Building an Adequate but Sustainable Retirement Incomes System

Australia’s retirement incomes system has been dominated for over 100 years by a flat-rate, means-tested, general revenue-financed age pension. This has been very effective in protecting the elderly from poverty and limiting the costs to government. The system has not, however, effectively addressed a second key objective of maintaining living standards in retirement because of its poorly regulated occupational superannuation arrangements and the absence of a social insurance scheme. Over recent decades, Australia has pioneered an alternative approach to address this second objective to other countries’ public, defined-benefit (social insurance) pension schemes that have proven to present significant financial burdens particularly with demographic change. This alternative approach draws on the World Bank’s ‘multi-pillar’ framework, supplementing the age pension ‘foundation pillar’, not with social insurance but with a set of private ‘pillars’: mandated private contributions, optional private contributions and additional private savings, particularly through home ownership.