Experts debate whether super is a saviour or a scam

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Australians diligently saving for retirement could be falling into a ‘retirement trap’.

Research has revealed how Australians with superannuation balances between $350,000 and $600,000 could actually be worse off under tightened pension rules.  

The analysis, from fund provider BetaShares, decried the tightened taper rates that progressively degrade Age Pension benefits based on a retiree’s wealth. It was labelled by senior investment specialist Roger Cohen as a ‘heavy tax’ on today’s retirees.

“Common wisdom tells us that accumulating more savings through our working lives should result in higher income in our retirement years,” Dr Cohen said.

“However, our analysis shows that, for certain people, under the current system, accumulating more money can actually produce the reverse.”

According to Leith van Onselen what was not mentioned was when, from January 2017, the assets test reduced the pension by $3 a fortnight for every extra $1000 in assets, up from $1.50 before the changes, the new rates simply restored what Peter Costello halved in 2006.

“Costello’s halving of the taper rate to $1.50 led to the ridiculous situation whereby retiree homeowning couples with $1.15 million in financial assets, and homeowning singles with $775,000 of financial assets, could still qualify for the part Aged Pension along with the Pensioner Concession Card,” wrote Mr van Onselen for MacroBusiness.

“Accordingly, welfare was being lavished on a significant number of wealthy retirees – an unsustainable and inequitable situation given the rapid ageing of the population and the projected diminishing number of workers available to support retirees.”

Mr van Onselen also believes that we are conveniently ignoring the fact that Australia’s super system is stopping the Age Pension base rate from being lifted.

And he’s not the only one who thinks the super system is failing retirees.

In fact, some experts say it’s a straight up rort.

Superannuation concessions cost the federal budget around $43 billion a year and only benefit the already wealthy.

Analysis by Sydney University economist Dr Cameron Murray also found that the Age Pension is over 20 times more efficient at delivering reliable retirement incomes, reports The Australian.

The super sector employs some 55,000 workers and costs fund members around $36 billion a year in fees. Compare that to fewer than 7000 staff and $1.7 billion in administration costs for the Age Pension, which, says Dr Murray, provides greater levels of annual retirement income.

His research, titled Scrap Superannuation, suggests that the economy would be better off if the super system was scrapped.

“Scrapping the super system would massively improve Australia’s economic performance – it’s costly and inefficient, unnecessary and incredibly unfair,” he said.

He estimated that compulsory super costs the equivalent of two per cent of GDP – around $40 billion per annum – and, so far, does little to offset Age Pension dependence.

“Instead of channelling incomes through asset markets, decreasing demand and soaking up a workforce the size of the military on an accounting exercise, the 28 million superannuation account holders could spend up to an additional $20,000 per year,” he said.

“That is $530 billion per year, or about 23 per cent of GDP, that will be made available. Most people will not spend the maximum from their super account, but there is no doubting the stimulatory effect of this change for the real economy – something that is sorely needed as wages reach nearly a decade of stagnation.”

He went on to say that super funds last year paid out just over $40.1 billion in returns to 1.4 million retirees, while the Age Pension paid out $45 billion to 2.5 million retirees.

“Super does not fulfil the requirement of a retirement income system; it’s better thought of as a growth-sapping, resource-wasting, tax-advantaged asset purchase scheme for high income earners, that may ultimately have little effect on reducing reliance on the age pension system,” said Dr Murray.

“People spend twice as much each year managing their super as they do on electricity,” he added.

Dr Murray says the industry has survived only because of ‘myths’ generated by the funds themselves.

“Otherwise intelligent people have been convinced that taking poor people’s money, to make them even poorer, and giving it to expensive investment managers is a great solution,” he said.

In short, super tax breaks and inefficiency cost the government more to manage super than it saves in pension payments, leaving fewer funds available to lift the Age Pension.

As Mr van Onselen says: “If the superannuation system was abolished, the Age Pension could be lifted significantly without creating any net costs to the budget.

