Search

More Australians are using their superannuation for medical procedures. But that might put their financial health at risk

<div class="theconversation-article-body"><a href="https://theconversation.com/profiles/neera-bhatia-15189">Neera Bhatia</a>, <a href="https://theconversation.com/institutions/deakin-university-757">Deakin University</a> A record number of Australians are accessing their superannuation early on compassionate grounds, mainly to fund their own medical procedures – or those of a family member. Some 150,000 Australians have used the scheme in the last five years. Nearly 40,000 people <a href="https://www.ato.gov.au/about-ato/research-and-statistics/in-detail/super-statistics/early-release/compassionate-release-of-super">had applications approved</a> in 2022-23, compared to just under 30,000 in 2018-19 – an increase of 47%. Some people think this flexible use of funds is a good way to ensure people can fund their own medical needs. But more transparency and better oversight is needed. <h2>What are compassionate grounds?</h2> Since July 2018, the Australian Tax Office has administered the early release of superannuation – meaning before <a href="https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/super-withdrawal-options#Preservationage">retirement</a> – under certain circumstances, including compassionate grounds. <a href="https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/early-access-to-super/access-on-compassionate-grounds/expenses-eligible-for-release-on-compassionate-grounds">Compassionate grounds</a> for you or your dependant (such as child or spouse) are: <ul> <li>medical treatment or transport</li> <li>modifying your home or vehicle to accommodate special needs for a severe disability</li> <li>palliative care for a terminal illness</li> <li>death, funeral or burial expenses</li> <li>preventing foreclosure or forced sale of your home.</li> </ul> The medical treatment must be for a life-threatening illness or injury, or to alleviate acute or chronic pain, or acute or chronic mental illness. The treatment cannot be “readily available” through the public system. Cosmetic procedures are excluded. You also have to prove you cannot afford to pay part or all of the expenses without accessing your super, for example, by spending your savings, selling assets or getting a loan. People who can access other funding for the expense, such as via the <a href="https://theconversation.com/lists-of-eligible-supports-could-be-a-backwards-step-for-the-ndis-and-people-with-disability-236578">National Disability Insurance Scheme</a>, are ineligible. <h2>Why are people using this scheme more?</h2> The ATO has not explained what is driving the surge. General cost-of-living pressures may play a role. People may have fewer savings to draw on for medical procedures. But the treatments most commonly being accessed using superannuation – fertility treatments, weight loss surgeries and dental care – point to other systemic issues. There have long been issues with IVF and <a href="https://theconversation.com/why-isnt-dental-included-in-medicare-its-time-to-change-this-heres-how-239086#:%7E:text=The%20real%20reason%20dental%20hasn,has%20a%20structural%20budget%20problem.">dental care</a> not being readily available or funded in the public health system. Weight loss surgeries (including <a href="https://www.mayoclinic.org/tests-procedures/bariatric-surgery/about/pac-20394258">bariatric surgery</a>) can help combat potentially life-threatening conditions such as heart disease. Recent <a href="https://www.monash.edu/news/articles/fewer-australians-having-bariatric-surgery-monash-university-led-report">research</a> suggests there has been an overall drop in the number of Australians having bariatric surgeries since 2016. But of those, 95% are performed through the private system. While early access to super can provide individuals access to critical treatment, there are issues with how compassionate grounds are defined and regulated. <h2>Lack of clarity</h2> As my co-author and I <a href="https://www.unswlawjournal.unsw.edu.au/wp-content/uploads/2021/06/Issue-442-PDF-3-Bhatia-and-Porceddu.pdf">have shown</a>, the vague wording of the <a href="https://www.legislation.gov.au/F1996B00580/2022-09-28/text">Superannuation Industry regulations</a> leaves them worryingly open to interpretation. For example, the meaning of “mental disturbance” is not defined. You may not meet the criteria of having an acute or life-threatening illness, or acute or chronic pain. But if you can show a certain condition causes you acute mental disturbance, you may qualify to release your superannuation early. People accessing their superannuation for IVF use this criterion, for example, by arguing they need to access funds to continue treatment and alleviate the acute mental distress caused by ongoing infertility issues. Two registered medical practitioners are each required to submit a report demonstrating the treatment is needed, and one must be a specialist in the field in which the treatment is required. However, the regulations do not specify clearly that the specialist should have relevant qualifications. In the IVF example, this means the specialist opinion can be provided by a fertility doctor rather than a mental health expert – and that person may stand to profit if they later also provide treatment. <h2>A closed-loop system</h2> Conflict of interest is another major issue. There is nothing in the regulations to stop a medical practitioner – such as a dentist – being involved in all steps and then financially benefiting. They could encourage a patient to access superannuation for a treatment, write the specialist report and then also receive payment for the treatment. Some clinics <a href="https://www.theguardian.com/australia-news/2024/apr/06/online-ads-promote-simple-access-to-super-to-pay-for-healthcare-despite-strict-rules">promote</a> accessing superannuation as an option to pay for expensive treatments. This raises important questions about the independence of the process, as well as professional ethics. Medical practitioners making recommendations for early release of superannuation should be doing so on genuinely compassionate grounds. But the potential for exploitation remains an ethical concern, when a practitioner can financially benefit from recommending early access to nest egg funds. Transparency around potential <a href="https://theconversation.com/people-are-using-their-super-to-pay-for-ivf-with-their-fertility-clinics-blessing-thats-a-conflict-of-interest-161278">conflicts of interest</a> are impossible to ensure without proper oversight. <h2>What is needed?</h2> 1. Mandatory financial counselling The ATO <a href="https://www.theage.com.au/healthcare/worrying-trend-record-number-of-australians-raid-super-to-fund-medical-treatments-20240920-p5kc44.html">has warned</a> accessing super early is not “free money”, with a spokesperson urging people to get financial advice. But the law should go a step further and make this compulsory. That way people making decisions during an emotionally charged moment can understand any future implications. 2. Tightening of the criteria Greater clarity in the legislation – such as defining “mental disturbance” – would help prevent loopholes being exploited. 3. Better oversight Less health-care industry involvement would promote greater transparency and independence. An independent body of medical practitioners could assess applications rather than practitioners who could financially benefit if applications are approved. This would help alleviate perceived and actual conflicts of interest. Accessing superannuation early may be the only option for some people to start a family or access other life-changing medical care. But they should be able to make this decision in a fully informed way, safeguarded from exploitation and aware of the implications for their future.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/239588/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/neera-bhatia-15189">Neera Bhatia</a>, Associate Professor in Law, <a href="https://theconversation.com/institutions/deakin-university-757">Deakin University</a> Image credits: Shutterstock This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/more-australians-are-using-their-superannuation-for-medical-procedures-but-that-might-put-their-financial-health-at-risk-239588">original article</a>. </div>

