The government’s long-awaited Retirement Income Review has been met with mediocre fanfare, with not much in it for current retirees and younger Australians potentially the victims of what one media outlet is calling ‘pick-pocketing’.
Unsurprisingly, the report paints a pretty picture for older people who’ve had a lengthy working life, a reasonable superannuation balance and own their home.
But retirement looks grim for those who haven’t had a great work history or who don’t own their home.
Women, lower-income renters, people not covered by the superannuation guarantee, involuntary retirees, Aboriginal and Torres Strait Islander people and those with a disability will do it toughest, says the report.
Australian Council of Social Services (ACOSS) chief Dr Cassandra Goldie said: “We must fix the mounting inequality in our retirement incomes system, which sees people on high incomes benefit greatly from generous superannuation tax concessions, at a cost of tens of billions per year to the federal budget.”
The report found that older renters relying on JobSeeker payments before reaching Age Pension age are the most financially vulnerable retirees.
“The report shows people over 65 who do not own their own home are really struggling to keep a roof over their head, with 48 per cent living in poverty,” said Dr Goldie.
“Also, a growing number of older people are stuck on the poverty-inducing Jobseeker payment, with 42 per cent of people on JobSeeker over 45 years of age.
“We urgently need to increase the Rent Assistance payment received by people on income support, and to lift Jobseeker payment permanently to a decent level. In addition, we must invest in social housing to boost dwelling numbers across the country. These are without doubt the most effective way to lift the living standards of older people in greatest hardship.”
The 638-page review does not make any recommendations, but federal treasurer Josh Frydenberg says it will inform future policy making.
One such policy rumoured to be in his sights is scrapping the legislated compulsory super guarantee (SG) from the current 9.5 per cent to the promised 12 per cent by 2025.
The report suggests that any increase to the SG will come at the cost of wages.
“A rate of compulsory superannuation that would result in people having an increase in their living standards in retirement may involve an unacceptable reduction in living standards prior to retirement, particularly for lower-income earners,” says the report.
The treasurer, while not yet committing to winding back the legislated increase, is making noises to suggest he will.
“The key point to underline here is that we are living in a very different economic environment than we were this time last year. We have been subject, as a nation and a global economy, to a once-in-a-century economic shock with COVID-19,” he said.
The government assumes that any money saved by employees in compulsory super contributions will equate to wage increases.
An increase in wages is what the government should be pushing for, as such a move could spark the economy and pull us out of recession faster.
But there is no guarantee employers will add more money to your pay packet, and if the SG increase does not go ahead, workers will also have less money for retirement.
As journalist Geoff Maurice puts it, this is a hidden hand grenade that could blow up your retirement.
“So, you’re being told to give up your retirement income boost because it could discourage your boss from giving you a pay rise. You’re not actually being given anything in return,” writes Mr Maurice.
“It’s not a great sell. No wonder it’s being hidden behind the sleight of hand of a 600-page review into the retirement system, an involved and complicated cover for a money grab.
“It will be a six-month process, but it’s still a matter of having your pocket picked.
“Being mugged is less offensive. At least a mugger is upfront.”
ACOSS says the government should at least consider increasing the SG to 10 per cent as legislated but reconsider any further increases.
“We support the increase to the Super Guarantee from 9.5 per cent to 10 per cent of wages in July 2021 as collective pay agreements may already include this increase and on its own is likely to have minimal impact,” said Dr Goldie.
“For increases beyond 10 per cent, we need to see the evidence on whether it’s worthwhile for people with low and modest incomes to save more for retirement, given much of the increased contributions are likely to come out of future pay rises.
“In the absence of fundamental reform of the tax concessions as we propose, increases to compulsory super contributions beyond 10 per cent would be of doubtful benefit to people with low incomes who face greater financial pressure during working life, and are more likely to achieve close to income replacement in retirement at a 10 per cent contribution level.”
The group also says removing excessive post-retirement tax breaks could help properly fund aged care.
“At a time when aged care is grossly under-funded, and the cost of fixing this is about to rise rapidly, it makes no sense to continue to exempt super fund earnings (interest, dividends and capital gains paid to super funds) from income tax,” said Dr Goldie.
“This exemption should have been removed years ago when super benefits paid to members were made tax free.
“To properly fund aged care and health services for an ageing population, ACOSS is calling for superannuation fund earnings after retirement to be taxed at the same rate as in the ‘accumulation’ phase (15 per cent), minus a tax credit for people on the lowest incomes. This would raise $5 billion a year in the short term and much more in later years.”
The Association of Independent Retirees (AIR) says the review provides a “much-needed fact-based assessment of the three pillars of the Age Pension, compulsory superannuation and private savings that are the foundation of Australia’s retirement income system”.
AIR president Wayne Strandquist welcomes the review.
“Retirement income derived by self-funded retirees can be drawn from one or any combination of the three pillars of Australia’s retirement income system and self-funded retirees have a direct interest in any changes that may be contemplated by the government as a result of the review panel report,” said Mr Strandquist.
“The Association of Independent Retirees is pleased to note that the key observation of the review panel was that ‘the Australian retirement income is effective; sound and its costs are sustainable’.
“This observation provides a sound basis for consideration of any changes that may arise from the report to address issues of inequity and ensuring the system delivers a retirement income that achieves a reasonable balance in relation to working life earnings and retirement income.”
Mr Strandquist says any assistance the government can give self-funded retirees in the form of tax concessions and encouraging them to fund their own retirement will, in turn, help the government by decreasing dependence on the Age Pension and other payments.
“Self-funded retirees need to be sure that they have adequate savings to fund their retirement for a multitude of reasons apart from funding a reasonable standard of living,” said Mr Strandquist.
“These reasons being having sufficient funds invested to ride out economic instability in instances such as the GFC and COVID-19, cover inflation affecting the cost of living, providing for higher healthcare costs in old age, providing for residential aged care if required, and providing for times of low-interest rates.”
What do you think of the ACOSS suggestions? How much do you know about the Retirement Income Review? Are you happy with the direction it could take future policy?
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