Monetary incentives to delay retirement

A key financial services body, the Institute of Actuaries of Australia, is recommending to the Federal Government that it simplify the means tests and tax arrangements surrounding the pension while, at the same time, encouraging Australians to remain self-sufficient for longer.

The recommendations are contained in the institute's submission to the Henry Tax Review, with its chief executive, John Maroney, also suggesting that the Government increase superannuation by a further 3 per cent via a 'soft compulsion' mechanism.

He said the proposals were aimed at ensuring the future sustainability and adequacy of Australia's retirement income system.

"We believe there is significant scope to simplify means tests and taxes to make the system easier to understand and more transparent," Maroney said. "Abolishing the pension income test and relying on a simplified asset test is one way the system could be streamlined while also removing the disincentive for many older Australians to work past the pension age."

He said other measures aimed at simplifying the system included either abolishing the age limits on contributions or introducing a single maximum age such as 75 and removing little-used tax provisions such as contribution splitting, spouse rebate and children's super.

Maroney said a key tenet of the institute's submission was to promote policies to encourage Australians to be self-sufficient for longer and increasing the pension by 5 to 7 per cent for each year it was deferred would provide a powerful incentive for people to work longer.