Tag: InvestorDaily

APRA announces super reforms

In an effort to “maintain industry momentum”, the APRA, prudential regulator has finalised new superannuation requirements before they have been legislated; via InvestorDaily.

The Australian Prudential Regulation Authority (APRA) has today released a package of new and enhanced prudential requirements designed to strengthen the focus of registrable superannuation entity (RSE) licensees on the delivery of quality outcomes for their members.

A central component of APRA’s new framework is the introduction of an outcomes assessment that will require RSE licensees to annually benchmark and evaluate their performance in delivering sound, value-for-money outcomes to all members – covering both MySuper and choice products.

APRA deputy chairman Helen Rowell said APRA was committed to lifting standards across the industry for the long-term benefit of superannuation members.

“As the prudential regulator, APRA’s primary focus is on the sound and prudent management of the $1.8 trillion APRA-regulated segment of the superannuation industry; that includes seeking to ensure that RSE licensees meet their obligations to put their members’ interests first,” Mrs Rowell said.

“These changes to the prudential framework set a higher bar for RSE licensees by requiring a robust assessment of the outcomes delivered for members to be reflected in their strategic and business planning.”

In addition to the outcomes assessment, APRA’s final package requires RSE licensees to meet strengthened requirements for strategic and business planning, including management and oversight of fund expenditure and reserves. These requirements are set out in new Prudential Standard SPS 515 Strategic Planning and Member Outcomes.

The Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1) Bill 2017 (the Bill) that is before Parliament would, if passed, introduce a legislated outcomes assessment.

APRA said its proposals are consistent with the outcomes assessment proposals in the Bill, and are being introduced now to “maintain industry momentum” towards delivering improved outcomes for members. APRA will review whether amendments are needed to the prudential framework requirements if the Bill is passed by Parliament in future.

Mrs Rowell also emphasised APRA’s strong support for the other reforms contained in the Bill and, in particular, the enhanced directions powers for APRA, the strengthened MySuper authorisation and cancellation provisions, and the requirement for APRA to approve changes of ownership of RSE licensees.

“These new policy proposals address weaknesses in the current superannuation regulatory framework and would greatly assist APRA in driving the superannuation industry towards addressing underperformance and improving member outcomes,” she said.

APRA’s finalised package of measures is the culmination of extensive industry engagement that commenced in August 2017, and includes amendments to the original proposals taking into account the feedback received during consultation.

The commencement date for the new measures has been set as 1 January 2020, to provide industry with sufficient time to meet the new requirements.

AMP betting on 20% fall in property prices

Top forecaster Shayne Oliver believes there is still plenty of room for property prices to head south as homes weaken to GFC levels; via InvestorDaily.

Australian capital city dwelling prices fell another 0.9 per cent in November marking 14 months of consecutive price declines since prices peaked in September last year. This has left prices down 5.3 per cent from a year ago, their weakest since the GFC.

The decline is continuing to be led by Sydney and Melbourne.

Sydney dwelling prices fell another 1.4 per cent and have now fallen 9.5 per cent from their July 2017 peak. Meanwhile, Melbourne prices fell another 1.0 per cent and are down 5.8 per cent from their November 2017 high.

Perth also saw prices fall by 0.7 of a percentage point, but Hobart and Darwin saw prices rise by 0.7 of a percentage point. Prices in Canberra rose 0.6 of a percentage point and Brisbane and Adelaide prices rose 0.1 of a percentage point.

“The decline in property prices is being driven by a perfect storm of tighter credit conditions, poor affordability, rising unit supply, reduced foreign demand, the switch from interest only to principle and interest mortgages for a significant number of borrowers, fears that negative gearing and capital gains tax concessions will be made less favourable if there is a change of government, falling price growth expectations and FOMO (fear of missing out) risking turning into FONGO (fear of not getting out) for investors,” AMP  Capital chief economist Shayne Oliver said.

“These drags are most evident in Sydney and Melbourne because they saw the strongest gains into last year and had become more speculative with a greater involvement by investors.

“Ongoing weakness in these two cities is evident in very weak auction clearance rates and auction sales volumes. Recent auction clearance rates averaging just below 40 per cent in Sydney and Melbourne are consistent with ongoing price declines of around 7 to 10 per cent per annum.”

The economist believes the decline in Sydney and Melbourne property prices has much further to go as Comprehensive Credit Reporting kicks in, making it even harder to get multiple mortgages.

