COVID-19 has brought on a new set of challenges for pensions, pensioners

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Australia enjoys one of the world’s most successful and lucrative pension systems.

Right now, it faces one of its biggest challenges.

As do women, most of whom prior to the pandemic already faced the prospect of retiring with far less savings than men.

But Australia’s pension system is not alone on this ignominious situation.

The savings gap between retired men and women worldwide is set to widen further, even in some of the biggest pension systems.

Most women take more time out from the workforce to have children, resulting in fewer working years and reduced retirement savings.

The pandemic has decimated industries skewed towards employing women, such as air travel, tourism, retail and hospitality, according to the Organisation for Economic Cooperation and Development (OECD).

Federal policy response to the pandemic exacerbates the problem, says a Bloomberg report. It states that early access to retirement funds – a measure introduced in Australia, the US, Spain, Denmark and Canada – means that women, who outlive men on average, are further depleting their nest eggs.

“There is some indication that women could be more affected and that the pension gap would increase down the road,” says economist Maciej Lis.

“The crisis seems to worsen the labour market prospects of women more strongly than men because women tend to work in more affected sectors.”

Policymakers were already faced with the challenge of creating strategies for providing for ageing populations pre-pandemic.

Now, underlying flaws in pension systems designed to ensure financial security in retirement without being dependent on welfare have been exposed.

Australia’s pension system is ranked third best behind the Netherlands and Denmark. Yet Australian women will still retire with 40 per cent fewer savings than men.

This is similar to the European average, but even in the US, the shortfall is lower at 32 per cent.

The OECD says the problem with the Australian system is that it is linked to paid work and the threshold for compulsory contributions is a monthly income of $450.

As a result, many lower paid and casual workers miss out on superannuation.

“We have a very sophisticated retirement system that rewards those with an unbroken career track,” says chief executive of the Melbourne-based Health Employees Superannuation Trust Australia.

“The system doesn’t work for women who take time out of the workforce, women who work casually at times, part-time and it doesn’t put enough value on those years of unpaid work.”

And COVID-19 will further decrease women’s work prospects, says the OECD.

It is hoped the federal government’s Retirement Income Review might provide some solutions, including a removal of the $450 threshold and perhaps a super top-up for women who take time out to be family carers.

Countries such as Denmark and Sweden do this. And Denmark has a retirement income gap of about 8 per cent.

“Long before the pandemic, women already faced formidable challenges in saving and planning for retirement,” says Transamerica Centre for Retirement Studies chief Catherine Collinson.

“Any disruptions in employment, income and access to benefits for women are likely to widen the gap. Furthermore, given long-standing societal roles, women may find themselves more involved in home-schooling their children or being called upon to be a caregiver for an ageing parent or loved one.”

Women may also benefit from increased financial literacy, says a Fidelity International study.

Australian women worry about their financial future more than men, yet more than a third aren’t aware of how much they needed to retire, says the study.

While the Australian government decision to allow early super withdrawal of up to $20,000 will help them through the pandemic, the long-term effect on their retirement could be more catastrophic than any hardship caused by COVID-19.

According to data from super fund Hesta, women between the ages of 18 and 24 who claimed early release now have a median account balance of just $1049 – a 78 per cent reduction in retirement savings.

“Withdrawing $20,000 today could cost a woman anywhere between $63,000 to $200,000, depending on her current age, when she retires,” says FairVine Super executive chair Sangeeta Venkatesan.

“In comparison, the impact is a lot less for men.”

And though women face huge challenges, the Australian superannuation sector is facing the biggest challenge in its history.

Longer life expectancy and low interest rates are already putting pressure on the system.

Allowing workers early withdrawal of super has blown a $32 billion hole in the sector, says the Financial Times.

On top of this, the Coalition is signalling it may block the legislated increase in employer pension contributions, further dampening recovery for the system.

Supporters of the legislation theorise that the government may be trying to stymie the power of union-linked industry pension funds, which advocate on environmental, social and governance issues.

Some say the Coalition is using vulnerable workers and young people in lower-wage jobs to stimulate the economy, rather than relying on its own economic acumen to tackle the first recession in thirty years.

“This is grand theft Liberal party style,” says former PM and the creator of superannuation Paul Keating.

The Keating government introduced super in 1992 to support an ageing population and provide a fairer retirement system.

It has since grown to become the world’s third best pension system in terms of adequacy, sustainability and integrity.

