Under new super limits more Australians will be forced onto the Age Pension, or to work longer.
Speaking at a Women in Banking and Finance lunch last week, former federal treasurer Peter Costello questioned the Government’s plan to limit tax-free superannuation savings to $1.6 million. As a result of the planned changes and low rates of return, Mr Costello predicted that more Australians would be pushed onto the Age Pension or compelled to work longer.
Mr Costello said that the Government has estimated a return of around $80,000 per annum from $1.6 million, the equivalent to around four times the Age Pension. "When you work it out, that is on the assumption of a 5.5 per cent return rate," he said. "That is what the Government thinks you are going to get. Does it really think that? It is issuing bonds at two [per cent]." The 10-year Australian Government bond fell to 2.2 per cent Monday, which is a record low.
"What is going to give in this situation? The first thing that will give is that you will run out of money and go back on the pension, or a part pension. That is what most people in Australia are going to do. The other thing is that many people are going to work for longer, beyond 65. They'll put off their retirement," Mr Costello said.
Mr Costello, who currently heads the $120 billion Future Fund, is engaged in open negotiations with the Government to reduce the fund’s long-term return target. "Does the Government want us to go after 5 per cent, which means we have to move up the risk curve quite considerably?" he said. "Or would the Government rather us preserve what we've made, and reduce the target so that we stay where we are on the risk curve? That is a big issue. Does the Government have an appetite for us to chase risk? I don't think so. But the incoming government, whoever it is, will have to come to grips with that."
Mr Costello warned Australians not to expect either the Government’s or the Opposition’s proposed superannuation policies to be introduced because of a lack of support from the Greens for either policy. "We have a plan A on superannuation and a plan B on superannuation, but what is likely to go through is probably plan C. We can't tell at the moment what it is going to be," he said.
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Retirees have once again been left in limbo as politicians fail to find common ground on the future of Australia’s superannuation system. Current polling suggests that neither major party will gain sufficient seats when forming the next Government, in order to be able to pass their proposed superannuation policy. This means that the governing party will need the support of the Opposition, or The Greens – who have already said they are not prepared to vote ‘yes’ on either proposed policy.
Essentially, Australian voters will be going into the next election with some idea of where both the Coalition and ALP stand on superannuation, however, neither party’s policy has a strong chance of successfully pass through both Houses of Parliament.
The future of Australia’s superannuation system is far too important to be left in the hands of a minority party or party deals. Although it’s highly improbable at this stage of an election campaign, perhaps the two major parties could agree on a bipartisan approach to superannuation?
Mr. Costello is correct to stress the lack of connection being made between the government’s expectations of how much retirees might earn from their savings, the current interest rate, and the government’s own deeming rates. In short, they anticipate retirees will earn at 5 per cent, the actual rate is closer to 2 per cent, and the deeming rate remains higher. Go figure.
What do you think? Are you worried about your superannuation? Do you understand the current policies of both major parties and the proposed future changes? Are you worried about the Government’s modelling figures highlighted by Peter Costello?
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