Money & Banking

Retirement tips for Australians without a full superannuation safety net

Most people who commenced paid work before the 1992 launch of compulsory employer contributions won’t have enjoyed money going into their retirement fund for the full duration of their working lives. Others have spent most or all of their adult lives as caregivers – stay-home parents, carers for elderly parents or relatives living with disability. Unquestionably valuable work, yet sadly unpaid – meaning no superannuation. Then there other factors impacting retirement savings – the gender pay gap, periods of unpaid leave, unemployment, working abroad, being a low income earner and more. So don’t think you are alone if you don’t have enough in superannuation for a comfortable retirement. Consider the following options to fall back on instead of, or as well as, your super: Age pension This is the most obvious alternative. What fewer realise, though, is that you may still be eligible for a part-pension, even if your assets exceed the eligibility threshold for the full amount. Claiming a part-pension will stretch what super you do have further. Plus, the related concession card entitles you to a range of discounts, reducing your living costs. Don’t overestimate the value of your assets under the pension means test – potentially denying yourself a legitimate source of income. Semi-retirement Consider transitioning to part-time work instead of retiring outright, allowing you to reduce your workload while still generating both income and employer contributions into your super. This could include self-employment – many retirees begin building a business out of their hobby or do paid consulting work within their industry (often a much higher hourly rate than as a permanent employee). Your home If you own your home, chances are you are sitting on a pile of equity. Yes, you would need to sell and move in order to unlock those funds. But it’s tax-free money. And it can be as much of a lifestyle opportunity as a financial one: downsize to a home with less maintenance needs; relocate nearer to grandkids; enjoy a seachange or treechange. Downsizer provisions also allow you to contribute a chunk of the proceeds into your superannuation over-and-above voluntary contribution caps. Investments Certain investments can deliver a lucrative passive income stream, which you can use in lieu of – or alongside – income from super. Think investment property rents, share dividends, even renting out your car/caravan/boat when you’re not using it. Or you could sell investments you own and use the proceeds to top up your super, which is typically more tax effective than holding as cash. Family business/trust If you have a family business or family trust, you may be able to draw down a regular income from it if structured correctly. Doing so over time from operating profits/investment returns, rather than as a lump sum, means a trust can continue as normal without being forced to sell assets or be wound up, while a business can continue trading under family ownership without the remaining directors having to find the cash to buy out your share (though this may be another option to explore with them). Living costs Your living costs are quite different in full-time retirement compared to full-time work. Goodbye to many commuting, clothing, personal grooming, professional development, registration/certification, lunches and coffees, and work-from-home expenses. Hello to greater energy bills (more time at home and no more remote working tax deductions), travel and lifestyle spending. Don’t overlook the power of updating your household spending and investments plan to reflect this new reality, cancel work-related outgoings and cut unnecessary spending. Timing Perhaps the most far-reaching, yet most commonly overlooked, aspect around retirement is timing. For instance: <ul> <li>the later in the financial year you retire, the more employment income you have accrued – potentially pushing you into a higher tax bracket and ballooning your tax bill.</li> <li>the proceeds from investments differ depending on when in the market cycle you sell them.</li> <li>retiring early may reduce employment bonuses, leave payouts, share option entitlements etc.</li> <li>both spouses/partners retiring simultaneously may reduce overall employment earnings, while conversely unlocking greater opportunities to do things together (like travel, shared hobbies, visiting family).</li> </ul> A qualified financial adviser can help you work through your various options and alternatives, allowing you the peace of mind to enjoy your golden years comfortably – whether that is with or without superannuation. Helen Baker is a licensed Australian financial adviser and author of On Your Own Two Feet: The Essential Guide to Financial Independence for all Women. Helen is among the 1% of financial planners who hold a master’s degree in the field. Proceeds from book sales are donated to charities supporting disadvantaged women and children. Find out more at <a href="http://www.onyourowntwofeet.com.au/">www.onyourowntwofeet.com.au</a> Disclaimer: The information in this article is of a general nature only and does not constitute personal financial or product advice. Any opinions or views expressed are those of the authors and do not represent those of people, institutions or organisations the owner may be associated with in a professional or personal capacity unless explicitly stated. Helen Baker is an authorised representative of BPW Partners Pty Ltd AFSL 548754. Image credits: Shutterstock

