This research examined how Australia’s tax and transfer system, especially in relation to the age pension, impacts on household retirement choices.

Economic challenges associated with an ageing population present policy choices for the Australian Government. The policy lessons to be drawn from this report reflect a number of key considerations. First, retirement income policy and the place of housing in that framework is complex and care must be taken when adopting piecemeal changes, as such changes can have unintended consequences. 
Second, the guiding principles of tax reform are that it develops a tax system that is fair, promotes efficiency and does not impose high administrative costs on those it taxes. Moreover, in terms of the tax and transfer system, any changes must be sustainable.

Finally, it is critical that actual or proposed changes provide sufficient time and guidance for individuals to make appropriate decisions in the life-cycle context. Over time, the age pension could be structured in a way that makes it more tenure neutral, by adjusting the respective thresholds for individuals or households that do and do not own property. In addition, taper rates applied to holdings of non-exempt assets should be balanced, taking into account the potential disincentives imposed by high effective marginal tax rates and the fiscal costs of lower taper rates.