A new Australian pension system is set to be introduced in 2019, following years of debate in Canberra and across the country over the cost of pensions and the role of unions.
Finance Minister Mathias Cormann said the changes will ensure the federal government has a better handle on the financial health of the country.
“The system we’re creating will provide the certainty that people need, the security that people will have,” he said.
The federal government introduced a new federal pension system last month in an effort to better manage the impact of the global financial crisis.
Its aim is to cut the cost and complexity of the current system and create a new one that will be more efficient and sustainable.
In Australia, the current retirement system, called the Registered Retirement Account, or RRAS, is administered by the Australian Bureau of Statistics.
Many Australians work for large companies or state governments and rely on it to cover their living expenses, including their medical expenses.
While some are able to pay into the RRAS when they retire, it’s only available to workers with a certain salary.
There are currently 2.7 million Australians who hold the RRAs.
It was introduced in 1993 under Labor, but has been plagued by delays and poor results.
Last year, the Labor government raised the retirement age to 62, but it also imposed a cap on the number of years an individual can retire with an RRAS.
At the time, the union federation, the Australian Council of Social Service, said the government was trying to “fundamentally rewrite” the pension system in order to help companies.
But it said it would not be able to fund the cost if workers were forced to pay out of their RRAs when they retired.
Earlier this month, a federal court ruled against the government and upheld the Labor plan.
Mr Cormann argued that the government needed to provide greater certainty to people when it comes to their RRAS payments.
He said that while the federal pension plans will be replaced with a new system, the government is taking steps to make sure the existing pension system will continue to work as it is.
Under the proposed changes, the age at which a worker is required to start paying into the pension will rise to 62 in 2019.
However, workers will be able, if they choose, to start collecting pension benefits at a higher age.
New pension system means less risk for businesses and unions: Cormann, minister of state The changes will make the federal retirement system more efficient, simpler and more secure for businesses, unions and individuals.
A total of $8.8 billion will be raised over four years to pay for the new system.
As well as reducing the number and complexity required to set up the RRSA, the changes also require companies to increase their contribution rates, which are expected to raise about $1 billion.
An additional $4 billion will go towards creating a new regional pension scheme, which will provide greater support for regions and towns.
And an additional $1.4 billion for workers to support older people with health problems.
All told, the new federal retirement plan will bring in $8 billion over four and a half years.
Read more about: