What is it?

In September 2019, Treasurer Josh Frydenberg announced a long-awaited independent review of Australia’s retirement income system.

The review, recommended by the Productivity Commission, will examine the retirement income system’s ‘three pillars’ –

  • the age pension,
  • superannuation, and
  • voluntary savings, including home ownership.

The Commission urged the government to carry out the review before increasing the superannuation guarantee (SG) rate. The SG is scheduled to rise in stages to 12% by 2025.

The review provides an important opportunity to evaluate how Australia’s retirement income system is tracking and what reforms may be needed to ensure the system is both equitable and sustainable over the long term. The system needs to accommodate the challenges of Australia’s ageing population and more people entering retirement with debt or without the security of a home.

Who is undertaking the review?

The review will be chaired by former senior treasury official Mike Callaghan, a former executive director of the IMF, and will include Carolyn Kay, a director of the Future Fund, and Deborah Ralston, professorial fellow in banking and finance at Monash University and a member of the central bank’s payments system board. She is also chair of the SMSF Association but will step down while working on the review.

The final report will be provided to the government by June 2020.

What will the review consider?

The terms of reference are quite high-level and broad and could cover:

  • home ownership – the review will examine the growing number of non-home owner retirees and how people survive the private rental market.
  • the interaction between super and the age pension – whether the means test acts as a disincentive to saving given the more super you have, the less pension you get. Also, whether an income test as well as an assets test is needed (Australia has two tests, unlike most other countries).
  • superannuation tax concessions.
  • income and intergenerational equity, and
  • the cost to the federal budget.

What it won’t cover

Industry experts have pushed for sensitive issues to be probed, such as including the value of a retiree’s home in the means test for the age pension and aged care, lifting the qualifying age for the government pension and overhauling superannuation tax breaks for the wealthy. However, the government appears to have ruled out touching some sensitive parts of the system, such as including the principal place of residence in the age pension asset test and cutting generous super tax concessions.


In general, the review has been welcomed by industry participants, however, most have warned against ‘changing the goalposts’ on legislative arrangements for Australians who have already retired and are already partly or fully self-funding their retirement.

The government has sought to ease concerns with Senator Cormann stating the inquiry will not lead to a ‘major wave of significant reforms’ and will present a fact base which will inform the public about where the system is at and how it operates.

There is also nervousness about whether the government will seek to use the inquiry to abandon its timetable for increasing the superannuation guarantee (SG) to 12% by 2025 and reduce the beneficial tax treatment of superannuation, particularly for large balance holders.

Lonsec’s view

Lonsec believes that whatever the government is seeking to achieve from the review should be revealed to the industry as soon as possible. This will help provide clarity to those product providers operating in the Australian financial services industry looking to deliver new retirement products and services but are reluctant to do so until they fully understand the changing regulatory landscape.

The timeframe for the review recommendations is mid-year, however as any changes to the retirement income system become likely, Lonsec will provide a summary of these and help make sense of the implications for advisers.

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