Retirement Income

Australian superannuation changes and your retirement savings

Superannuation has been a working retirement model plan for years, and the government makes constant changes to ensure these approaches remain feasible in today’s society. The Australian government announced changes to superannuation in February 2023, and since then, there have been new considerations for employers to deliberate over regarding super account plans for employees. Here is a look at the most recent alterations and what they mean for your super account and retirement plans. <h2>Understanding Superannuation</h2> Superannuation, or “super,” is money put aside in an account throughout an employee’s work experience. The sole purpose is for these individuals to have something to live on when they retire. For most people, it involves their employers taking from their salary and putting aside the dictated sum in a super account. These contributions are paid outside your wages or salary and are based on existing laws on how much recruiters must pay. There are also age and earning limits involved. For instance, you may not be eligible for a super account if you’re under 18 and work less than 30 hours weekly. Eligible individuals have to work over 30 hours weekly and have an earning cap of $450 or more (before tax) to be paid super. These funds are typically invested in assets like stocks, bonds, real estate, and others that can help yield interest over time. You can also manage your investments through the forex market using an advanced <a href="https://www.oanda.com/au-en/trading/platforms/" target="_blank" rel="noopener">Australian trading platform</a>. <h2>Recent Superannuation Changes in Australia</h2> <img src="https://oversixtydev.blob.core.windows.net/media/2024/06/Australian-superannuation-changes-and-your-retirement-savings01.jpg" alt="" width="1280" height="720" /> Following the introduction of the Superannuation Bill in 2016, a series of changes have been made to the annotation laws. On November 9, 2016, the Australian government introduced the bill, which was meant to help preserve the objectives of superannuation in the legislation. From the onset, this model aimed to provide income in retirement to replace or supplement the age-pending laws. The objective of this scheme has remained the same, and changes made over the years have been towards improving efficacy rather than impeding its relevance. The most recent of these reforms took place in 2013, and below is a summary of what these changes entail and how they affect retirees. <h2>Superannuation on Paid Parental Leave</h2> One of the first alterations was the announcement that superannuation would be payable to the Commonwealth’s Parental Leave Scheme to close the gender super gap. This means that superannuation will be paid on Government-funded Paid Parental Leave (PPL) for parents who give birth or adopt children on or after July 1, 2025. It’s easy to understand why this measure was introduced. When implemented, it is expected to benefit over 18,000 parents annually. Also, it will bring more balance to the ratio of payables between women and men. <h2>Increase in Super Guarantee</h2> The May 2024 Federal Budget also revealed the legislated increase of the Sper Guarantee to 12% will remain the same. From July 1, 2024, the fee will increase to 11.5%, after which an additional 0.5% will be added on July 1, 2025. Employees can look forward to this increase as some extra long-term payment to their retirement funds. Although it might seem like a slight increase, the addition over the long-term working period accumulates too much and could make a significant difference, especially with compound interest. <h2>Super Payment at the Time of Salary and Wages</h2> <img src="https://oversixtydev.blob.core.windows.net/media/2024/06/Australian-superannuation-changes-and-your-retirement-savings02.jpg" alt="" /> This particular change was proposed but is yet to be legislated. It states that from July 1, 2026, employers will be required to pay their workers suer at the same time they pay salary and other wages. This change aims to better track these payments and mitigate issues, such as non-payments or discrepancies. The Australian Taxation Office (ATO) also revealed that monitoring compliance from employers to their employees will be easy. Furthermore, there are reasons to believe this will bring better yields on the end of the receivers since fees paid faster will compound better ad yields and higher interests. <h2>Additional Changes to Be Legislated</h2> From July 1, 2025, a 30% concessional tax rate will be implemented for future earnings for balances over $3 million rather than the usual 15%. This alteration will impact over 80,000 people between 2025 and 2026. Lastly, the existing 2-year freeze on deeming rates at 2.25% has been shifted forward until June 30, 2025. This translates to retirees <a href="https://www.theguardian.com/money/2024/mar/26/little-planning-for-looming-retirement-crisis-blackrock-chief-warns" target="_blank" rel="noopener">continuing to benefit</a> from the present rate of 0.25% until the new allocated time. This measure can help alleviate the cost of living and is currently benefiting over 876,000 income support recipients and 450,000 aged pensioners. <h2>Maximising Your Retirement Savings With Super</h2> Super savings were introduced to allow employees to save a percentage of their earnings towards retirement so they have something to live on in their non-working years. The recent changes will surely improve things, and all you have to do is be sure that your employee is paying your super and doing so at the expected time. You can use the <a href="https://www.ato.gov.au/calculators-and-tools/super-estimate-my-super" target="_blank" rel="noopener">“estimate my super”</a> tool offered by the government to estimate how much your employee should pay. All images: Supplied. In collaboration with OANDA.

