Remarks to the COTA Australia National Policy Forum on Retirement Income

26 February 2021

Senator The Hon Jane Hume

To see the speech on Jane Hume’s website, please click here


Thank you for that introduction. The Council on Aging has shown great initiative bringing this event together. It is such an important policy area, and it’s terrific to be part of a national forum dedicated to retirement income. 

This venue has witnessed countless debates – many which have guided policy and spurred progress. Contributing to this broader conversation is a privilege and not something I take on lightly.  

But before I go on – in keeping with the Press Club’s traditions – I would like to acknowledge joint panellist the Shadow Assistant Treasurer and Shadow Minister for Financial Services and Superannuation, Stephen Jones MP. 


The measure of society is how it treats its most vulnerable members and our retirement income system is one of the greatest indicators of the values our society holds dear. It is a system that bolsters Australians’ financial security, peace of mind, quality of life and wellbeing in their retirement. 

As the system matures, Australians are retiring with more retirement savings than ever before, which has enabled us to have one of the most sustainable, viable and fair retirement income systems in the world.

By the recommendation of the Productivity Commission, the Government established an independent Retirement Income Review that would look into, not just superannuation, but the three pillars of Australia’s retirement income system including the Age Pension, compulsory super and voluntary savings. 

The Review confirmed our system is delivering adequate retirement incomes for the majority of Australians, and will be viable for generations to come. 

Australians should be reassured that our retirement income system is ‘effective, sound and its costs are broadly sustainable’. 

Indeed, across the world, Australia’s system is a front runner, ranking higher than most other international retirement income models. And during the pandemic, we saw first-hand that our system is well placed to handle economic volatility and as well as an increasingly aging population. 

However, as robust and effective as our system is, the review confirmed there is room for improvement.

Indeed one of the key observations within the Review was that the system more generally could benefit from clearer direction and a better framework for measuring its performance.

And it also found that higher standards of living can be achieved in retirement with more efficient use of all three pillars of our system.

Superannuation and SG

A key theme of the Retirement Income Review was adequacy of the retirement income system. In measuring adequacy, the review used a benchmark of 65-75 per cent of working life disposable income and found most people who start work today would be at or above the benchmark once they retire – even if the SG rate were to remain at 9.5 per cent.

But the crucial information for policy makers is in the detail. The Review found that ‘more efficient use of savings in retirement can have a bigger impact on improving retirement income than increasing the SG’.  

The key evidence for this finding was that many retirees live solely on the returns generated from their super balances and eventually die with – on average – 90 per cent of their savings still intact. 

Of course, decisions taken by the current generation of retirees are their own.  But as policymakers considering what is the appropriate level of SG going forward, we must have consideration for our current workers who are our future retirees.

Indeed the Review found if people currently in their working lives and currently contributing to super via the SG were able to use their superannuation more efficiently when they get to retirement in the future, they would have higher replacement rates and better retirement outcomes than if the SG was lifted to 12 per cent.  

And of course, they’d have the benefit of more money in their pocket during their working lives, to boot.  

This is the point the superannuation industry lobby never mentions.  Ever increasing amounts of superannuation contributions for your future retirement savings come at the expense of slower wage rises in your working life.  Whether we are talking about the rise to 10 per cent scheduled for July this year, or 12 per cent per future legislated rises, or even the 15 per cent that Stephen Jones will surely confirm the Labor party is committed to.  It represents wages foregone today.

In the context of the SG, which is a compulsion to take todays’ wages and defer them for 40 years, that’s where the question comes in. As a Government with this knowledge we must consider the implications of compelling people to sacrifice more during their working lives – by forgoing the wages they could be taking home today – that they could spend today – that they could use to pay off a home today – the forgo all that so that their balances are larger at retirement. 

Because the trade-offs are real.  The evidence is incontrovertible that increases in the rate of SG – deferred wages – lead to a slower rate of wage growth over time.  There’s no magic pudding.  The Retirement Income Review said it.  Grattan has said so.  The RBA has said it.  Heck, even the ISA’s own economist has said it.

Now, the Prime Minister has consistently noted that the planned increase in the SG to 12 per cent is already legislated, and if there was to be a decision to change this, it would be made much closer to the time, and in the context of economic circumstances at that time.  

So much of the discussion around retirement is about accumulation – and that’s been understandable in an industry that has spent the last thirty years growing and maturing. But very soon we will have as many dollars in decumulation phase as in accumulation phase.

Let me be clear here – we want more people to have better standards of living in retirement. But the retirement income review notes that much of that hinges on flexibility of retirement income stream products, improved understanding and confidence. 

The Morrison Government salutes the thrift and responsibility of retirees who have worked during their economically active years and who have been able to accumulate savings in voluntary savings vehicles and through compulsory superannuation contributions. 

This is why as a government and as an industry more broadly we must turn our minds to more flexible, and more efficient products that allow retirees to use their super for a higher standard of living in retirement. 