Many homebuyers will be watching out for changes to negative gearing and capital gains tax, which could become the new reality after a change of government at the coming federal election.

“In these cities we expect to see a top to bottom fall in prices of around 20 per cent spread out to 2020,” Mr Oliver said.

“However, the plunge in clearance rates and the uncertainty around credit tightening and tax concessions indicate that the risks are on the downside. So there is more to go yet.”

RBA subsidiaries fined $22m over bribes

The Central Bank has finally released details of the landmark prosecution that involved two of its subsidiary companies involved in bribing overseas officials for note-printing contracts, via InvestorDaily.

Following a decision by the Supreme Court of Victoria this week, the Reserve Bank of Australia (RBA) is able to disclose that in late 2011, its subsidiaries – Note Printing Australia (NPA) and Securency – entered pleas of guilty to charges of conspiracy to bribe foreign officials in connection with banknote-related business.

The offences were committed over the period from December 1999 to September 2004.

The RBA and the companies were not permitted to disclose these pleas prior to today due to suppression orders, which have now been lifted. The orders were not sought by the RBA or the companies.

In a statement this week, the RBA said the boards of NPA and Securency decided to enter guilty pleas at the earliest possible time rather than to defend the charges, reflecting an acceptance of responsibility and genuine remorse.

“The decisions to plead guilty were based on material that became available to the boards after allegations about Securency had been referred to the Australian Federal Police (AFP) and followed extensive legal advice. The decisions also took into account the public interest in avoiding what was expected to be a costly and lengthy court process,” the central bank said.

No evidence of knowledge or involvement by officers of the RBA, or the non-executive members of either board appointed by the RBA, has emerged in any of the relevant legal proceedings or otherwise.

“The Reserve Bank strongly condemns corrupt and unethical behaviour,” Reserve Bank governor Philip Lowe said.

“The RBA has been unable to talk about this matter publicly until today, although the guilty pleas were entered in 2011. The RBA accepts there were shortcomings in its oversight of these companies, and changes to controls and governance have been made to ensure that a situation like this cannot happen again.”

In 2011, the Reserve Bank Board commissioned a thorough external review of the RBA oversight of the companies. The RBA oversaw a comprehensive strengthening of governance arrangements and business practices in the two companies.

In early 2013, the RBA sold its interest in Securency, having ensured that all the compliance issues of which the RBA was aware had been addressed.

With the lifting of the suppression orders, the RBA is now also able to disclose that the companies paid substantial penalties as a result of the court proceedings.

NPA paid fines totalling $450,000 and a pecuniary penalty under the Proceeds of Crime Act 2002 of $1,856,710. Securency paid fines totalling $480,000 and a pecuniary penalty under the Proceeds of Crime Act of $19,809,772.

Since the companies entered their pleas, four former employees of Securency have pleaded guilty to charges of conspiring to bribe and/or false accounting. Charges against four former employees of NPA were permanently stayed on the basis that continued prosecution of these individuals would bring the administration of justice into disrepute.

Fund managers not keen on ‘good customer outcomes’

The “dilemma” of pleasing both customers and institutional shareholders as a listed bank have been explored by the royal commission this week, via InvestorDaily.

On Thursday (29 November), Bendigo and Adelaide Bank chairman Robert Johanson spent a short amount of time in Hayne’s witness box where he was mostly used as an example of how banks should be remunerating their staff.

Unlike the big four, Bendigo bankers are paid a higher proportion of their remuneration in a base salary, with a smaller proportion linked to short-term incentives. Part of the long-term incentives are linked to the bank’s Net Promoter Score (NPS) and other customer centric measures.

Mr Johanson told the commission that shareholders have generally supported the bank’s remuneration model, which he admitted was different to its peers.

However, counsel assisting Rowena Orr submitted into evidence a report by proxy advisers ISS Governance relating to Bendigo’s 2018 AGM, which advised shareholders to vote against a resolution approving performance rights and a deferment of shares to the bank’s managing director, Marnie Baker.

The report noted that one reason for the recommendation was the increased weighting given to the “customer hurdle” in Ms Baker’s long-term incentives. The proxy advisers believed this “had no direct link to shareholder wealth outcomes”, and that “customer-centric measures should be “considered and assessed as part of a banking executive’s day job”.

Mr Johanson said he believes, to the contrary of the ISS recommendation, that customer centricity is linked to the long-term viability and profitability of the bank.

