater choice and
flexibility in managing their retirement, while maintaining some workforce
attachment and the social and health benefits that brings (Brough, 2005).

                                                                       Page 20 of 36
Since 1 July 2002, superannuation contributions can be made to the age of 75
years (previously 70 years), to encourage longer workforce participation and
greater self-provision in retirement for those who are willing and able to
continue working, in particular:

•   for individuals aged 65 to 69, the SG continues to apply as for younger
    employees provided the individual works at least 40 hours in a continuous
    30-day period in that same financial year; and
•   while there are no compulsory SG contributions for individuals aged over
    70, an individual aged 70 up to 75 may make voluntary superannuation
    contributions on their own behalf (and receive the taxation concessions
    available for superannuation).

As at June 2004, 9 per cent of people over age pension age were working;

•   17 per cent of whom were registered with the Pension Bonus Scheme;
•   32 per cent of whom were receiving Age Pension while they worked.

The Government has introduced a number of measures within the
superannuation system that increase incentives for individuals and families to
augment their superannuation savings and which provide extra protection for
groups at risk of accumulating low superannuation savings in retirement.

These measures allow low income individuals additional support should they
wish to enhance their superannuation savings above that which can be
provided through the SG. These measures also recognise that while for many
individuals, being part of a family can provide protection in retirement through
access to a partner’s superannuation benefits, it can be desirable that a low
income partner build retirement savings in their own right and it is also
desirable to secure for both partners equitable access to superannuation
savings in the event of divorce.

These measures comprise:
• government superannuation co-contributions for low-income earners;
• taxation incentives for spouse superannuation contributions;
• allowing couples to split superannuation contributions between them; and
• providing for superannuation splitting in divorce.

Superannuation co-contribution for low income earners
The Superannuation co-contribution assists low-income and middle-income
earners to save for retirement. The scheme commenced in 2003-04 with the
Government matching, dollar for dollar up to $1,000, voluntary
superannuation contributions made by people with incomes less than $27,500
a year, phasing out completely at $40,000 a year.

                                                                    Page 21 of 36
In the 2004-05 Budget, the Government extended the scheme with the
Government putting in $1.50 for each $1 of personal superannuation
contributions, up to a maximum of $1,500 a year. The co-contribution phases
out completely at $58,000 a year4.

Around 541,000 people received around $291 million in government co-
contributions in 2003-04. The take-up has been strongest amongst part-time
workers and women (Brough, 2004 and 2004a).

The Treasury RIM unit projects that a worker earning $36,000 a year
(approximately median earnings) who makes enough voluntary contributions
to receive the maximum Government co-contribution over a 30 year working
life, will have a 28 per cent increase in their superannuation balance on
retirement compared with had they not made any voluntary superannuation
contributions and had relied solely on the SG to build their retirement savings.

Spouse contributions tax offset
The spouse contributions measure encourages a higher income spouse to
make superannuation contributions in the name of their low-income or non-
working spouse to build their retirement savings. Introduced in 1997-98, the
measure allows the spouse making the contribution to claim an 18 per cent
tax offset on superannuation contributions of up to $3,000 made on behalf of
their low-income or non-working spouse. The maximum rebate is $540.

This measure is of particular benefit to low income or non working people
partnered to higher income earners, who may not have had the opportunity to
build their own superannuation balances to the extent desired reflecting in
some cases, restricted workforce participation that often comes with family
and caring responsibilities.

Treasury estimates around 35,000 people benefitted from this measure in the
2002-03 financial years.

Splitting of superannuation contributions between couples
Australians will have the option to split superannuation contributions with their
spouses from 1 July 2006. Implementation details will be settled once
consultation with stakeholders is completed.

Superannuation splitting will further allow low income or non-working spouses
to accumulate their own superannuation. The measure will boost retirement
savings and provides greater flexibility and choice for families.

