Finance Your Super Pollies play with your super, and it could get worse

Pollies play with your super, and it could get worse

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Superannuation remains the plaything of politicians and there’s no sign that this will change in future.

The latest evidence is the deal between the Federal Government and the Palmer United Party to delay the 12 per cent target for superannuation contributions for seven years to 2025.

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It reminds Australian workers and retirees that, even three decades after the introduction of occupational superannuation, they have no certainty or security over their retirement savings.

Worryingly, there are more signs that it will become even harder for workers to get their hands on their super.

Money superannuation

The recently announced increase of retirement age to 70 for workers born after 1965 gives Australia the world’s highest official retirement age.

It is hard to envisage Canberra, in future, not increasing the age at which workers can access their super. Currently, workers can retire once they’ve reached preservation age, receiving their super tax free in an allocated pension or for most workers a tax free, lump sum.

You can almost hear the Treasurer saying, “we’ve got a mismatch here – the retirement age is 70 but the preservation age for super is 60 – so today to protect the Budget, I’m announcing an increase in preservation age to 70.”

For many workers in physically demanding occupations, being able to work to 70 is just not possible and many unemployed people over 50 know that the jobs just aren’t there.

Increasing the preservation age is just not fair. All it will do, is force workers onto social security until they reach retirement age.

Even more worrying is the kite-flying by the Financial Services Council. The FSC represents banks and the profit superannuation sector and is encouraging a debate about denying workers from taking their lump sums upon retirement and instead forcing them to take a pension.

This debate provides Canberra with an opportunity to force workers to take a pension rather than a lump sum, again with the rationale of protecting the Budget and delivering a win to Australia’s banking sector.

Denying retirees the option of a lump sum and forcing them into pension or annuity products better serves banks than the interests of working people, as banks would be guaranteed an annuity-like income from people’s retirement savings.

Banks – through their distribution networks, conflicted remuneration arrangements and sale of products disguised as financial advice – have been very successful in attracting a disproportionate share of people’s retirement savings.

You have to ask, why should retirees have their income managed by those who have failed to demonstrate that they are able act in their clients’ and customers’ best interests?

There are currently very real tax incentives to encourage people to keep their retirement savings within the system.

Many superannuation fund members did not have the privilege of a university education, or the ability to amass significant retirement savings.

Proposals to force workers to take lump sums is tantamount to income management. It does not consider the implications for retirees – particularly those on lower than average incomes prior to retirement.

What we know is that many of our members don’t have the spare cash to prepare for retirement by paying down debts, repairing their houses and acquiring replacement white goods and cars. Accessing their super on retirement to do these things allows for a comfortable retirement.

The myth that working people waste their super on luxuries such as trips and boats is just that. There is no evidence to support this claim.

If Canberra wants to protect the Budget then meaningful reforms to the retirement system to sustain the tax base would include:

• Eliminating concessional treatment of superannuation contributions for people who have more than seven times the annual non-concessional contribution amount (presently $180,000) in their superannuation

• Taxing earnings on retirement accounts for any earnings on superannuation balances above this seven times amount

What Canberra should not do is force workers to wait until they are 70 to get their super and then only get it in the form of a pension.

Bill Watson is Chief Executive Officer of First Super, which is a shareholder in The New Daily