Back at the crossroads: the slippery fish of Australian retirement income policy

Australian Journal of Social Issues, Winter, 2008 by Allan Borowski

Introduction

To obviate the financial losses that would otherwise accompany leaving work in old age, most countries have developed retirement income systems. These systems employ a limited range of governmental, quasi-governmental and private mechanisms which, through institutionalizing 'stable' sources of income support in later life, seek to protect workers against the financial risk of retirement (Kingson & Williamson 2001).

Australia has similarly sought to protect its workers from the risk of a loss of earned income due to retirement. However, the system that existed for the first seven or eight decades following federation in 1901 was really a non-system. A crossroad was reached in the early 1980s when the belated recognition of this situation precipitated a flurry of reforms. These reforms were driven by an emergent yet, ultimately, reasonably clear set of goals that sought to transform the non-system into a relatively coherent set of arrangements that, in the future, would provide protection against the loss of earned income. While some elements of the new arrangements were the subject of criticism, particularly concerning their inequity, for a couple of decades at least it seemed that the prospects were quite good of broadly achieving a new retirement income system that, when mature, would realize the goals of the reform process.

Today, however, Australia's retirement income arrangements are once again at the crossroads. Recent years have witnessed a number of changes which have effectively created a system that is different in a number of significant respects from that sought by the reformers of two or so decades ago. Further, the inequities associated with contemporary arrangements have become palpable. What was supposed to be a retirement income system has morphed into something different, a system whose primary function is no longer to simply protect workers from the loss of earned income arising from retirement. The 'zenith' of this new situation was reached in the May 2006 Federal Government Budget in which major changes in superannuation were announced.

The purpose of this paper is to examine Australia's contemporary so-called retirement income system and identify some of the challenges it raises for policymakers. In order to understand how we arrived at where we now find ourselves, the paper begins by overviewing Australia's retirement income arrangement prior to the late 1970s-early 1980s. It then turns to a consideration of the goals of the 'new' retirement income system that began to emerge in the 1980s and the sense in which they represented a 'grand departure' from the non-system that was previously in place. How these major goals were pursued is the subject of the third section. In the fourth section the paper describes the 'state' of Australia's retirement income system at the dawn of the 21st century. This is followed by a consideration of some of the more contemporary changes, changes which reflect renewed policy sketchiness in the retirement income policy field, viz., the emergence of a new pillar of retirement income policy and the strengthening and reshaping of an existing one. The penultimate section looks closely at the changes in superannuation announced in the 2006 Federal Budget and explores some of their implications. The paper concludes with an attempt to articulate the contemporary nature of Australia's retirement income system and the implications of some of its major characteristics.

An underlying theme of this paper is that retirement income policy in Australia, like policy in other domains, is dynamic. At times its purpose and direction have been elusive or sketchy and, like a slippery fish, quite hard for the policy analyst to grasp. At other times, relative clarity has prevailed. It is the contention of this paper that as we approach the end of the first decade of the twenty-first century, retirement income policy in Australia has once again become hard to grasp. Unless Australian policymakers make clear the nature and desired outcomes for Australia's retirement income system it will be very difficult indeed to reach the desired policy destination.

Prior to the 1980s: Australia's Retirement Income 'Non-System'

A descriptor frequently used by students of the welfare state is the notion of the 'pillar'--who pays for and provides the range of cash transfers and social benefits that comprise the non-market income of individuals and households at different life stages (Rein 1999: 2). Retirement income arrangements in Australia have generally been thought of as being comprised of three pillars--the market pillar of occupational superannuation, the public pillar of the Age Pension and a third pillar of voluntary personal savings (including owner-occupied housing). Indeed, Australia's retirement income system has closely resembled the three-pillar model described in the World Bank's (1994) report, Averting the Old Age Crisis.

The Market Pillar

Prior to the 1980s Australia's occupational superannuation schemes played a minor role in providing retirement income despite a history that stretches back to the mid-nineteenth century. Prior to World War 2 coverage was largely confined to male white-collar public servants and employees of financial institutions and large manufacturing concerns. Despite a post-war expansion in coverage, it stood at just a third of the workforce by the early 1970s. A decade later coverage had reached only 45 per cent (Borowski, Schulz & Whiteford 1987). These figures belie the even narrower coverage of female workers. As recently as 1983 it was only 23 per cent, with only 11 per cent of women in the private sector workforce being covered (ABS 1998).