Superannuation splitting in divorce
Traditionally, in Australia, women have taken on the primary family and caring
roles. An individual generally holds superannuation, rather than a couple or a
family. In the case of couples, this can mean that the person with reduced

    $58,000 is 119 per cent of Male Total Average Weekly Earnings.

                                                                     Page 22 of 36
workforce participation will have less access to income in retirement than their

In the case of marriage breakdown, in the past, women were not able to
access any of the superannuation savings made by their former spouse.
From 28 December 2002, the Family Law Act was changed to allow
superannuation to be split following marriage breakdown.

Superannuation splitting offers more flexibility in the division of assets on
marriage breakdown by providing more options for division of property taking
into account current and future needs. It also provides opportunity for
individuals who have lower amounts in superannuation to take a greater
proportion of their share of the property in the form of superannuation. This
approach offers benefits for women who tend to have lesser holdings of
superannuation than their spouses.

A fund member's superannuation interest may be split with the former spouse
while the interest is still in the accumulation phase, or when the member is
being paid the benefit. (The member may be either in retirement or continuing
to work). Where the member's interest is in the accumulation phase, the
former spouse will receive an entitlement as a base amount payment, ie a
specific amount of the member's interest. Where the benefit is in the payment
phase, it is normally paid on a percentage basis.

                             INCOME SYSTEMS
Expectations around retirement incomes are changing and discussions
around retirement income systems and the way in which they respond to the
special needs of particular groups in society need to recognise this. Changes
are emerging in society, in expectations and in patterns of workforce
participation and transitioning to retirement. As noted, Australia is responding
to these changes by ensuring its retirement incomes system has the flexibility
to allow individuals to tailor retirement arrangements to suit their

Research in Australia on the baby boomer generation shows people want to
have higher incomes to match their active lifestyles. Expectations and
preferences about the age at which a person retires are also changing. For
example, while the anticipated retirement age among pre-retiree Australians
remains under 60, research conducted for the Association of Superannuation
Funds Australia shows that it has increased from an average of 58 years in
2001 to 59 years in 2004. Further, around one quarter (24 per cent) of pre-
retirees anticipate retiring at age 65 or over – up from 19 per cent in 2001
(Cameron, 2004). Other research shows that a high proportion of a sample of
Australian baby boomers hope to work part-time or casually in retirement to
supplement the income they receive from superannuation and/or income
support (FaCS, 2001). Systems need to be flexible to allow people to choose

                                                                    Page 23 of 36
the time of their retirement, to defer superannuation draw down and/or to
continue saving so that desired retirement incomes can be achieved.

Messages to the public about the role of government in retirement incomes
need to be clear. In the Australian context, people need to understand that
government provides a framework for savings and a minimum income for
those in need in retirement. Savings for retirement in addition to those
provided for by SG are the responsibility of individuals, but are supported by
systems of flexibility and choice.

Changing employment trends: the workforce participation challenge
Australia’s overall labour force participation rate is around 64 per cent (72
per cent for males and 56 per cent for females). There is a marked decline in
workforce attachment of Australians of mature age that is aged between 55 to
65, compared to younger groups, and interrupted periods of work for other
Australians, especially women as they rear children. While participation rates
fall off from age 55 for both males (from 72 per cent to 63.1 per cent) and
females (from 56 per cent down to 40.2 per cent) relative to those for younger
groups, participation rates for both mature age males and females are
trending upwards. These trends are shown in Chart 3.

Chart 3: Labour market participation rates

                      Labour market participation rates, ages 15-64 and 55-64,
                                       1993-2003, per cent






  30                                                         Males 15-64
  20                                                         Females 15-64
                                                             Males 55-64
                                                             Females 55-64
       1993   1994   1995   1996     1997    1998     1999     2000    2001      2002    2003

Source: ABS 2005 Yearbook Australia

The Australian Government has been working to reduce the barriers that have
in the past meant many mature age people have been unable to continue
working even though they are willing and able to do so. One important
response has been the implementation of Commonwealth Age Discrimination
legislation to protect older and younger Australians from discrimination,
particularly in the workplace. Over time, this is expected to help change
negative stereotypes held by some employers that have impeded the hiring of
older workers.