“It would also make the retirement system more equitable and efficient, since higher-income earners would no longer receive the bulk of taxpayers’ support and overall administration costs would be significantly lowered.”

The government’s retirement income review is expected to deliver its final report in June/July.

Do you think super is a rort? Are you satisfied that your retirement savings will see you through retirement? Do you wish you could qualify for the Age Pension instead of funding your own retirement?

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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?

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109 Comments

Total Comments: 109
  1. 0
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    Thank you life choices for delivering this article to us. It came up on the Australian, but I was not allowed to read it as I don’t pay for it. I spent ages trying to find a way to read the article. Now I think what I wanted to read is in this article. Thanks

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      Just put the first 5 or 6 words of the article into a google search.

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      I tried that, each time it came up with the “Australian” article, I couldn’t read it anywhere else.

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      Try this

      “Research has revealed how Australians with superannuation balances between $350,000 and $600,000 could actually be worse off under tightened pension rules.”

      use the ” both ends.

    • 0
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      Try this

      “Research has revealed how Australians with superannuation balances between $350,000 and $600,000 could actually be worse off under tightened pension rules.”

      use the ” both ends.

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      I’d suggest that was the majority of super account holders – most people do not earn big dollars, and unless you are in a ‘protected species’ super scheme such as government etc or you had a lovely income, your chances of accumulating that much over the past 25 years are very.. VERY slim…

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    The super system is going to backfire on the government. many people I know who are in mortgage debt plan on either paying off thier house with the majority of their super payout OR even buy a house. I asked a single mum who cannot afford to buy a home at all, if she ever thinks she will be able to buy a house- he answer was- with my super. Our housing crisis is a major concern to our economy. It is driving people to live further and further away from the cities CBD, thus causing many many more cars on freeways/roads coming into the cities. More and more young people are sharing larger houses as they can;t even afford to rent smaller places on thier own, like i used to when i was in my 20’s.

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      Allowing super to be used to buy a house will only make the housing bubble even bigger and the subsequent burst even more too.

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      Ïnvested well”- how many old people can live happily whilst constantly juggling risky share investments and all the other red tape that comes with combining superannuation and part-pensions? It is a ridiculous, cumbersome system foisted upon people at the time of their lives when everything to do with income should be simplified. As it is most people have to pay financial planners, decide what level of risk they can tolerate, and are constantly trying to figure out how to stay within the deeming rate. I’ll vote for the politicians who are on the side of ridding this country of compulsory superannuation, introducing a base rate pension for everyone, and then people can save a nest egg for their retirement, or live frugally on the pension, a choice they make for their own future.

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      Well – a housing bust is needed… pricing is way out of control and it is no skin off those who’ve been paying rent for years if the parasites in that ‘business’ go down… my only feelings are for the small perhaps one investment property people, who are nothing like those who actually drive up the prices… the serial house hoarders with all the ‘business’ concessions and such.

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      I don’t have any problems what so ever with the current system or investing my money well. I take no notice of the deeming rate as it’s the amount of assets you have that is important.

      Sure let anyone who wants the pension have it but it becomes a debt to be repaid from your estate.

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      .. along with all tax benefits, BB… that’ll slow you down some…

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      Super is intended to make retired life easier, it was never intended for it to replace Pensions.
      If using a lump sum to buy a house or pay of a mortgage makes life easier, it has served the purpose that it was intended for.
      Your Super is your money, it should be used as you wish to use it, the government nor any one else should not get a say on what you do with it.

    • 0
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      Brissiegirl; so very well put & Id have to agree 100%!

  3. 0
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    Invested well a person can earn as much from their super as the full OAP.

