Finance Your Super How your retirement is about to change
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How your retirement is about to change

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Living longer used to be considered a good thing – at least compared to the alternative. That could be about to change thanks to the government’s plans to raise the pension age and, quite possibly, the age at which Australians can access their superannuation.

The Coalition’s budget goes further than the National Commission of Audit’s recommendation to raise eligibility for the age pension to around 70 years of age by 2053. It will now happen by 2035.

Still on the cards is a proposed lift in the super preservation age to five years less than the age pension eligibility age under the Commission’s proposals. This could mean a preservation age of 65 if the pension age rises to 70. The proposal will be reviewed by an upcoming government tax review and the current financial system inquiry – but the safe bet remains that the preservation age will also be heading north.

It’s a requirement based on numbers – they haven’t looked at the human quality of raising this number [70]. It’s designed around office workers, it’s not designed around manual blue-collar

It will require a seismic shift in the retirement planning of a generation.

The age pension eligibility age is currently 65 years of age (with this rising in stages to 67 by 2023) and super, depending on when you were born, is unlocked between 55 and 60 years of age.

The average life expectancy for men born today is almost 80 years and for women it is 84.3 years – an increase of almost three years in just a decade – according to the Australian Bureau of Statistics.

How we provide for our elderly is a nation-defining issue. Photo: Shutterstock.
How we provide for our elderly is a nation-defining issue. Photo: Shutterstock

It makes for an increasingly long time in retirement and the government’s liabilities already reflect it. The age pension currently costs $39 billion and super tax concessions of about $35 billion are rising by 12 per cent a year, according to think-tank The Australia Institute.

But scratch a little deeper and the fundamental questions of equity remain unanswered around the super debate and pension proposals.

Australian Institute of Superannuation Trustees (AIST) chief executive Tom Garcia has warned that older Australians who can no longer work will suffer under the government’s plans to raise the eligibility age of the pension (which will also become harder to access and rise more slowly over time).

“It’s a requirement based on numbers – they haven’t looked at the human quality of raising this number [70]. It’s designed around office workers, it’s not designed around manual blue-collar.”

AIST-commissioned research by the Australian Centre for Financial Studies suggests that up to 40 per cent of older Australians retire involuntarily. Raising the pension age is a blunt instrument aimed at alleviating the government’s growing pension payments as we live longer – something super was designed to do but has not achieved.

A key reason is the distribution of those $35 billion in annual super tax concessions: the top 10 per cent of income earners receive 31.8 per cent of the tax concessions while the bottom sixty per cent receive just 27.2 per cent, according to The Australia Institute.

Even the Commission of Audit report noted that “many superannuation tax concessions disproportionately benefit higher income earners, when compared to taxation at marginal tax rates under the progressive income tax system.”

They are not alone: organisations as diverse as Treasury, the Australia Institute, CPA Australia, and the Henry Tax Review have also come to similar conclusions.

For a long time, Australians have viewed retirement at 65 as a given. Photo: Shutterstock
For a long time, Australians have viewed retirement at 65 as a given. Photo: Shutterstock

Super contributions are taxed at 15 per cent making it a particularly poor investment for low-income earners who pay little or no tax, and a great investment for high-income earners paying marginal income tax rates of 45 per cent.

“More and more people are becoming aware of the inequality in the tax system between the poorest cohorts and the more wealthy cohorts,” Garcia says.

But rather than address the inequities in super tax concessions, the government plans to increase them by scrapping the Low Income Superannuation Contribution (LISC) which enables Australians earning up to $37,000 per year to receive a tax rebate of up to $500.

The Association of Superannuation Funds of Australia chief executive Pauline Vamos acknowledges the impact – “It is a cost to them to invest in super and that’s not fair” – but that is as far as the acknowledgment about super tax inequity runs and there is little appetite in the industry to make super as appealing to low and middle-income earners as it is to the wealthy.

It is high-income earners and their super contributions which form the backbone of the $1.7 trillion industry’s profitability.

More and more people are becoming aware of the inequality in the tax system between the poorest cohorts and the more wealthy cohorts

But not addressing the issue threatens to undermine confidence in the entire system. The Australia Institute has proposed the radical scrapping of all super tax concessions and replacing it with a universal age pension.

It is a solution which would end a system which is still widely respected around the world – Mercer Investment Consulting ranks Australia’s retirement system as the third best in the world based on adequacy, sustainability and integrity.

It still has a long way to go. Living longer is still a good thing – but there will be little joy in it for millions of Australians if we continue to endorse a retirement system that keeps calling on poor and middle-income earners to carry the heaviest load.

What you can do

• Make your super work as hard as possible. The rollout of mandatory MySuper products should lower fees and boost returns.

• Check the level of fees you’re paying: investment management and administration fees should be less than 1 per cent. There is no evidence that higher fees lead to higher investment returns.

• Sign the keepsuperfair.com.au campaign to retain the Low-Income Superannuation Contribution.

• Email your local MP to voice your concern about the removal of the Low-Income Superannuation Contribution and the current inequitable distribution of super tax concessions.

Brendan Swift is a journalist who has been writing about superannuation and financial services for a decade

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