                                                                                        Page 24 of 36
A shift to part time and casual work
In recent years, there has been a shift towards part time and casual work.
Of all employed persons, the proportion employed part-time has increased
from 25 per cent in 1996 to 28.5 per cent in 2003-04 (ABS Labour Statistics).

Currently, females work part-time hours at a much higher rate than males:
• 15 per cent of working males worked part-time in 2003-04; and
• 46 per cent of working females worked part time in that year.
   (ABS, 2005, p170)

Treasury has noted that there are some longer-term trends that may support
continued strong growth in part-time employment. ABS labour force data
reveals that people who do not currently have a job (either unemployed or
outside the labour market) are more likely to initially find part-time work, rather
than full-time work (Treasury, 2004a). The ageing of Australia’s workforce
may see increasing numbers of older workers opting to work on a part-time
basis, rather than retiring early altogether. Australia will need to accommodate
these preferences.

The Australian Government has supported and promoted extensive public
debate about work and family issues including balancing work and
family/caring responsibilities. This has led to increased public awareness of
options and benefits and increased employer flexibility around hours of work,
starting and finishing times and part-time employment.

The Government is encouraging all types of participation in the labour force.
This has significant benefits in maintaining economic self-sufficiency, in
keeping people connected to the community and assists in building economic
resources for the longer term.

While part-time employment may result in reduced retirement incomes
compared to those of full-time workers, it brings with it a range of positive
benefits, including some provision for retirement.

Changing labour force experiences
Workforce participation trends for mature age people show retirement at
around age 55 years as being common although as noted earlier baby
boomer expectations suggest many may wish to retire later, an expectation
that may become reinforced as the superannuation preservation age
increases to 60.

Early retirement may be desirable for some, but can result in reduced savings
and more reliance on Age Pension.

Women often experience long periods out of the workforce while raising
children and often work in a part-time capacity. The effect on labour force
participation of family and caring roles that women tend to play are even more
noticeable in the case of family breakdown.

                                                                      Page 25 of 36
Family breakdown can diminish wealth and result in more parents relying on
income support. Women, in particular, can become vulnerable after marital
separation, especially if they are the primary carers of children. When children
are young, sole parents may need significant social support as they may not
be in a position to work. This may change as children age. These trends
underpin recent government initiatives discussed earlier such as supporting
spouse superannuation contributions and superannuation splitting after

Chart 4 shows that the likelihood of working and the number of hours worked
increases as a woman’s youngest child ages, and particularly once children
reach school age. From a retirement incomes perspective, this means
superannuation arrangements need to be sufficiently flexible to accommodate
the circumstances of the many women who transition back into work after
child rearing.

Chart 4: Return to work by couple and lone mothers by age of youngest child

 Proportion Employed

 70                                                            Part T ime

 60                                                            Full T ime






      under   2    4      6      8   10    12      14    under     2        4   6      8    10       12   14
        1         Mothe r - Couple                         1                        Lone Mothe r
                                          Age of youngest child (years)

Source: ABS Census data 2001

Changing employment trends may reduce people’s capacity to earn and
accumulate savings unless systems are flexible in terms of scope for working
beyond the traditional retirement age and for a gradual transition to
retirement. For example, higher levels of education should boost productivity
in the longer term, but at the same time, can delay the start of full time
workforce participation, and the point at which people begin saving.

Chart 5 shows that over time, people have been reducing the number of years
they spend in the workforce and increasing the number of years out of the
workforce (for example, in retirement or in education). The Chart also
reinforces the point that women spend less time in the workforce than men.

                                                                                                   Page 26 of 36
Chart 5: Years in full-time equivalent work and out of the workforce for selected
   cohorts , by gender.