“The ‘day job’ as is were includes thinking about how all parts of the remuneration package are working together to achieve common outcomes,” he said.

“The proxy advisers of course are employed by institutions. It provides a pretty rigorous way for large numbers of institutions to get to grips with these questions when historically they haven’t been that interested in them.

“But the people who pay the proxy advisers themselves are assessed typically on short-term financial outcomes. So it’s no surprise that a fund manager is interested in short-term financial outcomes because we all as investors, through our superannuation funds, are concerned about whether our fund has done well over the last six months or not.

“There is a dilemma in all this.”

Mr Hayne suggested the process was “reducing some quite complex problems to binary outcomes”.

Approximately 40 per cent of Bendigo and Adelaide Bank is held by institutions.

Ken Henry calls time on capitalism

The NAB chairman has suggested that it is time for the traditional capitalist model to be flipped on its head; via Investor Daily.

 Dr Ken Henry, chairperson at National Australia Bank, suggested during round seven of the royal commission that maybe it was time for the banks to rethink its capitalist model.

“The capitalist model is that businesses have no responsibility other than to maximise profits for shareholders. A lot of people over the past 12 months have said that’s all that you should hold boards accountable for.”

Dr Henry said that some people would argue customers were part of pleasing shareholders as treating customers well was important to the long-term interests of shareholders.

“But that approach sees customers as instruments in an instrumental fashion, that the customers are seen as the means by which shareholder profits are secured, rather than the customer being the focus,” he said.

Dr Henry said a debate was now being had over what businesses should be accountable for and the possibility of an alternative solution.

“Within NAB we have thought very deeply about whether we should see our customers in purely instrumental terms, as a means to the end rather than the end to itself.”

Dr Henry noted that views within the bank differ, but added that NAB had realigned its incentives to focus on its customers.

“For what it’s worth, NAB’s view clearly today is that incentives should be aligned with customer experience, customer outcomes to be clear,” he said.

However, as Dr Henry demonstrated on the stand, this has not always been the case for NAB, as counsel-assisting Rowena Orr showed that APRA held the view that NAB’s remuneration was not appropriate.

“APRAs view was that NAB’s remuneration arrangements weren’t operating as they should to support the prudent management of risk at NAB?” said Ms Orr

“That was their view, yes,” said Dr Henry.

As Ms Orr pointed out, APRA’s review of NAB claimed that the bank had a heavy emphasis on profitability measures in individual performance assessments and unlike its peers had no risk-adjusted measures of profitability.

“Well, it was no surprise. Concerning. Absolutely concerning, but not a surprise,” said Dr Henry.

Evidence of the remuneration model was presented by Ms Orr when she questioned Dr Henry why NAB in 2016 gave its executives their full short-term variable remuneration.

Ms Orr pointed out that in 2016, NAB’s bonus pool was set at 100 per cent and that CEO Andrew Thorburn did not even mention the matters when stating the decision.

“So, he (Mr Thorburn) didn’t mention any of those matters, adviser service fees, plan service fees, the bank bills swap rate, the foreign exchange breaches,” said Ms Orr.

Dr Henry said that there was enough information about the issues to have impacted the decision, but it did not concern him that it wasn’t raised.

“You said earlier Dr Henry, that you weren’t sure what the board could have done differently or when it could have. I want to suggest to you squarely that this was a point at which the board could have conducted itself differently. It could have sent a strong message by reducing the pool in response to these very significant compliance issues,” Ms Orr said.

“Of course, we could have, and we decided not to. For very good reasons and I’m still happy with those reasons,” said Dr Henry

CBA Stands Firm on Bonuses

On Monday (19 November), the seventh and final round of the royal commission hearings kicked off with CBA chief executive Matt Comyn being grilled over the group’s remuneration structures, via InvestorDaily.

Counsel assisting Rowena Orr questioned the major bank boss about frontline staff receiving ‘short-term variable remuneration’, or STVR.

“Short-term variable remuneration is what many people would think of as an annual bonus, is that right?” Ms Orr asked.

“Yes,” Mr Comyn confirmed. “We do not refer to it in that way, but it is a bonus.”

While he admitted that the bank has made a number of changes to its remuneration structure, including work towards the Sedgewick recommendations, Mr Comyn explained why CBA is standing firm on bonuses.

“We believe it is important to have an element of remuneration which is not fixed. We believe it is a well-designed set of metrics or a way for them to earn their short-term variable remuneration; it is both a way of eliciting discretionary effort and a way beyond termination as a form of consequences. It is also a way to make consequences clear to individuals,” he said.

