Super is meant for your retirement, not your offspring: review

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“Superannuation is intended to fund living standards of retirees, not to accumulate wealth to pass to future generations.”

So says the recently released Retirement Income Review (RIR), the document intended to guide government policy about our futures.

The review noted the “significant size” of inheritances in the superannuation system and that most people die with most of the wealth they had when they retired, reports accountantsdaily.com.au.

“They are not distributed equally and increase inequity within the generation that receives the bequests,” the report stated.

“If this does not change, as the superannuation system matures, superannuation balances will be larger when people die, as will inheritances. Superannuation is intended to fund living standards of retirees, not to accumulate wealth to pass to future generations.”

Liberal backbencher Senator Andrew Bragg told the ABC the entire system needed to be looked at.

“It’s not there for wealth transfers through generations, it’s there as a retirement income system.”

This is not music to the ears of 72 per cent of the 4315 respondents to YourLifeChoices’ Retirement Matters survey, who said they were intending to leave an inheritance. Of these generous souls, 95.7 per cent said their inheritance plans were not having a negative impact on their retirement plans.

The YourLifeChoices Insights survey highlighted the complexity of juggling retirement income and longevity expectations. It revealed that 75 per cent of respondents spend less today in anticipation of “large, unexpected expenses in the future”.

This might be wise, given the government’s wavering commitment to a legislated increase in the superannuation guarantee levy. Geoff Maurice of Nine News claims Treasurer Josh Frydenberg is about to “pick our pockets”, and we won’t know for years that we’ve been fleeced.

Mr Maurice believes Mr Frydenberg is laying the groundwork to scrap the legislated superannuation guarantee increase that is due to take effect next July, using the recession as an excuse.

“The argument that a rise in future income is unjustified because of the current crisis is all well and good, if the future income cut is meet with an equivalent pay rise right now,” he said.

“There’s a very obvious case to be made that a general rise in wage rates will stimulate the economy and help pull the economy out of recession. But, unsurprisingly, those arguing to scrap the rise in the superannuation guarantee levy are not proposing any such compensation.”

The RIR found that tax concessions in the retirement income system increase inequity and favour the wealthy.

Before the pandemic, 11,000 high-income Australians had superannuation balances of more than $5 million and they received annual tax concessions of $70,000.

“Given the Australian population was ageing, birth rates have fallen, and the ratio of working-age people relative to retirees was decreasing, over time these tax breaks would outweigh the savings achieved by people not relying on the Age Pension,” reports ABC News, calling super for the affluent a “wealth accumulation tool”.

“The cost of superannuation tax concessions is projected to grow as a proportion of GDP and exceed that of Age Pension expenditure by about 2050.”

The review also asks if rules should be changed so that a retiree’s principal residence is assessed as part of the Age Pension assets test.

“This would help equate the treatment of homeowners and renters,” it said.

“If the home were included in the assets test, some homeowners would no longer be eligible for the Age Pension. Others would receive less Age Pension.”

It asked whether retirees should be encouraged to use the equity in their home to support their standard of living in retirement.

“The options available to do so include reverse mortgages, equity release schemes, home equity loans and downsizing,” it said.

ACOSS chief executive Cassandra Goldie says “mounting inequality” in the system needed fixing and suggested the federal government increase the super guarantee to 10 per cent but reconsider any further increases.

She said the 15 per cent tax on employer superannuation contributions meant that “people on high incomes benefit greatly from generous superannuation tax concessions, at a cost of tens of billions per year to the federal budget”.

CPA Australia general manager of external affairs Dr Jane Rennie says a significant cohort of Australians is not achieving an “adequate retirement income” and that it’s arguably going backwards.

“The adequacy of retirement incomes has been slipping in Australia in recent years,” she said. “Some demographics are increasingly vulnerable, such as older single women who are the fastest growing cohort of homeless in Australia today.”

Which aspects of the Retirement Income Review most concern you? What changes to the retirement income system would be most beneficial to Australia?

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Written by Will Brodie



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