Money & Banking

Why millions of Aussies are falling behind on superannuation savings

Millions of Aussies are falling behind on their superannuation savings, with nearly one in two Australians on track for a grim retirement. According to research from superannuation and investments company Vanguard, this huge number of Australians have no idea how much they are playing in fees to their super funds, which can greatly impact how much you have in savings when your retirement day comes. “We are coming up against a stubborn statistic in our retirement research again this year — almost one in two Australians still don’t know what they pay in super fees,” Vanguard Investments Australia managing director Daniel Shrimski said. Also adding to the confusion of how much is needed for comfortable gold year is different companies sharing conflicting numbers on what figures to strive for in your superannuation. Superannuation consultancy company Australian Retirement Trust’s latest research shows the average superannuation balance for someone age 35 to 44 is $92,700, however this should be closer to $156,000 to be on track for a “comfortable retirement”. The average worker aged 55 to 64 has $285,900 in super but a 60-year-old needs close to $453,000 in retirement savings, ART said. “In the past 12 months, only one in five of us has checked our super balance,” Australian Retirement Trust executive general manager Anne Fuchs said, adding 70 per cent of Australians feel they don’t have enough money to retire on. “We talk to members all the time who have reached the end of their working life full of regret, wishing they had done something earlier. Australia has a monster problem whereby not enough of us are engaging with our super." “The earlier you start paying attention and understanding how your money is invested ... then you’ll really be able to finish work and put your feet up.” Financial consultancy Link Wealth director and financial adviser Joshua Lee told <a href="https://7news.com.au/news/new-research-shows-aussie-superannuation-savings-falling-short-of-retirement-needs--c-14507773" target="_blank" rel="noopener">7News</a> that one of the most important tips for Australians is to take notice and understand their superannuation payments and what they pay in fees. “Take notice of what your account is doing,” he said. “Look at your statement when it comes in every year so you can understand what fees are being deducted from your account because that will have an impact on how much money you have come retirement.” Image credits: Shutterstock

Retirement Life

After a lifetime studying superannuation, here are 5 things I wish I knew earlier

<a href="https://theconversation.com/profiles/susan-thorp-214">Susan Thorp</a>, <a href="https://theconversation.com/institutions/university-of-sydney-841">University of Sydney</a> Amassing the wealth needed to support retirement by regular saving is a monumental test of personal planning and discipline. Fortunately for most Australian workers, the superannuation system can help. Superannuation uses the carrot of tax incentives, and the sticks of compulsion and limited access, to make us save for retirement. There are benefits to paying timely attention to your super early in your working life to get the most from this publicly mandated form of financial self-discipline. I’ve been researching and thinking about superannuation for most of my career. Here’s what I wish I knew at the beginning of my working life. <h2>1. Check you’re actually getting paid super</h2> First, make sure you are getting your dues. If you are working, your employer must contribute <a href="https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay">11% of your earnings</a> into your superannuation account. By July 2025 the rate will increase to 12%. This mandatory payment (the “<a href="https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/super-guarantee">superannuation guarantee</a>”) may look like yet another tax but it is an important part of your earnings (would you take an 11% pay cut?). It is worth checking on, and worth <a href="https://www.ato.gov.au/calculators-and-tools/super-report-unpaid-super-contributions-from-my-employer">reporting</a> if it is not being paid. The Australian Tax Office <a href="https://oia.pmc.gov.au/sites/default/files/posts/2023/05/Impact%20Analysis%20-%20Unpaid%20Superannuation%20Guarantee%20package.pdf">estimates</a> there is a gap between the superannuation employers should pay and what they do pay of around 5% (or $A3.3 billion) every year. Failing to pay is <a href="https://oia.pmc.gov.au/sites/default/files/posts/2023/05/Impact%20Analysis%20-%20Unpaid%20Superannuation%20Guarantee%20package.pdf">more common</a> among the accommodation, food service and construction industries, as well as small businesses. Don’t take your payslip at face value; cross-check your super account balance and the annual statement from your fund. <h2>2. Have just one super account</h2> Don’t make personal donations to the finance sector by having more than one superannuation account. Two super accounts mean you are donating unnecessary administration fees, possibly redundant insurance premiums and suffering two times the confusion to manage your accounts. The superannuation sector does not need your charity. If you have more than one super account, please consolidate them into just one today. You can do that <a href="https://moneysmart.gov.au/how-super-works/consolidating-super-funds">relatively easily</a>. <h2>3. Be patient, and appreciate the power of compound interest</h2> If you’re young now, retirement may feel a very distant problem not worth worrying about until later. But in a few decades you’re probably going to appreciate the way superannuation works. As a person closing in on retirement, I admit I had no idea in my 20s how much my future, and the futures of those close to me, would depend on my superannuation savings. Now I get it! <a href="https://www.nber.org/papers/w27459">Research</a> <a href="https://economics.mit.edu/sites/default/files/publications/pandp.20221022.pdf">shows</a> the strict rules preventing us from withdrawing superannuation earlier are definitely costly to some people in preventing them from spending on things they really need. For many, however, it stops them spending on things that, in retrospect, they would rate as less important. But each dollar we contribute in our 30s is worth around three times the dollars we contribute in our 50s. This is because of the advantages of time and <a href="https://moneysmart.gov.au/saving/compound-interest">compound interest</a> (which is where you earn interest not just on the money initially invested, but on the interest as well; it’s where you earn “interest on your interest”). For some, adding extra “voluntary” savings can build up retirement savings as a buffer against the periods of unemployment, disability or carer’s leave that most of us experience at some stage. <h2>4. Count your blessings</h2> If you are building superannuation savings, try to remember you’re among the lucky ones. The benefits of super aren’t available to those who can’t work much (or at all). They face a more precarious reliance on public safety nets, like the Age Pension. So aim to maintain your earning capacity, and pay particular attention to staying employable if you take breaks from work. What’s more, superannuation savings are invested by (usually) skilled professionals at rates of return hard for individual investors to achieve outside the system. Many larger superannuation funds offer members types of investments – such as infrastructure projects and commodities – that retail investors can’t access. The Australian Prudential Regulation Authority (APRA) also <a href="https://www.apra.gov.au/industries/superannuation">checks</a> on large funds’ investment strategies and performance. <h2>5. Tough decisions lie ahead</h2> The really hard work is ahead of you. The saving or “accumulation” phase of superannuation is mainly automatic for most workers. Even a series of non-decisions (defaults) will usually achieve a satisfactory outcome. A little intelligent activity will do even better. However, at retirement we face the challenge of making that accumulated wealth cover our needs and wants over an uncertain number of remaining years. We also face variable returns on investments, a likely need for aged care and, in many cases, declining cognitive capacity. It’s helpful to frame your early thinking about superannuation as a means to support these critical decades of consumption in later life. At any age, when we review our financial management and think about what we wish we had known in the past, we should be realistic. Careful and conscientious people still make mistakes, procrastinate and suffer from bad luck. So if your super isn’t where you had hoped it would be by now, don’t beat yourself up about it. <img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/217922/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/susan-thorp-214">Susan Thorp</a>, Professor of Finance, <a href="https://theconversation.com/institutions/university-of-sydney-841">University of Sydney</a> Image credits: Getty Images This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/after-a-lifetime-studying-superannuation-here-are-5-things-i-wish-i-knew-earlier-217922">original article</a>.