                                                                           Years out of workforce
          90                                                               FT equivalent work years



                1978   1982    1992   2002   2008          1978   1982   1992   2002   2008
                              Male            Selected cohorts            Female

1 Year when cohort is 15.
Source: Bingham (2003); Australian Government Actuary (1999); ABS (2003).

The challenge for Australia is to further lift workforce participation rates across
the lifecycle, including for women of all ages and for mature age men.

          10.          THE FINAL ELEMENT: RESPONDING TO AN
                              AGEING POPULATION
Broader social policy and economic reform issues are very much at the
forefront of debate in Australia. Despite our economic and social differences,
countries in our region face broadly similar demographic challenges in current
or coming decades. Australia faces long term challenges associated with a
changing demographic structure, and patterns of family formation and
composition. The proportion of people over age 65 is expected to grow from
13 per cent in June 2003, to over a quarter of the population by 2051.

These trends are illustrated in Chart 6 which shows the projected changes in
the proportion of older people in the population from 1950 to 2050 for a
number of countries. It is based on the proportion of the population aged 65 +
to the population aged 15 – 65.

                                                                                              Page 27 of 36
Chart 6: Proportion of older people in the population

                     Proportion of older people in the population -
                        selected countries, 1950, 2000 and 2050
                80                                    2000
                60                                    2050
     Per cent





















Source: United Nations, 2003

An ageing population means more pressure on the programs and services
commonly accessed by older people (retirement incomes, health and aged
care). But it also means a smaller proportion of people of workforce age to
fund the increased cost of the programs and services a greater proportion of
older people will use.

There has been substantial debate in Australia on approaches to manage the
consequences of an ageing population. The Government has been focussing
on early intervention, prevention and capacity building strategies to prevent
intergenerational cycles of disadvantage and deprivation. Early intervention,
prevention and capacity building will strengthen people and their families and
communities now, but also increase their capacity for workforce participation,
and ultimately retirement incomes, in later life. At the same time it will help to
ensure a sustainable system of support for the elderly.

The Australian Treasurer has characterised responses to the challenges
presented by an ageing population as “the three Ps”:

    •           Population
    •           Participation
    •           Productivity

In respect of population, there is limited scope for Australia to moderate
population ageing over the next forty to fifty years through polices to
encourage higher birth rates or more immigration.

A priority is to increase workforce participation, particularly among those
groups where participation is low, and this is behind the increasing focus in
Australia on boosting workforce participation for the disabled, for women and
for mature age men.

Another priority is to also increase the productivity of the economy through
such strategies as enhancing economic and social infrastructure, reforming

                                                                                        Page 28 of 36
labour markets, tax, natural resource management, innovation policy and
regulatory processes.

Boosting population, participation and productivity best work if underpinned by
comprehensive, and effective, social policies. An example is that workforce
participation of women is enhanced if quality and affordable childcare is

A framework for helping policy makers conceptualise the impact of economic
and social policies on individuals is to look at how those interact at different
points through their life course. A life course approach recognises that the
problems a person experiences in one stage of their life can influence
opportunities and outcomes at a later stage. For example, measures that
help children develop learning skills at an early stage can strengthen them as
adults. In Australia, policy thinking is moving beyond just responding to needs
at a point in time – increasingly the focus is on early intervention and
prevention to develop people’s capacity to make successful transitions
through their life course. A life course approach also recognise that a wide
range of parties impact on an individual through life – government, their
community, their family and business.

Taking a lifecycle approach leads policy makers to develop multi-faceted
responses that take account of the complex interactions between, for
example, nurturing the young, while at the same time taking care of the old.
Retirement is also now viewed in lifecycle terms - as a transition in a working

Retirement incomes are then seen as the cumulative result of choices and
events that have been taken or which have occurred through life. Social
policy responses in Australia recognise the life course of individuals and
families by:

•   supporting decisions to have a baby (for example, through a one-off
    maternity payment at birth, childcare payments and ongoing family
•   supporting early childhood development (early learning and care
•   supporting families to balance work and family (flexible workplace
    arrangements and creating child-friendly communities);
•   supporting caring (balancing recognition and reward for caring with the
    opportunity to train, study and work);
•   supporting individuals and families to make financial choices appropriate
    for them including how best to manage their money; and
•   supporting retirement transitions (choice, flexibility and opportunities for
    gradual retirement).