After being prodded by Ms Orr for clarification, the CBA chief explained that “discretionary effort” is the difference between what staff might have otherwise have done if they were paid a fixed salary.

Ms Orr asked why staff can’t be motivated simply by being paid a fixed salary.

Mr Comyn used an offshore example to try and illustrate his response, alluding to a female employee at one financial institution in the United Kingdom that decided to stop paying bonuses.

“I’m talking specifically about a home lender. What they were in effect paid was 98.5 per cent of their prior year’s fixed remuneration and short-term variable reward. So they were guaranteed that remuneration,” he said.

“When I asked her what had changed, her answer was simply ‘I probably work 30 per cent less’. She was one of their best performing lenders.”

Mr Orr offered alternative ways of motivating staff instead of a bonus: “positive feedback for their performance; encouraging them to take pride in their work; encouraging them to have a sense of satisfaction in helping one of your customers; giving them additional responsibilities as a reward for performance; promotion; a higher base salary.”

Mr Comyn said all of these were appropriate ways of driving staff. However, he maintained that CBA has decided for now to continue using short-term variable rewards, or bonuses, to motivate fits sales force

APRA bracing for end of ‘economic summer’

APRA is undertaking work to keep Australian’s financial institutions secure if and when the economic summer ends, said newly appointed deputy chair, via InvestorDaily.

APRA’s deputy chair John Lonsdale made the comments at FINSIA ‘The Regulators’ event saying that Australia had endured 27 years of continuous expansion but no summer lasts forever.

“Australia’s unprecedented period of uninterrupted economic growth may have years yet to run. We hope it does.

“But when our economic summer inevitably ends – and winter, autumn or just an unseasonal cold snap arrives – the work that APRA is undertaking means Australians can be confident that the financial institutions they rely on are resilient,” he said.

Mr Lonsdale said that over the coming year APRA would focus on policies and actions to withstand any conditions, starting with a review into the regulators enforcement strategy.

“The review will make recommendations on which enforcement issues APRA should consider acting on, what factors we should take into account, and whether there are any practical or legislative impediments to us pursuing a stronger approach,” he said.

Without pre-empting the review, Mr Lonsdale said the authority was willing to consider a strong appetite for formal enforcement action but would remain true to it’s purpose as a regulator.

“We will, however, remain a supervision-led, rather than enforcement-led, regulator with a focus on pre-emptively tackling problems before they compromise an entity’s ability to meet its obligations to beneficiaries, or rectifying adverse outcomes in the best interests of customers.”

Mr Lonsdale said the group would continue into 2019 looking at cases of misconduct that had been raised during the royal commission which may see more enforcement action taken.

“We are also re-examining cases of potential misconduct by regulated entities raised during the royal commission where the evidence presented was either new to APRA or contradicted what we had previously been told,” he said.

APRA would also continue to administer and monitor the BEAR to ensure it is being followed by all the players in the industry said Mr Lonsdale.

“We are actively making sure the regime is firmly embedded in the major banks – and preparing other ADIs to implement it – rather than assessing whether it is yet achieving its objectives,” he said.

Mr Lonsdale said the following year would also see APRA make further advancements towards implementing the final elements of the complex Basel III capital framework for ADIs.

“A key component is rethinking how Australia’s relatively more conservative capital approach can be explained to provide greater transparency about the strength of our banks and more flexibility in times of stress,” he said.

The authority was also working on developing a formal prudential framework for recovery and resolution, to help stressed institutions restore themselves or in extreme cases manage orderly failure of entities beyond help.

“Our ability to create such a framework has been enhanced by the recently passed legislation expanding APRA’s crisis management powers, which provided a clear basis to make prudential standards on resolution.

“These are powers APRA hopes never to need; however, possessing a strong framework to manage failures and crises is a critical component of a resilient financial system,” he said.

APRA was also working with super groups to finalise member outcome packages as well as moving towards an aligned framework for private health insurance with that used in life and general insurance.

Mr Lonsdale finished by saying APRA keenly awaited the final report of the royal commission and would react to its recommendations.

“Both the report, and the government’s subsequent response to its recommendations, will become high priorities for us once they are made known, and we are confident that the financial system will ultimately emerge stronger from the scrutiny,” he said.

ASIC concedes it doesn’t know how to deter misconduct

The corporate regulator has told the Hayne royal commission that it is at a loss over how to successfully prevent misconduct in financial services, via InvestorDaily.