Retirement Income

Women and low-income earners miss out in a superannuation system most Australians think is unfair

<a href="https://theconversation.com/profiles/antonia-settle-1019551">Antonia Settle</a>, <a href="https://theconversation.com/institutions/the-university-of-melbourne-722">The University of Melbourne</a> Most Australians think the superannuation system is unfair, with only one in three agreeing the retirement savings scheme is fair for most Australians, according to a survey conducted for the University of Melbourne. In fact, only about half of those <a href="https://melbourneinstitute.unimelb.edu.au/publications/research-insights/search/result?paper=4630688">surveyed</a> agreed superannuation works well for them. These results contradict a conventional view based on earlier studies and held by academics and many in the personal finance sector, that Australians give little thought to superannuation. A 2013 survey found Australians have <a href="https://search.informit.org/doi/abs/10.3316/INFORMIT.285049750322819">poor knowledge</a> of how the superannuation system works, while another study in 2022 highlighted <a href="https://melbourneinstitute.unimelb.edu.au/__data/assets/pdf_file/0011/4382057/HILDA_Statistical_Report_2022.pdf">low financial literacy</a> in general. Australians also showed <a href="https://behaviouraleconomics.pmc.gov.au/sites/default/files/projects/retirement-planning-saving-attitudes_0_0.pdf">little interest in superannuation</a>, according to a 2020 Department of Prime Minister and Cabinet survey, with few Australians showing interest in reading their superannuation statements, choosing their fund or making voluntary contributions. With Australian households seen as uninformed and uninterested, their opinions tend to be left out of the public debate. We hear much about the gender pension gap, for example, but little about what women actually think about superannuation. Similarly, the distribution of tax advantage in superannuation is hotly debated by economists but survey data tends to refrain from asking households what they think about equity in the superannuation system. The University of Melbourne survey of 1,003 Australians was undertaken by Roy Morgan Research in April. Its results show women and low-income households are widely seen as disadvantaged in the superannuation system. In fact, only one in five Australians see the superannuation system as well suited to the needs of women and of low-income households, while 70% believe super favours wealthy households. <iframe id="5VX3K" class="tc-infographic-datawrapper" style="border: none;" src="https://datawrapper.dwcdn.net/5VX3K/1/" width="100%" height="400px" frameborder="0"></iframe> This suggests although Australians may show little interest in the management of their super accounts and may report they find the system confusing or even <a href="https://www.professionalplanner.com.au/wp-content/uploads/2016/05/Attitudes-to-Super-Report-May-2016.pdf">boring</a>, they are surprisingly aware of how superannuation is distributed. <h2>Women, singles and low-income earners miss out</h2> The federal government’s 2020 <a href="https://treasury.gov.au/publication/p2020-100554">Retirement Income Review</a> documents these gaps. Renters, women, uncoupled households and those on low-incomes fare poorly in the retirement income system. With little super to supplement the public pension, these groups are vastly over-represented in elderly poverty statistics, which are among the <a href="https://www.oecd-ilibrary.org/sites/d76e4fad-en/index.html?itemId=/content/component/d76e4fad-en">highest in the OECD</a>. Mirroring the gaps in the superannuation system reported by the review, the University of Melbourne survey shows that it is outright homeowners and those who are married who believe the superannuation system works well. Concerns the system works poorly for women and low-income households are strongest among women and low-income households. Only one in three renters believe the superannuation system meets their needs. <iframe id="N9GO6" class="tc-infographic-datawrapper" style="border: none;" src="https://datawrapper.dwcdn.net/N9GO6/1/" width="100%" height="400px" frameborder="0"></iframe> This suggests individuals’ concerns about fairness in the superannuation system are driven by their own experiences of disadvantage, regardless of financial literacy. This is consistent with my own <a href="https://www.tandfonline.com/doi/full/10.1080/13563467.2023.2195159">research</a> into household attitudes to superannuation, which showed some resentment among women who were well aware their male partners had substantially higher superannuation balances than them. This all matters for policymakers. <h2>Why public perceptions are important</h2> In the short term, these results suggest public support for making super fairer is likely to be stronger than previously thought. Recent government changes to tax concessions on large balances, for example, could have gone much further without losing support from the 70% of households that think the system favours the wealthy. But it matters for the longer term too. Public perceptions of fairness, effectiveness and efficiency are crucial to policy sustainability. This is well established in the academic literature from <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/spol.12683">B Ebbinghaus</a>, 2021 and <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/1911-3838.12171">H Chung et al.</a>, and accepted by the Retirement Income Review. The review assessed the public’s confidence in the system to both “deliver an adequate retirement income for them(selves) and (to) generate adequate outcomes across society”. As the review makes clear, the system must avoid a loss of public confidence from perceptions of unfairness. Yet perceptions of unfairness are exactly what the University of Melbourne results suggest. This would have been clearer to policymakers if they asked earlier.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/207633/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/antonia-settle-1019551">Antonia Settle</a>, Academic (McKenzie Postdoctoral Research Fellow), <a href="https://theconversation.com/institutions/the-university-of-melbourne-722">The University of Melbourne</a> Image credits: Getty Images This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/women-and-low-income-earners-miss-out-in-a-superannuation-system-most-australians-think-is-unfair-207633">original article</a>.