Now there is a risk superannuation will be used as a staging ground for battle between conservatives and progressives for control of state institutions.

Pausing the increase to contributions at 10 per cent may be a short-term solution to help out an embattled economy and get businesses back on their feet.

But, according to the Financial Times, claims this will lead to increased wages should be treated with scepticism.

The last delay to increased employer contributions in 2014 was followed by a period of record low wage growth.

Debate around super will rage regardless. Until the publication of the Retirement Income Review, Mr Keating and those who share his ideology may go on assuming the government is planning to ambush the system for its own purposes.

Has your super held up during the pandemic? What do you think are the biggest challenges faced by current and future retirees?

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Written by Leon Della Bosca

35 Comments

Total Comments: 35
  1. 0
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    Superannuation is in trouble as long as we have a Liberal government. They have been trying to sabotage it for years because they can’t stand that any Labor initiative is a success.

    • 0
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      It wasn’t really a Labor initiative – it was a Hawke/Keating initiative – a very different thing.

      It gives big tax breaks to the LNP’s broad constituency rather than to anyone else.

      Brian Toohey has been arguing for ages (in the AFR) that it would be cheaper to give everyone a full age pension and take away the tax breaks. OTOH back in the day
      super made income tax voluntary in Australia for high earners – so a dentist friend
      (who made a quid or two – earned it I don’t deny) told me.

      Just remind me what Hawkie’s estate got for his house.

    • 0
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      Brian Toohey is right. It would be far cheaper and fairer to give everyone a full age pension and remove the tax breaks. The super system is the biggest rip-off transfer of wealth from battlers to the well-to-do ever conceived, but Labor has really done a superb con job, lying about it and pretending it benefits everyone.

      $450.00 threshold? Honestly, how much super can someone on a low age accrue? If they do accrue more than a very minimal amount, they lose pension benefits, so it’s not a benefit. On the other hand, if you earn $250,000 a year, you are getting a taxpayer handout of 30% of every cent contributed to or earned in super, PLUS a fat tax free pension in retirement. It’s rip-off.

      All we have to do to end age poverty is make the pension universal and taxed and make the super tax concession a universal 15% discount on a member’s marginal rate, giving them a cash top-up if the result is negative tax. So simple! But it won’t happen because the powers-that-be are pandying to their own selfishness and the greed of their rich mates. And Labor is actually worse than LNP in that regard. They just lie better.

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      These days there is a cap on how much you can contribute to Super from pre tax dollars of $25,000 per year, so the tax concessions aren’t really that great. I never earned $250,000 but on a much more modest salary being able to salary sacrifice into Super made all the difference to my retirement.

    • 0
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      I support a universal pension but am pragmatic about working within the current rules

    • 0
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      Fedup, super scheme was started by Paul Keating, super annuation companies donate to unions as well, super should not be political, all parties are a party to superannuation stuff ups?
      People have a responsibility after their employer has put company money into workers super. If you contribute less or mor yourself is your decision .
      The working woman these days has time off for children and family , they should be backed up by the government of the day who ever they are through A DECENT PENSION (OAP)
      BECAUSE THAT IS WHAT SHOULD HAPPEN TO EVERY AUSTRALIAN NATURALISED CITIZEN WHO WORKED FOR IT.

      Talk about men getting bigger supers, that may be the case, it shouldn’t be. IF THEY DO A COMPENSATION SET UP THROUGH THE GOVERNMENT PENSION MUST BE AVAILABLE TO WORKING WOMEN! Because they are women and that very fact makes it different and harder than males because they do birth children, and lose time, they should NEVER lose money in retirement!
      I have a family member, a female after the retirement age changes were brought in. She, who was born after a certain year in the fifties became not a 65 year old retiree, she has to wait until she is in the last month of her 66th year of age, in other words about a year behind , what she could have done a few years back. She lost work an d retired early , no work got some super, but no pension from 63 years of age to 66 years of age and that is three years with nothing much in circumstances that were not her making.

      Its not super that’s the problem its the murdering of the Pension system the squandering the special pension fund set up many years ago, for when we, all of us, get old and doesn’t that turn up before you know it?

