The Australia Institute will today release a report showing that the Federal Budget would be more than $13 billion better off if superannuation tax breaks were scrapped and the Age Pension was dramatically increased.
The report’s author, Dr Richard Denniss, told the ABC, “There is nothing in the budget that’s going to grow faster than the tax concessions for superannuation.”
“Superannuation concessions are unfair … the top 5 per cent of income earners get a third of the benefit, and the bottom 20 per cent get literally nothing.”
Currently, the Federal Government assists retirees financially in two major ways: superannuation tax concessions and the Age Pension. According to Dr Denniss, the combined costs for these are currently around $70 billion, which is set to increase to $100 billion by 2020, just six years from now.
The radical report suggests scrapping superannuation tax concessions entirely, and instead introducing a universal, non-means-tested Age Pension. This new Age Pension would be increased to give singles $26,273 per year and couples about $39,611. This would, overall, cost about $52 billion each year, a saving of at least $13 billion when compared to the current system. The report says this would also help to deliver money to women and those under financial difficulty.
Superannuation funds are expected to oppose these suggestions, as scrapping superannuation concessions means Australians are more likely to invest in other areas, such as property. The Financial Services Council of Australia has opted not to comment until it has reviewed the report.
Read more at the ABC News website.
Theoretically, the more people are able to, and choose to, spend on superannuation tax concessions, the more Australia will save on the Age Pension. But this obviously has not been the case, as getting rid of superannuation tax concessions altogether and giving every Australian an increased Age Pension, would still save us money (if this report is found to be based on sound modelling).
Those in and entering retirement now would have spent a portion of their working lives in a time when there were no compulsory superannuation contributions. There will be those who ran their own businesses who couldn’t afford to contribute to their own superannuation. Some will have savings and some won’t. So, offering these people financial security, in the form of a non-means-tested, increased Age Pension seems like the right thing to do, especially if it is beneficial for the budget.
It doesn’t have to be forever. Theoretically, there will come a time when Australians who have always paid compulsory superannuation contributions will start to retire, and then that superannuation can start to replace or supplement the Age Pension. But for now it seems that we’ve forgotten the group in the middle, those who worked hard but for whom compulsory contributions came too late, and who face living on a means-tested Age Pension which is already far too low to support a reasonable standard of living.
What do you think? Should we move away from superannuation tax concessions and towards a universal Age Pension? Or should we be encouraging people to fund their own retirements?