Retirement Income

Who is the one Australian with over $500 million in superannuation!?

New data from the ATO, compiled by the Sydney Morning Herald, has revealed that there are 27 Australians fortunate enough to have $100m in their superannuation savings. A graph circulating online announced that in 2019 over 300,000 Australians had over $1m in their superannuation funds, with a staggering 11,000 people reported to have over $5m. One individual noted that the figures, which were from 2019, were shocking but actually may be even larger in 2023, writing, “these are pre-pandemic numbers so I'd guess the top few numbers on this list have grown somewhat.” However, it isn’t mere jealousy from the average citizen that has prompted a flurry of online activity over the figures, but instead one small detail in the findings: one extravagantly wealthy Australian is sitting on a balance of more than $544m. And as with all things on social media, a discussion quickly broke out, with many speculating exactly whose name could be attached to the standout account. <blockquote class="twitter-tweet"> I’d love to know Who is the ONE AUSTRALIAN with over $544 MILLION in super? <a href="https://t.co/DwHyQQqT0p">pic.twitter.com/DwHyQQqT0p</a> — The Spence (@adambspencer) <a href="https://twitter.com/adambspencer/status/1629097148724953088?ref_src=twsrc%5Etfw">February 24, 2023</a></blockquote> Mining magnate and Australia’s richest person Gina Rinehart’s name was thrown about, as well as that of Australia’s seventh richest, Clive Palmer. Kerry Stokes, Peter Dutton, Gerry Harvey, and everyone’s favourite “data error” were also strong contenders for the people of Twitter. And one cheeky commenter had their own guess to share, telling the others that “it’s Alan Joyce’s 9% employer contribution since he became Qantas CEO.” Another didn’t think it would be quite so easy, reminding everyone that “there are quite a few candidates. There are 49 billionaires in Australia according to Forbes.” Many in the comment section of the tweet were on board with the recent <a href="https://www.oversixty.com.au/finance/retirement-income/anthony-albanese-confirms-changes-to-superannuation">updates announced for superannuation funds</a>, with one writing of the $544m account holder, “one of 11128 people who could easily afford to pay a bit more tax.” “For most people,” said another, “even having $1m is an impossible dream.” “27 people have over $100 million in super. 1 person has $544 million. Last week I had to buy groceries with my credit card,” one wrote, before asking the question, “What happened to the lucky country?” Data suggests that the average superannuation balance for people aged between 60 and 64 is $157.925 ($178,800 for men and $137,050 for women), a sum that barely puts a dent in the savings of the super rich. “This information makes it clear that no one will lose an election over Super tax concession reform,” commented one individual with strong feelings on the matter, “the politicians who are defending this divisive tax minimisation are obviously the ones who fear losing large donations from the few in their voter base affected.” Images: Getty