      Now you can forget about the Coronavirus killing off jobs! The technology was starting to kill of jobs way before Coronaviruis came along and as that happened certain fools in government decided to mess with retirement age, and for some it turned out to be a nightmare not having a job in the last couple of years of working life and nothing coming in until she is nearly 67, Pensions should be totally set in concrete for ever, what ever financial sacrifice governments have to make on other waisted things, they should make
      No Australian should retire to nothing, even in the short term some are in the long term! ‘
      Poverty may not be forever, in certain “jump through hoops” Centrelink interrogations, it should be law and set-in for all time.
      That is what governments were and are supposed to do, but forget Coronavirus, just mismanagement of monies by different governments and all persuasions is what has caused all this fear and worry for older Aussies, way before any pandemic arrived.

      Pension funds were squandered, by all of them.
      So, Fedup, it has nothing to do with who is in power, its about the way you plan a nations future in a first world nation so all people are safe, Lib, Lab, Green who ever that’s their job no one has done it properly for a long time!
      It shouldn’t happen, and now Coronavirus makes it worse, but we still have to get back on our feet. Its time for thinking not fighting to get a bleeding seat in Parliament.

    • 0
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      John, about that woman in her 66th year of age having to wait until the 11th month, why didn’t she apply for the pension when she was eligible for it? Currently, the age is 66, but you can apply for the pension up to 13 weeks BEFORE your birthday.

      I’m in the next age bracket and have to wait until November 2022 before I can apply, which is 9 weeks before my 66.5 year birthday. The 9 weeks is for people already on Centrelink payments. They send you an invitation to apply.

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      Suzy, you can apply, but isn’t payable until the actual pension age

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      I was told to apply 10 weeks before my 65th birthday and the pension licked in the week after my birthday. If you apply on your birthday it takes time to process and the pension will not be backdated to your birth date. I applied on paper forms and that might take longer.

  2. 0
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    “Australia enjoys one of the world’s most successful and lucrative pension systems.”

    For whom exactly? Those of us at the lower end of the (uniquely Australian expression) self-funded retiree who paid lots in and get nothing out may disagree.

    Those who paid nothing in and get lots out (and still whinge) might agree,
    but it won’t stop them from whinging. So might the percentage merchants
    who cream off their fees (often hidden) from unsuspecting investors.

    • 0
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      I agree adbob. Really only way is the universal pension which also saves the govt a fortune with no assets test bureaucracy as in other countries

    • 0
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      Yes to a universal pension, tax on all income, no freebies but no asset and income tests apart from the ATO. Possibly an inheritance tax on estates over a certain amount (like $2 million, including your property). If that is not enough then possibly an increase in the GST (often mentioned on these pages regarding NZ at 15%). Let C/L worry about looking for jobs for the unemployed like CES used to be.

  3. 0
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    Will never forgive the LNP for the 2017 changes to the Pensioner Assets Test.

    • 0
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      You are right there Sinic, it cost us $600 a fortnight as a couple. This should have been a grand fathering clause
      Like other changes in the past. Moved the goal posts during the game.
      So the super gets drawn down quicker, then we go for more pension as it goes.

    • 0
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      I still don’t fathom the logic behind the changes.

    • 0
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      I voted Labor (well really the Shorten party) knowing that they would change it back if they got in.

      Oh hang on – they weren’t going to do that.

      Instead they were going to attack the same people by denying them their franking
      credit rebates if they had the gall to invest privately and not through one of the financial institutions (industry super included) run by their mates.

      These were people who were foolish enough to work and save in the first place – clearly
      victims of their own folly. They hadn’t woken up to the ethos of the new Australia.

      Fair go anyone?

    • 0
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      yeah we did. LNP won the election they announced it and those after.

    • 0
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      What happened to the Special fund that was set up in the 50’s or 60’s the details I am not sure of, but I have heard of this and somehow it is no longer there or is so much less than what is could have been.
      Set up for people who retired guaranteed, for life.

      Now centrelink is so full of conditions and questions and forms and a computer system that works only reasonably well and sometimes doesn’t work at all!

      They need a whole new attitude set up at Centrelink I am sure their jobs can be down putting and some people who go in are desperate or just mad at having to repeat things over and over, although it’s a little better with COVID19 killing lots of us oldies, they seem to get things moving but in there it always feels tense. So the customer feels tense as well, and they have strict protocols that people don’t like, and they make mistakes , lots of them, can’t be helped but no one is ever responsible, government operation, all the same.

    • 0
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      John. The so calle dsepecial fund was set up in 1940s and Whitlam in 1970s placed it all in to consolidated revenue. Since then there has been an ongoing concern about paying for defined benefits pensions. Costello set up future fund in 2006/07 and put $40b into it – last year I heard it was now around $193b – enough money to pay all public servants,miliatry and politicians and judges defined benefits

    • 0
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      DISCON, consolidation happened two decades before Whitlam.

