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Financial Planning
Fifth pillar in retirement system considered

The Retirement Income Review (RIR) has discussed the possibility of a fifth pillar in Australia's retirement income system based on a suggestion from the World Bank in 2008.

The review noted that currently Australia has three pillars: the Age Pension, compulsory superannuation and voluntary savings.

Additionally, many have pointed to household capital and home ownership as an important fourth pillar, which the RIR also discussed at length.

However, the RIR takes it a step further, saying several submissions suggested more pillars, ranging from work in retirement, non-financial arrangements, Jobseeker Allowance for the involuntarily retired, private intergenerational transfers and health and long-term care.

"The World Bank proposes a five-pillar framework that includes social transfers in kind outside the formal pension system," it said.

"Social transfers in kind are a significant factor influencing retirement outcomes. All sources of income and support that people can draw on to support their standard of living in retirement are important and should be considered."

The RIR said social transfers in kind are an important factor in influencing retirement outcomes to helping to achieve a minimum standard of retirement.

"All sources of income and support that people can draw on to support their standard of living in retirement are important and should be taken into account," it said.

The World Bank's suggestion describes the additional pillar as access to informal and formal support and social programs.

"This acknowledges the important role social transfers in kind play in supporting effective living standards for retirees," the RIR noted.

"Some social transfers in kind are targeted based on needs, while others are universal. Social transfers in kind support adequacy by reducing retiree's living costs, and therefore boosting their effective living standards for a given level of income."

The review noted this fifth pillar would also help those with a disability, working in addition to the Age Pension, to meet health expenses and improve retirement income equity relative to working life.

"Social transfers in kind (such as health and aged care expenditure) provide substantial support to retirees," it said.

"The cost of social transfers in kind attributed to households aged 65 and over has increased from 2.3% of GDP in 2003-04 to 3.3% in 2015-16."

The review noted that while all Australians receive support in the form of government provided services the type of service, and degree to which it is used, changes as households age.

"Younger households receive significant in-kind support through benefits associated with primary, secondary and tertiary education," it said.

"Older households receive significant social transfers through health services, which are higher as a proportion of their income than other age groups."

Read more: RIRWorld BankAge PensionRetirement Income ReviewJobseeker
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