Retirement review reveals how much the wealthy benefit from government support

Font Size:

Australia’s wealthiest are given twice as much financial support as those on the lowest incomes, says a new government report on the state of the nation’s retirement income system.

The report is sure to spark debate over the intended purpose of superannuation, as well as other tax breaks that favour the rich.

It revealed that government payouts and tax concessions are, by retirement, worth more than $700,000 to Australia’s top 10 per cent of earners, but just $350,000 to the nation’s lowest earners.

So far, the three-person panel leading the retirement income review is not recommending any changes. It has, however, tabled a paper intended for community response and has signalled its interest in making the system fairer for younger taxpayers as well as for those in retirement.

The paper also points out how our ageing population may eventually put pressure on remaining workers to fund older people.

“Age Pension expenditure is funded from government revenue, affecting the tax impost on working Australians,” said Treasurer Josh Frydenberg.

 




“Australia’s ageing population means there will be a declining number of workers for every retiree. It is, therefore, important the retirement income system does not place an undue fiscal burden on future generations.”

However, in contrast to this supposition, the paper also showed that super savings had increased from $229 billion in 1995 to $2.9 trillion today and that reliance on the Age Pension had dropped from 80 per cent to around 68 per cent.

While the staggering increase in accumulated super means more self-funded retirees and fewer people reliant on the Age Pension, the paper warns against the use of super by those in higher income brackets as a way to accumulate wealth or pass on wealth to ensuing generations.

“The retirement income system is not intended to boost private savings per se, nor is it intended to be a source of savings for the purchase of large assets during an individual’s life (such as housing), or to assist with wealth accumulation in order to provide for inheritances,” says the paper.

One table in the report clearly illustrates how wealthier people benefit from government support and generous tax concessions.

retirement income table 

While some are critical of these tax concessions, others defend them, saying that wealthier people pay more tax over their lifetime and that outlay for the pension outweighs revenue lost on favourable tax treatment of super.

However, according to research from Anglicare and Per Capita, tax concessions to the wealthiest fifth of households cost the budget about half as much as the total cost of welfare payments.

“Using Treasury data, as well as various ABS figures and the University of Melbourne’s HILDA survey, Per Capita calculated that major tax concessions totalling $135 billion per year were costing the budget more than the four main welfare payments – the Age Pension, family assistance payments, disability benefits and Newstart – combined,” says an ABC report.

The paper also raises questions about equitable outcomes for women and whether the system did enough to support poorer workers. It also noted how home-ownership levels had dropped in the past two decades.

“Does the system provide most support to those with the least capacity to save for and support themselves in retirement?” the paper asks. “Is support for non-homeowners equitable?”

It questions how the family home is treated under the assets test:

“There has been debate about whether the exclusion of the value of an owned primary residence from the Age Pension means test may result in Australians overinvesting in their family home,” says the paper.

And it points out the complexity of Age Pension and aged care tests: “The means test for the Age Pension is structured differently to the means test for aged care and the interaction can be complex to understand.”

Overall, the paper highlights the almost overwhelming complexity of the system and how lack of understanding of the system could lead to poor decisions when planning retirement.

“Given the complexity of the retirement income system, it is important individuals are able to achieve good outcomes even where they have not engaged in retirement planning. Default settings have the potential to improve outcomes by guiding individuals’ behaviour in saving for, and consuming, their retirement incomes, whilst still providing support for individual choice and decision making,” it says.

“The degree to which individuals can understand how the system affects them, the impact of their decisions on their income during their working life and in retirement, and whether the system supports them to engage without difficulty will affect its overall adequacy and sustainability.”

Labor has called the paper a “stalking horse” for the government to put a freeze on raising compulsory contributions to 12 per cent, but the government maintains that it has no intention of changing plans to raise contributions, nor does it wish to change any tax concessions.

Do you find the retirement income system overwhelmingly complex? Help us send the government a message by answering a few questions in the YourLifeChoices’ Retirement Income Review Survey.

If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.

RELATED LINKS

Government slammed for its proposed super tax grab

Government idea called "nothing less than a tax grab" by one industry expert and "farcical" by

Experts, members add their voice to retirement review

Ensure your concerns are heard in the Government's retirement income review.

Retirement review the perfect time to assess the family home

Terms of reference offer the Government a chance to scrutinise such policies as the treatment of

Written by Leon Della Bosca

Leon Della Bosca is a voracious reader who loves words. You'll often find him spending time in galleries, writing, designing, painting, drawing, or photographing and documenting street art. He has a publishing and graphic design background and loves movies and music, but then, who doesn’t?

Contact:
LinkedIn
Email



SPONSORED LINKS

Sign-up to the YourLifeChoices Enewsletter

continue reading

Seniors Finance

Be a savvier saver with these nine tips

Many people have seen their savings pots wiped out by the impact of the pandemic. At the other end of...

Finance News

Big four banks dragged to court over credit 'rort'

Screaming, dressed in glistening armour and wielding an axe, Aaron Flores has defended the honour of Australia on the battlefield....

Health news

Public toilets are a disease risk

The COVID-19 pandemic has forced more people than ever to consider the potential for airborne particles to damage their health,...

Stylewatch

Kurt Russell and Goldie Hawn's best style moments

They're one of Hollywood's most enduring - and beloved - celebrity couples. Kurt Russell and Goldie Hawn started dating on...

Superannuation News

Super fund recovery steps up pace

Long-term trends such as the digitisation or economies and work automation, which have been sped up by the COVID-19 pandemic,...

Finance News

Financial advisers lobby for permanent reduction in regulation

The financial services sector wants consumer protection laws watered down, claiming they are pushing the cost of financial advice beyond...

Legal & General

Is there a safe way to block estranged child from will?

Can Angie block an estranged daughter from her will without consigning her other children to a drawn-out challenge after her...

Health

How to stop gas pain

Flatulence, commonly referred to as 'farting', is caused by gas in the bowel. Ordinarily, the intestines produce between 500 and...

LOADING MORE ARTICLE...