      John, Chifley set the “special fund” aka the National Welfare Fund up during the war years as a smokescreen for unpopular wartime tax rises on lower income earners to pay for war costs. The Menzies government grouped the Compulsory Contributions (levy) with the Taxation Assessment and paid into the Consolidated Revenue Account. Welfare and social security payments were made from consolidated revenue reducing the Fund to little more than an accounting exercise. The Fraser government later emptied the fund, which had grown to $469.9m, in 1977. The Hawke government repealed the legislation in 1985.

      https://factcheck.aap.com.au/social-media-claims/future-fund-did-not-receive-170-billion-from-an-aged-pension-trust

    • 0
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      Cannot agree with the 2017 changes by the Libs but equally I have no understanding the ALP’s decision on shifting the pension age to 67 under Kevin Rudd. A lot of ALP supporters seem to have forgotten that.

  4. 0
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    liberal and labour governments are running thier own slave labour force and have been for so long . namely Carers we arent even recognised as workers. we had and still have no rights no superannuation . we get 3.50 an hour yet we are ignored

  5. 0
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    I I guess I am quite lucky as I worked for a charity for the last twenty years of my life and got well used to living on the “smell of an oily rag”. I have a full pension and had as I had not owned a home as I had traveled and worked abroad, and didn’t get to buy one. I bought into
    a life interest in a church village and had enough saved which has helped. I was going to take a holiday this year but this pandemic has put paid to that for a while. Libby

  6. 0
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    There has to be further change because as it is anyone in their early 60s continuing to work and contribute and looking at the prospect of having their age pension reduced by the assets test to nothing and their super pension likely to be less than that will realise that they are working for nothing and retire immediately targeting entry into a full age pension with the lower sweet spot of assets being assessed for the assets test. The upper sweet spot, where tax breaks make up for the lost age pension, is unattainable for most ordinary people.

    • 0
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      I have been saying this for years ever since Abbott announced it in 2015 but Governments do not care. All governments worry about is winning the next election. Of course if you are in your late 50s early 60s you are not going to save more than you need to keep you in that sweet spot.

  7. 0
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    Being a smart bunch you will be aware that the proposal by Morrison to reduce company tax will also reduce your franking credits.

  8. 0
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    The article prompts the usual flurry of ‘let’s have a universal pension’ responses. Why doent YLC’s journalists write a decent article comparing so-called universal pensions overseas (that can have contributory requirements – years of contribution determining level of payment – ie universal but not universally equal payment). And also mention tax levels required to fund universal pension payments… if required above and beyond contributions…

    • 0
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      Maybe because there’s no valid comparison between the universal pension in other countries and the one we SHOULD have here. We operate in a very different society and economy, substantially due to our massive superannuation savings.

  9. 0
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    What super? I haven’t had super since it was introduced in 1992, when I left my last full-time position. I’ve had part-time and casual jobs since, but not much in super had been put into an account, which now is non-existent.

    • 0
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      You must have recovered rather well. On Sept 6 you posted you are saving up for a flat-bed flight to the UK and a stay of 12 weeks. All your savings in the mattress perhaps??

    • 0
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      Super isn’t a measure of affluence, Mariner. Maybe SuziJ has healthy personal savings, or a healthy non-employment income, or has inherited money? Not having super doesn’t make someone poor.

  10. 0
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    @Sundays

    The limits you refer to apply on the accumulation side only.
    In pension mode the tax breaks for holders of
    very large super balances (often SMSFs) are still huge,
    even after the recent changes they are still pretty good.

    Most ordinary folk don’t have anything like enough super for that to be beneficial to them. Instead they lose some or all of their government age pension to such an extent that they would have been better off without it at all.

    I’m old Labor but I’m not so one-eyed that I would want to defend this situation just because
    it was created by a Labor PM – anyway Paul Keating didn’t have a Labor bone in his body – he effectively Thatcherised the Australian economy with his opponents (led by John Hewson – one of the most decent people that mob have ever pushed to the front) looking on jaws dropped, not believing that a Labor PM would steal their own clothes to such an extent.

    Of course he wasn’t a Labor PM – he was his own bully-boy man just using the party as a vehicle for his own advancement. It may have been good theatre watching him make mincemeat of his opponents in Parliament (with a compliant speaker letting him get away with murder) but we live now with the reality.

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