Australia’s Demographic Challenges, Australian Government, The Treasury.

Please note: The contents of this site are archived resources and are made available for reference only. For general enquiries please contact Website issues and feedback please use our webmaster feedback form.

A More Flexible and Adaptable Retirement Income System


Attachment B: Government improvements to the retirement income system since being elected in 1996

The age pension and other benefits

In 1997 the Government legislated for the age pension to be maintained to at least 25percent of male total average weekly earnings. Under this policy the real value of the age pension has grown on average by around 1.2percent per year since 1996, and this growth is expected to continue.

When the new tax system was introduced in July 2000, the Government further boosted the real value of the pension by providing a 2percent supplement on top of increases already provided. The Government also eased the income test withdrawal rate from 50 cents in the dollar to 40cents in the dollar, and provided a special increase in the means test 'free areas'. This made the age pension more accessible to self-funded retirees and improved incentives for self provision in retirement.

In recognition of self-funded retirees' efforts to save during their working lives, the Government significantly increased the income limits for Commonwealth Seniors Health Card eligibility. Singles with taxable incomes up to $50,000 and couples with incomes up to $80,000 are now eligible for the card.

The Government has significantly reduced the amount of tax paid by self-funded retirees of age pension age. Prior to the Coalition coming into Government, a single self-funded retiree could only earn up to $6,150 before paying tax (including the effect of the low income tax offset). In 1996, the Government legislated to ensure that both self-funded retirees and pensioners could earn up to $11,185 before paying tax. From 1 July 2000, the Government, through the Senior Australians Tax Offset (SATO), further reduced the amount of tax senior Australians of age pension age pay. The SATO, together with the low income tax offset, now allows eligible single senior Australians to earn up to $20,500 without paying income tax. The benefits of the SATO phase out from $20,500 to $38,340 for singles and from $33,612 to $59,244 for couples.

The Government also introduced the Pension Bonus Scheme in 1998 which provides a tax free lump sum to people who continue to work past age pension age and defer claiming an age pension.

The Superannuation Guarantee

The Government increased the maximum age for eligibility for Superannuation Guarantee contributions from 65 to 70 from 1 July 1997.

The Government also acted to improve the effectiveness of the Superannuation Guarantee system. Since 1July2003, employers have been required to make at least quarterly Superannuation Guarantee contributions on behalf of their employees. More frequent superannuation contributions benefit employees in a number of ways, including:

  • higher superannuation benefits, owing to increased interest earnings;
  • lower exposure to the loss of superannuation benefits in the event of bankruptcy or insolvency; and
  • more timely evidence of non-compliance, which in turn facilitates earlier intervention by the ATO.

Voluntary savings

Recent Government initiatives to increase the attractiveness of superannuation have included:

  • raising the tax deductible threshold for contributions by the self-employed from $3,000 to $5,000;
  • providing a rebate for contributions made on behalf of a low-income spouse;
  • ensuring that the effective tax rate on the excessive component of an eligible termination payment from a superannuation fund does not exceed 47percent;
  • a Government co-contribution of up to $1,000 per year to match eligible personal superannuation contributions by lower and middle income earners; and
  • reducing the superannuation surcharge rate from 15percent to 12.5percent over three years.

The Government has also introduced legislation into the Parliament which will allow a person to split their superannuation with their spouse, thereby giving them access to two eligible termination payment tax free thresholds and two reasonable benefit limits. This legislation has yet to pass the Parliament.

The Government co-contribution policy will provide significant encouragement for low and middle-income earners to save for their retirement. Under this measure, the Government will provide a matching co-contribution of up to $1,000 a year towards the superannuation savings of qualifying people who make eligible personal contributions to superannuation. Individuals with incomes of up to $27,500 will be eligible to receive the full co-contribution of $1,000. A reduced co-contribution will be available for those on incomes between $27,500 and $40,000.

The Government has moved to make superannuation more accessible by:

  • allowing people who are still working to make superannuation contributions up to the ageof75;
  • allowing contributions for a non-working spouse;
  • allowing contributions on behalf of a child; and
  • allowing contributions by people who receive the first child tax offset.

The Government amended the Family Law Act 1975 to allow superannuation benefits to be split between couples on their separation. This will benefit women who may not have accumulated significant amounts of superannuation during their marriage.

The Government also recognises that some people may prefer to save for retirement outside superannuation. Many self-employed persons who own a small business choose to save for their retirement by building up the value of their business in addition to or instead of contributing to superannuation. In recognition of this, the Government has implemented a number of initiatives to allow small businesses meeting the eligibility criteria to significantly reduce, or eliminate, their capital gains tax liability when selling a small business or part of a business. For example, a small business can disregard a capital gain when an active asset that has been held continuously for 15years is sold. Furthermore, a small business can disregard a capital gain where the proceeds of the sale of an asset are used for retirement (up to a lifetime limit of $500,000).

The Government also reformed the capital gains tax rules so only 50percent of capital gains on assets held for a year or more are included in a person's taxable income. This measure recognises that more Australian households are investing in assets such as shares, and encourages such investments. The effective tax rate for capital gains of superannuation funds was also reduced to 10percent where the assets are held for at least one year.

Another initiative allows people to claim unused imputation credits. This also provides an incentive for people to invest in shares.

Increased choice and competition in the retirement income system

The Government has increased the number of options available to Australians to save for their retirement.

In 1997, the Government allowed banks, building societies, credit unions and life insurance companies to offer retirement savings accounts. Retirement savings accounts receive the same tax concessions as superannuation funds, but are capital guaranteed and expand the range of options to people who are risk averse.

In 1998, the Government extended the income streams qualifying as complying pensions and annuities to include non-commutable income streams that pay a guaranteed income for a person's life expectancy. This increased competition in the complying income stream market and choice in how people can invest their benefits after they retire.


Next: Downloads

Previous: Attachment A: Impact on underlying cash balance of the retirement income initiatives ($m)


Commonwealth of Australia 2004
ISBN 0 642 74231 6