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      yep up the events of the last few weeks my Super was doing great guns, earning over 13%. Predicted that I could have earnt more than 2 years of AP in 1 year. Then comes along the virus. I have temporarily moved the majority of my super into Fixed Interest(about 4%) whilst I watch what is going on.
      I only have done well because of my marriage breakdown, and our marital home going from $235K when we bought it in 2001 to over $1.1 million in 2019. I actually bought into a retirement village for oddly enough $235K, and most of the rest of my 50% of the house I put into Super. I am also a few years away from the AP. So sort of hoping to make $$ on my super so I can retire a few years earlier from the money I make from Super but still
      keeping my base Super in tact- if that makes sense.

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      Kindly differentiate between SFRs and fund members, BB.. nd others… only some are in that SFR boat and have any discretion over their funds.

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      I get the full OAP plus benefits.

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      Ah – you admit to being the problem, not the solution.

      They’ll get you, BB.. no wonder you fight change that suits everyone, and not just yourself. Weren’t you the one complaining about pensioners on cruises and people with mega-million houses in your street who get pensions?

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      Maybe I do have that mega-million dollar house too.

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      How would you be living in Easyscam Street if you didn’t?

  4. 0
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    Seems to me that by going on about the reductions in super based on the regulations the really obvious thing to do would be to change the regulations!!!!!!!!!
    Or is that too hard for these politicians?

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      Yes, there is quite a bit of reactive, half-blind approach to the problem, and the solution is far simpler than these so-called researchers are suggesting. Quite easily, the Govt could remove all Super tax benefits above a certain limit, say $600K to encourage people to have extra savings, and tax all income other than that at full marginal rates.

      Also, I don’t seem to hear any of them suggesting Universal Age Pension without any tests for ALL on reaching Age and Residency / (preferably) Citizenship criteria, as an obvious solution in tandem with reducing Super benefits.

      The above two solutions should be easy even for the dumb politicians, just need people to hammer them about it!

      The deadline for Submissions to the “Retirement Income Review” by Treasury is COB today, 3rd Feb 2020, and it is quite easy to find the web site by a google search on the quoted words above, go on the web site and send an Email with attached Word / PDF document – instead of letting these so-called experts to confuse the Govt, ALL concerned Retirees should do it themselves TODAY.

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    Of course super is a rort for all except the very wealthy for whom it functions as a tax avoidance scheme. For the financial elite super is a windfall but a burden on everyone else. I think 80% of super benefits go to the wealthy top 10% of the population.

  6. 0
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    There are No Rules on How One Uses Their Super, only access before now 60 years old.
    If you leave it in Super after OAP age what ever that will be!!! you have a minimum draw down. So take it out and do as you please spending just don’t gift more than $10,000 at 5 year intervals.
    House,Renovations,Holiday,Pool,Gym,Knock Down Rebuild or Make Contributions to your Local Gambling Place.
    Leave it in a Financial Institution, you have criteria to follow to meet if Claiming OAP/Part OAP.

    • 0
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      Hi Chris. I was under the impression it was $30,000 at 5 year intervals ?? Maybe I am wrong and someone can set me straight ??

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      Put it into a travel agents account so your family can use it to pay for trips.

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      Put it into a travel agents account so your family can use it to pay for trips.

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      Chris, I would think rather than gambling, etc. one would be better off debt proofing your home, – Solar Panels (inc batteries) for your electrical needs, + solar Hot Water, recycling your sewerage via digestion to your lawn, the which will give you mulch for your garden, Worm farm to recirculate your kitchen waste, again into the garden, which should contribute significantly to your food, – buy re-chargeable electrical appliances to do your lawn and garden as they are very efficient, easy to use, and cost no fuel to run, – insulate everywhere, replace all your lights with LED’s, – you know your situation, – be creative with it, and if you are building a new house include a very large water tank under it, – to use as a heat sink cold/hot source for fridges, air conditioners, heaters, etc, as emergency water for no power or Fire Approaching and so forth. – may be not only rural in the future..
      Cheers, Lookfar, (Geof)

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      Lookfar
      I was just Stating What can be Done Now.(These are Just Some Of Countless Ways of using Super Funds other than Income Streams)
      How you use your super is Up To You.
      I couldn’t give a Rats about How someone Spends Their Funds, as I Stated No Rules are set so none are Broken.
      Why Single Out Gambling, how one Uses Their Funds Is Their Business just the same as the others and I did State Renovating / Knock Down Rebuild.
      Please Read again.