Retirement Income

Anthony Albanese confirms changes to superannuation

Australia’s super rich are set to pay more on their superannuation funds, Prime Minister Anthony Albanese has confirmed. The announcement came <a href="https://www.oversixty.com.au/lifestyle/retirement-life/major-overhaul-of-aussie-superannuation-system-touted" target="_blank" rel="noopener">one week after Treasurer Jim Chalmers declared</a> there would be a review of the superannuation scheme’s future, and that the proposed changes would only impact about 0.5% of Australians, with the added benefit of saving the budget $2b. The changes would see Australians with over $3m in their super accounts have their concessional tax rate doubled - from 15 per cent to 30 per cent - and won’t be effective until around 2025-26. On average, Australians have about $150,000 in their super accounts. However, for the 80,000 individuals with over $3m to their name, the average rises to a substantial $6m. The remainder, the other 99.5 per cent of Australians, are set to continue receiving the same tax breaks as they were before, according to Chalmers. Albanese has now stated that this marks an “important reform” and would not alter the fundamentals of the existing system, and if anything would only serve to make it stronger. “With 17 people having over $100 million in their superannuation accounts, one individual with over $400 million in his or her account, most Australians would agree that this is not what superannuation is for. It’s for people’s retirement incomes,” he explained. “Confronted with this information, it would be irresponsible to not take any action whatsoever. This reform will strengthen the system by making it more sustainable.” In a statement, Chalmers expanded on the situation, saying, “the majority of these super tax breaks go to high income earners. “For instance, over 55 per cent of the benefit of superannuation tax breaks on earnings flow to the top 20 per cent of income earners, with 39 per cent going to the top 10 per cent of income earners.” Chalmers also explained how the government inherited $1 trillion of debt, and that it was becoming increasingly more expensive with rising interest rates. “We have persistent and growing spending pressures,” he explained. “Budget pressures are intensifying, rather than easing. This is the mess that we were left with and this is the mess we’re trying to clean up. “This announcement is part of the effort. Every dollar spent on a tax break with tens of millions of dollars in super, is a borrowed dollar that makes the deficit bigger.” He added that higher earners would still receive tax concessions, although people shouldn’t expect them to be quite as generous anymore. “I’m confident that Australians will see this change as modest, reasonable, and fair. But one which makes a difference to the sustainability and affordability of the superannuation system that we cherish.” Anthony Albanese assured Australians that the changes did not mean that the concessional tax would be altered for the remaining 99.5 per cent of Australians. “People can see what we’re doing here,” he said. “Which is why we’re proposing a change that will have an impact on 0.5 per cent of the population. There will be no changes this term [to super]. Even this change. “We can’t be clearer.” Images: Getty

Retirement Income

Jelena Dokic slams government superannuation legislation

Jelena Dokic has lashed out at the government's proposed superannuation plan, saying it would stop women in vulnerable positions being able to get the financial help they need. On ABC's Q+A, the tennis champion-turned-commentator shared her own story of being forced to flee a violent home at the age of 19, and the financial burden of such a difficult situation. While she said she’d been lucky to have her professional tennis career to support her, she said most women did not have the financial means or stability to flee. Her comments come after Treasurer Jim Chalmers began a proposal to legislate a new superannuation objective plan, meaning superannuation money would exclusively be reserved for retirement income, with Aussies being unable to draw on these funds in times of crisis. Ms Dokic said the matter was not “black and white”. “There are a lot of different areas where I think you should be able to access it (super),” Dokic said. “I think there is so much we’re seeing today when it comes to domestic violence, for example; women are so afraid to leave and one of the reasons is because they feel like they won’t be able to start again – they won’t be able to set themselves up." “I was in that position when I was 19. I was just lucky with the fact that I was a professional athlete. I had the ability to go and earn a living, but I left home with nothing. I was basically on the street." “There are so many women out there that are in the same position, so maybe making it where you can withdraw $10,000 and put your money to use when you really need it." “There are so many people who are not even going to be able to get to retirement or be able to have a dignified retirement because they are not going to make it. They might not even be here.” As superannuation legislation currently stands, access to superannuation before the age of 65, is limited only to situations where someone is permanently incapacitated, has a physical or mental condition which prevents them from working, is dying, or their loved one is. There are also provisions for severe financial hardship, but domestic violence is not specifically mentioned. Dr Chalmers' proposal follows the release of $36 billion of Australians’ super during Covid-19, where early access was allowed during the initial months of the pandemic. To that, Dr Chalmers has vowed “never again”, saying his proposal would ensure Australians are less reliant on government subsidies in their retirement. Image credits: Q+A

Retirement Income

Major overhaul of Aussie superannuation system touted

There may be a major change coming to Australia's $3.3 trillion superannuation system, with Treasurer Jim Chalmers looking to crack down on early access. Chalmers will be speaking to call for an objective for superannuation that will emphasise the need for it to be preserved until retirement. This would make it harder for Australians to access their funds early. The federal opposition are taking a different stance and have pushed for early access to remain open as part of a first home buyers scheme. John Kehoe, Australian Financial Review economics editor, told Today $36 billion had been withdrawn from Australians’ collective super during the COVID-19 pandemic. "That's something that Labor wants to shut the door on," he said. Kehoe said there were two sides to the first home buyers scheme, saying that people accessing their super early could drive prices higher. "The retirement income system showed the best way to have financial security in retirement is owning your own home," he said. "It is people renting in retirement that do it really tough.” Independent Senator Jacqui Lambie expressed her view on the proposal, saying life wasn't "black and white.” "There are things that happen in our lives where that money may come in handy, whether it is part of that money, or 20 per cent of that money, just to keep us afloat," she said. "And especially in the next two years, if we are going into recession, if there are guys out there who can dig in to make sure we can keep the roof over their head, to continue to pay their house rates, we have to be a bit more flexible than that when we are going through tough times." Image credit: Getty