A recent major policy development in this area was the announcement in the
2005-06 Budget of the Government’s “Welfare to Work” reforms which are
aimed at encouraging and supporting workforce participation among groups

                                                                     Page 29 of 36
with low rates of workforce participation currently, in particular, sole parents,
individuals on Disability Support Pension and the long term unemployed.

                            11. CONCLUSION
Australia’s approach to meeting the needs of people in “at-risk” groups as
defined by the Conference is to:

•   provide Age Pension as a minimum level of support for people in
•   provide a superannuation system that is flexible and accessible to
    individuals in a wide range of circumstances;
•   support voluntary superannuation savings to enable people to build
    superannuation savings beyond the compulsory SG contributions, with
    particular additional support for lower income individuals;
•   support the access of lower paid or non working spouses to
•   to encourage and support workforce participation of individuals to enable
    them to accumulate superannuation through a wide range of economic
    and social policy settings; and
•   to ensure the Australian economy is well positioned to manage the
    consequences of an ageing population.

A number of the Government’s policies are relatively new and their effects on
retirement incomes and behaviours will need to be monitored over time. It is
believed that policies that take a lifecycle approach and involve early
intervention, prevention and capacity building will not only help Australia to
grow economically, but help Australia to address the challenges of population

                                                                       Page 30 of 36
                                                               ATTACHMENT A


Age pension age
Age Pension commenced in 1909. Shortly after its introduction the pension
age for women was reduced to 60 years, while remaining at 65 years for men.
Since this time, the role of women in Australian society has changed
significantly. In recognition of the changing workforce participation for women
and changing community attitudes, the age pension age for women is being
aligned with the age for men. This change is being introduced progressively
over 20 years. Age pension age for women is currently 63 years. The
women’s pension age gradually increases until the year 2013, when women
will need to be 65 years of age to receive Age Pension.

Age Pension rates
The maximum rate of Age Pension as at May 2005 is $12,383.80 per year for
singles (around 26 per cent of average weekly earnings for males) and
$20,680.40 combined for couples (around 43 per cent of average weekly
earnings for males).

Age Pension Means Test
The rate of payment is calculated under both the income and assets tests.
The test that results in the lower rate (or nil rate) is the one that applies.

As at July 2005:
The maximum rate is payable to single people with income below $124 per
fortnight and assets below $157,000 (homeowners) or below $270,500 (non-
homeowners). Couples receive maximum rate if income is below $220 per
fortnight with assets below $223,000 (homeowners) or below $336,500 (non-

Part pension is payable to a single person living in a home fully or partly
owned by them, if their income is below $1329.25 per fortnight and assets are
below $317,750 (assets do not include the principal home). If the person is a
non-homeowner, assets can be up to $431,250 before pension ceases to be

For couples, part pension is payable to couples living in a home fully or partly
owned by them, if their income is below $2,223 per fortnight and assets are
below $490,500. If the pensioners are non-homeowners, assets can be up to
$604,000 before pension ceases to be payable.

                                                                      Page 31 of 36
Add-on allowances
The table below shows maximum fortnightly rates of pension and commonly
paid allowances, as at March 2004.

Maximum rates of pension and supplementary assistance
                                                Single              Couple (combined)
                                             $ a fortnight              $ a fortnight
Maximum rate pension                           $476.30                     $795.40
Maximum Rent Assistance*                        $98.00                     $92.40
Pharmaceutical Allowance                         $5.80                      $5.80
Telephone Allowance                              $3.00                      $3.00
Utilities Allowance                              $3.80                      $3.80
Sum of above                                   $586.90                     $900.40
*Maximum Rent Assistance is payable if rent paid is more than $217.67 a fortnight for a single
person and $265.00 a fortnight for a couple.