    • 0
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      Got all that Lookfar plus a generator and more than enough fuel for when the poor goes off. Sprinklers on the roof plus gutters that can be blocked and filled with water from a pump and water tank. Lots of wood for cooking and heating too. I’m thinking of getting an electric vehicle to use as a battery.

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      Travel accounts? Taxable perk…. deemed income

    • 0
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      All it shows is you paid for some travel at a travel agent. Perfectly legit.

    • 0
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      So you ‘gift’ excess funding to a travel agent in the event that in the future you might take a trip?

    • 0
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      TREBOR
      The gift would be like pre paid Funeral.
      Trip of a life time everyone is going at some time, just not now.
      {;-(0)

    • 0
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      Yes It’s like a prepaid funeral plan for all the family to use.

  7. 0
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    Superannuation as set up by Labor’s Nick Sherry is the biggest rip-off ever perpetrated on Australians. All retirees should get a base pension regardless of their financial situation, as is the case in New Zealand. Just imagine the financial savings by exchanging a costly beurocracy for asimple base pension without all the benefits investigations operatives – form-filling, financial information service officers and everything ugly that surrounds the maintenance of a complicated pension system.

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      Long advocated a universal pension, but remember that doesn’t leave everyone home and free on all other retirement income – actually the opposite… it’s not just an extra handed out… it’s balanced by having to pay tax on all other income, deemed income and perks offered… imagine the late Kerry Packer having to pay income tax on a lazy million thrown his way to attend the races at Randwick when his declared income was $25,000… you can hear the whining from Bellevue Hill all the way up here..

  8. 0
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    SUPER IS THE BIGGEST RIP OFF SCAM ENFORCED BY OUR OWN GOVERMENT
    I lost over 300K of my super in the GFC

    Re: Pensions:
    NO ASSET TEST FOR A PENSION EVER AGAIN!
    A pension is not welfare.

    Now is the season for discontent, so do something about it!
    It is time to kill off this insane hugely expensive pensioner whacking bureaucracy.

    It is time for all of us (yes that means you) to rant at our MPs and Senators daily to take action for human decency and a huge stress reduction for pensioners

    Most economist say we will save taxpayers money by dropping asset testing because of the massive overheads cost in running Centrelink and the 10,000 conflicting rules.

    Hiring more Centrelink staff will only increase taxpayer’s costs for processing the creeping insane red tape monster system politicians and well paid bureaucrats have created.

    Help scrap it now. Become a hero.

    Even the UK and poorer New Zealand has a NO ASSET pension, so it is cheaper and user friendly.

    Why worry that few million$ earners get it too. That is peanuts to them, not enough for a good vintage champagne.

    Do retired and retiring people really look forward and want 100++ visits to/from Centrelink and be hassled by their crazed robo-debt scam and then waste even more time in the 3 million people waiting queues and more lost calls?

    We all (that means you) need to tell our MP and senators every day that these criminal asset tests for a pension must be dropped now.

    Ask your MP do they really like being part of the system that allows this indirect abuse of the elderly?

    This abuse is actually sponsored by our government and forced down to Centrelink and borders on a criminal act.

    Why do MPs normally compassionate persons let this Centrelink abuse happen at taxpayers’ expense?

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      You only lost the money because you sold when you should have been buying.

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      I lived through the GFC and I did NOT lose more than 2% of the value of my super and this was recovered nearly 5 times over within a short couple of years. Of course, I did not have my super invested in high risk, high grow asset class. If you gamble you take a risk.