The Australian Securities and Investments Commission has expressed in its submission that work had to be done to stop misconduct in the industry but there was not enough evidence as to how.

“There is unfortunately currently a dearth of knowledge and research as to what effectively deters misconduct across the range of corporate sectors and, in particular, the financial sector itself,” it reads.

ASIC recognised that it had a duty to force significant cultural change in the industry and said it would begin onsite supervision in major financial institutions.

However, ASIC rejected the interim reports idea that it did not go to court or issue civil penalties.

The Hayne Interim Report made claims that ASIC rarely went to court, seldom brought civil penalty proceedings and allowed entity’s to pay infringement notices with no admission.

ASIC said it was willing to change its enforcement practices but said it regularly undertook litigation against the financial sector.

“ASIC has litigated matters (through civil and criminal proceedings) twice as much as it has accepted enforceable undertakings,” ASIC’s report read.

ASIC also rejected the emphasis the interim report placed on its track record in the past decade against the major banks.

The interim report noted how ASIC had only issued commenced 10 civil proceedings against the major banks but 45 infringement notices to the major banks and accepted 13 enforceable undertakings.

ASIC said that the figures expressed in the report do not support the proposition that ASIC presently avoids compulsory enforcement action, nor do they reflect the full variety of enforcement tools made available to ASIC.

ASIC provided no comment on the interim reports findings that the commission had never brought proceedings against a licensee who failed to report a data breach.

“As at April 2018, ASIC had never brought, or sought to have the Commonwealth Director of Public Prosecutions (CDPP) bring, proceedings against a licensee for failing to comply with the 10 day time limit for breach reporting under Section 912D of the Corporations Act 2001 (Cth) (the Corporations Act), 21 despite affirming that it believed that entities frequently fail to comply with the section,” the report read.

The commission also provided no comment to the reports findings that it had never commenced proceedings against an entity for fees for no service.

“At 30 May 2018, ASIC had never commenced, or sought to have CDPP commence, proceedings under Section 12DI of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). This prohibits accepting payment for financial services when the payee does not intend to, or there are reasonable grounds to believe it cannot, supply the service,” it read.

Bankers, advisers engaged in forgery and theft

This week the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry published all of the initial submissions from organisations from across the sector, via InvestorDaily.

Prior to the commencement of the public hearings, a number of entities were asked to provide the commission with information concerning instances of misconduct or conduct falling below community standards and expectations that the entity had identified in the past 10 years.

Commonwealth Bank of Australia (CBA)

CBA named 15 former employees who have been banned by ASIC since 2011. All of them were either Commonwealth Financial Planning (CFP) employees or operated under Financial Wisdom Limited (FWL).

The most recent case involved the banning of adviser Kimberley Holgate earlier this year.

CBA explained that the former CFP employee was banned for five years for engaging in conduct that was Holgate likely to mislead by cutting clients’ signatures from documents held on file and pasting them onto new documents.

The bank also noted that the adviser was “not acting in the best interests of her clients when advising they rollover their existing super to a new product issued by CFSIL; not acting in the best interests of her clients by advising them to cancel existing insurance policies and apply for personal insurance issued by Comm Insure; and failing to prioritise the interests of her clients when advising them to acquire financial products which entitled her, her employer and its related entities to a financial benefit.”

In the period since 1 January 2008, CBA identified 15 adverse findings against the group.

Australia and New Zealand Bank (ANZ)

Meanwhile, ANZ admitted to the royal commission that 18 financial advisers falsified customer or compliance documents over the period and had deliberately overcharged fees.

“A number of different factors caused or contributed to the improper or non-compliant conduct of advisers, including the failure of ANZ’s processes, controls and supervision to protect against that conduct,” the bank said.

National Australia Bank (NAB)

NAB’s submission detailed extensive misconduct across its lending and advice divisions over the last decade, including a number of incidents relating to the misuse of customer funds.

“Some of the conduct was or is being investigated by the Victorian Police and ASIC,” NAB said.

“One financial adviser was convicted and sentenced to imprisonment. The financial adviser has appealed the sentence.”

Despite a plethora of examples of misconduct since 2008, NAB does not consider much of the conduct to be attributable to any particular “group culture”.

Westpac Banking Corporation 

Westpac identified significant misconduct across its mortgages business, including bankers forging supporting documentation and customer incomes.