Further assistance to pensioners is provided through the taxation system.
Age pension payments are subject to personal income tax but age pensioners
are entitled to a rebate that fully protects those receiving the full-rate pension
from income tax and the Medicare levy and providing partial exemption for
part-rate pensioners.

Age Pension administration
The Department of Family and Community Services (FaCS) has policy
responsibility for Age Pension.

Centrelink, established on 1 July 1997 as a Commonwealth service delivery
agency, delivers all income support payments on behalf of FaCS. This
includes delivery of Age Pension.

The Department of Veterans’ Affairs pays Age Pension to a small number of
people (around 6,600) on behalf of FaCS (FaCS, 2004, p215). These Age
Pension recipients generally have spouses receiving a Veterans’ Affairs
payment such as a service pension and prefer to deal with only one service
delivery agency.

Pension Bonus Scheme – deferral of Age Pension
The Pension Bonus Scheme was introduced from 1 July 1998, giving older
people an incentive to defer claiming Age Pension and to work past age
pension age. This voluntary scheme rewards people of age pension age who
defer claiming Age Pension and instead continue working for at least
one year. The maximum bonus is payable after an eligible scheme member
defers Age Pension for at least five years and receives maximum rate Age
Pension when they eventually claim.

FaCS data shows around 84,000 people have registered with the Scheme
since it began, with people receiving an average tax free lump sum bonus of
more than $11,000 in 2003-04.

                                                                               Page 32 of 36
While there is no requirement in Australia for people to work past age pension
age, this policy shows the Government’s commitment to encourage longer
workforce participation and higher levels of self-provision in retirement.

                                                                  Page 33 of 36
Association of Superannuation Funds of Australia Ltd (ASFA), 2002,
Submission to Senate Select Committee on Superannuation, Inquiry into
Superannuation and standards of living in retirement, website

Australian Bureau of Statistics (ABS), 2005, Year Book Australia,
Commonwealth of Australia, Canberra.

Australian Bureau of Statistics (ABS), 2004, Household Income and Income
Distribution, Australia, Cat. No. 6523.0, Commonwealth of Australia,

Australian Bureau of Statistics (ABS), 2004a, Year Book Australia,
Commonwealth of Australia, Canberra.

Australian Bureau of Statistics (ABS), 2003, Labour Force Experience,
Australia, Cat. No. 6206.0, Commonwealth of Australia, Canberra.

Australian Bureau of Statistics (ABS), 2003a, Deaths, Cat. No. 3302.0,
Commonwealth of Australia, Canberra.

Australian Bureau of Statistics (ABS), 2003b, Employee Earnings, Benefits
and Trade Union Membership, Cat. No. 6310.0, Commonwealth of Australia,

Australian Bureau of Statistics (ABS), 2002, Superannuation: Coverage and
Financial Characteristics, Australia, Cat. No. 6360.0, Commonwealth of
Australia, Canberra.

Australian Bureau of Statistics (ABS), 2001, Employment Arrangements and
Superannuation, Australia, Cat. No. 6361.0, Commonwealth of Australia,

Australian Bureau of Statistics (ABS) 1997, Retirement and Retirement
Intentions, Australia, Cat. No. 6238.0, Commonwealth of Australia, Canberra.

Australian Government, 2005, Super Choice, website

Australian Government Actuary, 1999, Australian Life Tables 1995-1997,

Australian Prudential Regulation Authority (APRA), 2004, Superannuation
Trends, Commonwealth of Australia, Canberra.

Australian Securities and Investments Commission (ASIC) 2005, website

                                                                     Page 34 of 36
Australian Taxation Office, 2005, website

Bingham, 2003, Impact of private savings and longer careers on retirement
incomes. Retirement and Income Modelling Unit, Department of the
Treasury. Paper presented to the Eleventh Colloquium of Superannuation
researchers, University of New South Wales, 7 & 8 July 2003.