      There is only one thing wrong with the asset test and its taper rate. It assumes that each $1000 above a threshold limit earns you $3/fortnight or $78 pa or a massive 7.8% return which you cannot get from any bank term deposit. That’s what’s wrong. Fix that to reflect current term rate deposit earnings and the asset test becames fair to everyone.

  9. 0
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    Yes the super system should be scrapped. I agree with the points made by Dr Murray and Mr van Onselen. The super system is a rort. Far better to have a higher age pension.

    But leaving the government in charge of the review is unfair because each politician benefits greatly from the super system. Pressure needs to ge put on government to do the right thing.

    • 0
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      ” scrapped”. And then what happens to those who’ve position and contribution is a reflection of their commitment over their working lives.

      What we need even more is cessation of any initiative that reflects identity politics. ALL, and i repeat ALL present day Government initiatives are ‘identity’ based. You know ‘diversity’.

      “diversity’ is a present day terminology that defines ‘allowable, endorsed, authorised discrimination, against white males.

      First question is, does it mean a greater proportion of your lifetime working, earned, Super benefits will go to your ex wife while your remaining financial base for working to build the Super is further reduced.

      What I am saying is p[lease do not confine this matter to ‘Super”. It is part of a deeper Social indignity in the form of diversity, or authorised discrimination.

      If you think my comment is off side, well I’m just sick of being beat over the head with a piece of 4×2 inch timber in the form of being a self funded white male.

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      Self funded White male retiree that is. e.g. I depend on no-one to provide for me and I am self accountable for my life. I am not by or as an identity group that requires preferential treatment.

      Self respect is initiated in that manner.

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      Put everyone in the same boat on a pension plus tax on incomes etc, and no problem, then…

      SFRs are an identity group – look at them here…

    • 0
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      Trebor SFRs are not an identity group for consideration in Government based Super initiatives. SFRs pay their own way through their own work time application.

      Yes I would not mind a pension on top of my self generated self funded position.

      But if you knew my details I can never get into your penultimate para situation.

    • 0
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      I retired at 55, have been retired for 8 years and lived off my Super.
      I will continue to do so and now my wife has also retired we will combine our Super Incomes and continue to live without any of the government assistance that would have been our entitlement.
      If it had not been for Super we would both be still working.
      Uper may not work for some, but it sure worked out for us.

  10. 0
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    Well – essentially the Pension system was a viable form of superannuation for all Australians, before the politicians got their fingers into it and tore the guts out of it for their own nefarious purposes…. of course their ‘pension’ scheme was sacrosanct and safe as houses – so safe it even needed the government to lift $130Bn out of the national treasury and spirit it away to the Caymans, where it was safe unto eternity and paid no tax here on its incomes. Do a Banana Republic dictatorship proud, that would (El Grande Republica da San Austrador/Austrochine Province)!

    BTW – that was part of the squandering of the income from the ‘mining boom’ and selloff of OUR assets, that’s where a huge chunk of it went – not in any Labor exercise… a Howard exercise. Ah, yes – the treasury was left with billions – so who’s going to miss $130Bn, eh? Grand Theft Canberra.

    So, as for super – a one-stop shop in which all were treated equally – where everyone had an account, where fees were taken from profits, where there was a limit on how much you could contribute with any concession, then the rest was savings, but it was indexed for equity, where everyone, including the unemployed, the halt and the lame etc, had a minimum amount per time period inserted – and which account was made up of the never-ended pension contribution along with a component of the current superannuation contribution, and this fund was used to primarily fund genuine Australian infrastructure for the future of this nation and its people.

    You then, at retirement, receive your ‘superpension’ and pay income tax on incomes over and above as outlaid many times already.

    Will, of course, need tweaking… sadly – that’s when the rorts come into play… traditionally.

    I suppose, in the eyes of ome, this kind of plan would make me some for of Nationalist Trotskyite or something – frankly – I couldn’t care less about political labels or politics and any drive for money from it … just about fairness and genuine equal treatment.

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