Productivity Commission adds to advice warning super system is unsustainable and inequitable, despite Tony Abbott’s insistence tax rates will not change

The Productivity Commission has joined calls for a review of Australia’s retirement income system, noting that generous superannuation tax concessions appear to be used almost exclusively as a means to reduce tax liabilities among wealthier Australians.



The commission has published a report recommending a gradual increase in the preservation age (at which superannuation savings can be accessed) to 65 to encourage Australians to work longer and accumulate more superannuation savings.

It says households who put retirement on hold for two years will increase their superannuation nest egg by 10% in real terms. It says the move would deliver $7bn to the budget, mainly due to tax revenue increases from wealthier households and a $3bn fall in pension outlays.

The commission also wades into the debate about the sustainability of superannuation tax concessions.

Tony Abbott has declared the government will not increase the taxes on superannuation even though it has a range of high-level advice indicating the current system is both inequitable and unsustainable.

The prime minister has dug in to create a point of difference with Labor, which has proposed to wind back concessions for retirees with super income of more than $75,000 a year.

Asked about the commission’s report on Tuesday, the acting treasurer Bruce Billson told the ABC the government had made it “absolutely clear” there would be no changes to superannuation.

He said the Coalition was committed to predictability, certainty and accessibility when it came to superannuation – and he said the commission had undertaken the research on its own initiative, not at the government’s request.

With its latest report, the commission has joined the government’s own tax review, financial systems review and a range of economic thinktanks in observing it is “unclear” whether the current concessional tax rates applied to superannuation are designed and targeted as effectively as they could be, and whether they provide an incentive to make additional savings for retirement “or merely distort the way that people store their wealth”.

“Likewise, the tax concessions embodied in transition to retirement pensions – designed to ease workers’ moves to part-time work prior to retirement – appear to be used almost exclusively by people working full-time and as a means to reduce tax liabilities among wealthier Australians,” it says.

“A better understanding of how these incentives are being used and by whom could potentially improve the efficacy and sustainability of the retirement income system.”

The commission found that most superannuants did not draw down and exhaust their lump sums despite the flexibility they have in the system.

Some analysts point to the draw-down flexibility to explain why superannuation savings are exhausted and retirees fall back on the pension.

“The evidence suggests that most retirees are prudent in their drawdown behaviour,” the report said.

“Less than 30% of superannuation benefits are taken as lump sums. When retirees do take lump sums, they are most frequently used to pay down debt, invest in income stream products and purchase durable goods that are used throughout retirement.”

The commission says a further review of retirement incomes would examine how involuntary retirement affects policy outcomes; how incentives inherent in the retirement income system affect individuals’ savings and retirement decisions; how the retirement income system can better cater for the diverse circumstances and needs of retirees, particularly in the drawdown stage where one size never fits all; and how to best manage longevity risk given the demographic transition under way.