Brough, M., Minister for Revenue and the Assistant Treasurer, 2005, Media
Release, More options from work to retirement, Commonwealth of Australia,

Brough, M., Minister for Revenue and the Assistant Treasurer, 2004, Media
Release, Super Co-contribution off to a flying start, Commonwealth of
Australia, Canberra.

Brough, M., Minister for Revenue and the Assistant Treasurer, 2004a, Media
Release, Super Co-contribution scheme working for women, Commonwealth
of Australia, Canberra.

Cameron, R., 2004, What do consumers think? Attitudes to Super, Savings,
Retirement and Choice. ASFA Conference 2004: Saving 4 the Nation.
Adelaide, SA, November 11, 2004.

Clare, R., Association of Superannuation Funds of Australia (ASFA), 2004,
Why can’t a woman be more like a man – gender differences in retirement
savings, website

Connolly, E. and Kohler, M., Reserve Bank of Australia, 2004, “The impact of
superannuation on household saving”, Commonwealth of Australia, Canberra.

Corver, L., and Smith, J., Department of Family and Community Services
(FaCS), 2003, Australia’s Means Tested Age Pension, paper presented at the
Australia –China Sectoral Conference on Social Insurance, 20 – 22 January
2003, Shanghai, China, unpublished.

Costello, P., Treasurer of the Commonwealth of Australia, Budget Speech
2005-06, Commonwealth of Australia, Canberra.

Department of Family and Community Services (FaCS), 2004, Annual Report
2003-2004, Commonwealth of Australia, Canberra.

Department of Family and Community Services (FaCS), 2001, Workforce
circumstances and retirement attitudes of older Australians, FaCS Research
News, No. 7, March 2001.

Department of Health and Ageing, 2004, website

Department of Health and Ageing, 1999, The National Strategy for an Ageing
Australia – Independence and Self Provision Discussion Paper,
Commonwealth of Australia, Canberra.

                                                                 Page 35 of 36
Department of the Treasury, 2005, website

Department of the Treasury, 2004, Tax Expenditures Statement 2004,
Commonwealth of Australia, Canberra.

Department of the Treasury, 2004a, A review of compositional developments
in the Australian labour market, Economic Roundup Autumn 2004,
Commonwealth of Australia, Canberra

Department of the Treasury, 2002, Submission to Senate Select Committee
on Superannuation Inquiry into Superannuation and Standards of Living in
Retirement, Commonwealth of Australia, Canberra.

Department of the Treasury, 2002a, Intergenerational Report 2002-03,
Commonwealth of Australia, Canberra.

Dolan, A., and Wallace-Green, A., Department of Family and Community
Services (FACS), 2004, The Australian Retirement Income System,

Flanagan, K., World Bank, 2000, Australia’s Retirement Income
Arrangements, unpublished.

Health Insurance Commission (HIC), 2005, website

Holzmann, R., and Hinz, R., World Bank, 2005, Old-Age Income Support in
the 21st Century: An International Perspective on Pension Systems, World
Bank, Washington D.C., USA.

Howard, J., Prime Minister of Australia, 2004, Mature aged workers tax offset,
media release, Commonwealth of Australia, Canberra.

Kelly, S., 2003, Forecasting wealth in an ageing Australia- an approach using
dynamic microsimulation, paper presented at the 7th Nordic Seminar on
Microsimulation Models, Helsinki, Finland, 13 June 2003.

Tinnion, J., Retirement Income Modelling Unit (RIM), Department of Treasury,
1998, Provision for Retirement – who does what?, paper presented to the
Sixth Colloquium of Superannuation Researchers, University of Melbourne, 9
and 10 July, 1998.

United Nations, Population Division, 2003, World Population Prospects,
United Nations, New York, USA.

                                                                  Page 36 of 36

To top