But let’s be clear; under the Morrison Government, these products will never be prescriptive. This is not about forcing retirees – current or future – to draw down on savings through rigid policy settings and punitive regimes that restrict choice and agency. 

This is about navigating the barriers that are preventing people from doing so. Which, more often than not, comes down to fear and inaccessibility. 

We know the inherent complexity of our retirement income system – combined with low levels of financial literacy – can make it difficult to effectively use retirement income streams to improve outcomes.

In fact, COTA’s submission to the Review noted:

There is a need for the retirement income system to be structured and communicated so that people are better able to understand and navigate the system to plan and access optimum and appropriate benefits. (COTA, 2020, p. 6).

And COTA is right. Our system is complicated and difficult to navigate which discourages engagement. 

But there is also this all important issue how superannuation is being used. How do we help people have confidence to use their superannuation more efficiently to focus their planning on income streams as opposed to balances

We all have roles to play here. 

The private sector can better innovate and develop flexible products- an area that we are already seeing a significant uptick in – as well as providing financial advice, guidance and information. 

And the Government needs to create an environment that encourages the market to develop retirement income products and provide guidance to deliver better outcomes for members.

Retirement Income Covenant

Increased access to income stream products will play a role in managing longevity risk by paying a regular income stream, giving people greater confidence to spend their retirement savings. 

To enable this, the Government progressed reforms to superannuation regulations and means test rules to support the development of products that can provide more income – and more certainty – to retirees. 

But there was still room for improvement in encouraging the growth of this sector to give retirees – and those nearing retirement – the certainty they need. 

As it stands, superannuation fund trustees have no obligation to consider how they deliver the primary function of the retirement income system for their members: providing income in retirement. 

The Retirement Income Covenant will change that. At its core it will require trustees to have a strategy to generate higher retirement incomes for their members. 

The Covenant allows super funds the flexibility to tailor their retirement income strategy to their specific membership base, while allowing them to deliver solutions they think will work best for the particular cohorts of members in their fund.  

Many trustees are already taking action in this area, and those ahead of the curve should rest assured that the Covenant will be principles based and not prescriptive.  Innovation in financial services is a competitive strength in Australia and one we are not prepared to lose and we want to see the proverbial thousand flowers bloom.   

With proper accountability and frameworks, trustees of super funds are best placed to manage their funds and develop the best products for their members. Very few organisations represent the interests of super fund trustees. And that’s why this Government is still moving forward with a body to represent super fund members and a body that we would expect COTA to share common cause with. The body will be independent and properly resourced to become the voice of consumers in policy debates about super. 

The Age Pension 

Our Retirement Income System is much bigger than superannuation. In discussions about retirement outcomes, we need to be thinking of our system as a whole – and that includes the Age Pension and savings outside of superannuation.

The fact is our system is designed to enable retirees to access both super and a variable amount of the Age Pension, with the pension scaling up as super balances are drawn down. 

Retirees can have confidence to use their retirement assets knowing that the Age Pension will always be there to support them should their savings not last as long as they planned. 

The Age Pension is far from being just a social safety net. It is a retirement income pillar of its own — received by around 71 per cent of Australians over 65. 

The Age Pension provides an important form of insurance against longevity risk and sequencing risk for retirees.

Increasing system equity 

Before I finish up, I want to make some final remarks about increasing equity in our super system. 

The superannuation system largely supports intergenerational equity. It encourages people to rely on their own savings to meet their retirement income needs.

The maturing of the superannuation system will mean more Australians will have higher retirement savings and the proportion of the eligible population receiving the Age Pension will decline. 

This is expected to reduce the cost of the Age Pension borne by the next generation through tax in their working lives.

That said, we know inequity in our system remains. We know that women retire with significantly less superannuation than men.  

This is an inherent structural feature of the system designed 30 years ago.  By men.

Superannuation balances will always be a reflection of a person’s working life. Women have more gaps in employment than men – often to take on caring responsibilities, or work in – on average – lower paid industries. 

This is why the Morrison Government enabled more opportunities for Australians to contribute to their own superannuation savings voluntarily with catch-up contribution provisions.

But the single greatest contributor to equal superannuation balances is equal employment and pay.

We have always focussed on assisting more women into the work, reaching record breaking female participation in the workforce prior to COVID-19 and under this Government the national gender pay gap has declined 4.5 percentage points since 2014, to 14 per cent in 2020.

As a society we should be proud of the progress we have made, and this Government is determined to continue the momentum. 

Closing remarks

On that note, I would like to thank COTA for hosting today’s forum. 

I know that COTA is committed to improving understanding of the retirement income system and had ‘long called for a review’.

Indeed, the purpose of the Retirement Income Review was always about informing public policy debate, and it is terrific to see that in action today.

All Australians — regardless of age — should be confident about the sustainability of our retirement income system.