In November 2015, Westpac identified incidents of staff engaging in conduct to simulate the creation and activation of new accounts to artificially inflate metrics used to calculate their variable rewards.

“In particular, the conduct involved simulating the deposits and withdrawals of $50 to suggest that accounts were ‘active’. An internal investigation identified a number of instances of simulated account funding between January 2013 and December 2016, which resulted in the termination of a number of staff together with other disciplinary measures,” the bank admitted.

HSBC Australia 

HSBC Australia detailed more than 20 examples of misconduct over the last 10 years, including a number of instances where branch staff stole money from customer accounts.

Over a number of weeks in late 2009 and early 2010, a staff member at an HSBC Australia branch allegedly made unauthorised use of a customer’s replacement bank card, withdrawing a total of $22,880. An internal investigation revealed a number of recurring breaches of HSBC Australia’s security procedures at the branch concerned, involving two further staff members.

“The employment of all three staff members was terminated for security breaches and the customer reimbursed. Other staff at the branch received supplementary training in security procedures,” HSBC confirmed.

In October 2009, a staff member spent $6,000 using a customer’s credit card. Following an internal HSBC Australia inquiry, HSBC Australia reimbursed the customer’s credit card and the staff member left HSBC Australia.

Between June 2011 and June 2017, a staff member at an HSBC Australia branch in Sydney misappropriated $913,115 from the accounts of eight customers. The bank discovered the conduct in July 2017 after an affected customer disputed a transaction and, following an internal investigation, HSBC Australia reported it to the NSW Police and ASIC.

“HSBC Australia continues to support the police investigation. All customers other than three have been reimbursed,” the bank said, adding that it is working to contact two of those customers, both of whom are foreign nationals and one of whom is presumed dead.

“The third has been contacted numerous times but is yet to provide details to allow return of funds. In the meantime, the money has been placed in holding accounts. The staff member’s employment was terminated consistent with the Consequence Management Framework.”

Grattan Institute rejects super industry spin

The Grattan Institute has rejected the ‘fear factor’ of the financial service industry that encourages Australians to stress about their retirement, via InvestorDaily.

A recently released report by the Grattan Institute, Money in Retirement: More than Enough, reveals that most Australians will be financially comfortable in retirement.

The report shows that retirees are less likely than working-age Australians to suffer financial stress and more likely to have extras like annual holidays.

Grattan Institute chief executive John Daley said that the institute’s models showed that Australians would actually be able to retire in comfort.

“The financial services industry ‘fear factory’ encourages Australians to worry unnecessarily about whether they’ll have enough money in retirement,” he said.

The Institute modelling, even allowing for inflation showed that workers today could expect a retirement income of 91 per cent of their pre-retirement income.

Grattan’s report called on the government to scrap the plan to increase compulsory contributions from 9.5 per cent to 12 per cent as most Australians would be comfortable in retirement.

The report instead called for a 40 per cent increase in the maximum rate of Commonwealth Rent Assistance and for a loosening of the Age Pension assets test which would boost retirement incomes for 70 per cent of future retirees.

The Association of Superannuation Funds of Australia denounced the report calling it an unprecedented attack on the retirement aspirations of ordinary Australians.

ASFA chief executive Dr Martin Fahy said the report was about two Australia’s, one with fully-funded, high-earning retirees and the rest with reliance on the state.

“The Grattan Institute wants to dismantle our world class retirement funding system and replace it with a model that has two thirds of the population relying on the Age Pension,” said Dr Fahy.

Dr Fahy also slammed the reports recommendation that the retirement age be raised to 70 and that the government reviewing the adequacy of Australians’ retirement incomes.

The institute’s report did recommend the government review the adequacy of Australians’ retirement income and called for a new standard.

“The Productivity Commission should establish a new standard for retirement income adequacy and assess how well Australians of different ages and incomes will meet that standard. References to the ASFA comfortable retirement standard should be removed,” the report read.

“The ASFA Retirement Standard provides a detailed account of living expenses in retirement.

“The Grattan analysis in effect wants people in retirement not to have heating in winter, not to take vacations, to get rid of the car, and skimp on prescriptions and other out-of-pocket health care costs,” said Dr Fahy.

The report for its part has said that reform is needed by the government to be able to fund aged care and health in the future.

“Unless governments have the courage to make these reforms, future budgets will not be able to fund aged care and health at the same level as today, which is the real threat to adequate retirement incomes in future,” it said.