Integrating the retirement income system and aged care funding in Australia: an Aged Care Levy as a social insurance option

Retirement incomes and aged care have both received considerable policy attention in Australia over the last three decades, but as in other countries, the two financing systems have remained largely separate in policy and practice. The problem is located at the intersection of wider policy debates about shifts from public to private welfare and concerns over intergenerational equity. This paper aims to integrate these related debates by incorporating aged care into the “pillars” framework used to understand retirement incomes. We propose an Aged Care Superannuation Levy applied to superannuation fund earnings, winding back the large and growing public tax concessions that support this pillar of private defined contribution pensions in Australia’s retirement income system. This revenue would create a social insurance pillar for aged care to stand alongside the four other pillars of retirement incomes that interact variously with aged care financing. Interest in a social insurance pillar of aged care financing is renewed in the light of the Royal Commission into quality and safety of aged care that reported in February 2021. As the Royal Commission recommendations on financing were divided and not taken up in government policy, the way remains opens for further consideration of the alternative approach proposed here.