Retirement Life

5 myths about superannuation

Superannuation may seem complicated but it doesn’t have to be. Here are five common myths together with the real facts about your hard-earned retirement nest egg. 1. My money is locked up and there’s no point worrying about it until I retire Your super is a lifetime investment project that starts when you first enter the workforce and needs to last for life, and the longer you plan for it the better. Even though you can’t access your super until you reach retirement age or a condition of release (e.g. retirement, death or invalidity), you still have control – it’s your money. You can move your super between funds as well as adjust your contribution levels. Some people may choose to have a Self Managed Super Fund (SMSF) to give them more control. However, SMSFs come with more responsibility, given your obligation to also be a trustee. To find out about your choices and how to have the control you want over your super, speak to a financial adviser. 2. I’ve worked my whole life so my super should be enough to provide for my retirement Sure, your super is designed to support your retirement. However, the level of support it will provide depends on a range of factors. As a starting point, ask yourself two key questions: <ul> <li>How much income and savings will I need in retirement to cover my living costs? </li> <li>Will I have enough super at my planned retirement date to achieve this?</li> </ul> The answers will help you work out how ready you really are for retirement. And once you’re clearer on what’s needed, it might pay to seek financial advice to help you put an effective retirement planning strategy in place. 3. My pre-tax contributions to my superannuation are 100 per cent tax free Unfortunately this isn’t true – there is a 15 per cent tax on every super contribution, including compulsory contributions made by your employer or voluntary contributions you make yourself. And this rate increases over certain amounts. So while the tax on your super is generally going to be lower than your usual income tax, making it a very worthwhile option, there is still tax payable. There are methods and strategies to minimise the tax you pay on super, but you need to speak to a professional to find out how. 4. Retirement means I’ll have to stop working Wrong. Just because you retire, it doesn’t mean you need to stop working entirely. If you don’t feel ready to retire fully – either financially or emotionally – then working part-time or casually could be an option for you. There is no set age at which you need to stop working. But the benefit of getting older is that you can access your super and enjoy tax breaks on your income and earnings. 5. Industry super funds don’t charge a commission Industry super funds can be structured differently to commercial funds in terms of the costs you pay. However there are still charges that apply, so it pays to review all fees and charges when choosing the best fund for you. Image credits: Getty Images

Retirement Income

A trip through superannuation history

Did you know the origins of super can be traced to the late 19th century? To understand the super system better, we take a step back in time. Superannuation may have started as an exclusive benefit for the staff of major financial institutions back in 1862 but today it has become an important part of our lives. Super is a way of saving through your working years for the time when you’re no longer working full-time or at all – retirement. With the government trying to cut back costs and Australians living longer, super has become increasingly more talked about. For those Aussies still working, it pays to understand how super works and how it can be used to their advantage. However, research shows that many of us don’t actually understand it all that well. To help in that area, we’re going to take a trip back through history to understand superannuation’s story and to give you a bigger picture view of why super is vitally important today. Employees of the Bank of New South Wales (now Westpac) were the first to have a form of superannuation. The year was 1862. That’s 130 years before the Keating government introduced the Superannuation Guarantee (SG) in 1992. The SG legislation requires most employers to pay a minimum of 9.25 per cent (9.5 per cent from July 1, 2014) of the employee’s ordinary time earnings as super. Since the late 1800s, the super savings pool is well on its way to becoming the biggest investment pool Australia will ever see. It’s projected to reach $8 trillion in 20 years. While widespread super arrangements had been in place before 1992, it wasn’t until the Keating government’s landmark decision introducing the compulsory SG system which really pushed the industry along. The decision was part of a major reform package addressing Australia’s retirement income policies. The super contribution was originally set at 3 per cent but has been gradually increased by the Australian government. It will eventually rise to 12 per cent by July 2020. Below we take a look at super through the years. From 1860s to 1940s During what’s seen as the first era of superannuation in Australia, it’s only a select group of salaried employees who have an independent retirement income. An income stream separate from the age pension, which the NSW government introduced in 1900. The pension for a single person back then was £26 per year and means tested against property and income to make sure it only went to the most in need. From 1950s to 1970s After 1945 superannuation became more recognised as a desirable employee benefit but remained skewed to white-collar workers. During this time there was a relaxation of means test arrangements so super became a way to supplement the age pension. From 1970s to 1990s During these years super was an employment fringe benefit which became more widely available. However, it was still concentrated among professionals, managers and administrators, public sector employees and those working in the financial sector. By 1974, 32.2 per cent of wage and salary earners were covered by super. In 1989, super coverage increased to 79 per cent of employees and then the SG is introduced in 1992. Employers were now required to make tax-deductible super contributions on behalf of their employees. Since then super has continued to undergo a number of changes. What differs about super today is the importance now placed on it as a major part of planning for the future. There are a variety of funds to choose from as well as the option of managing your own super fund. As Aussies get older and live longer, it has become more apparent the government is looking for people to take more control of their own financial future. Image: Getty Images

Retirement Income

How do I find out what my superannuation fund invests in? A finance expert explains

You want your superannuation savings to be invested in things that also serve the planet’s long-term interests. But how can you be sure your fund’s values align with yours – or even its own claims? This question has become increasingly pertinent as demand for environmentally and socially sustainable investments <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2022-releases/22-141mr-how-to-avoid-greenwashing-for-superannuation-and-managed-funds/">grows</a> – and with it incentives for financial institutions to put the best spin on their offerings. One consultancy specialising in “responsible investment” reckons <a href="https://thenewdaily.com.au/finance/superannuation/2021/08/16/greenwashing-super-funds/">10% of the funds</a> it has examined do not have the sustainability orientation they claim. Among those <a href="https://www.edo.org.au/2022/08/10/hestas-fossil-fuel-investments-may-amount-to-a-breach-of-the-law/">accused of greenwashing</a> in recent months is one of Australia’s biggest super funds, HESTA (the industry fund for health and community service workers), which has promoting its “clean energy” credentials while still holding shares in fossil-fuel companies <a href="https://www.ai-cio.com/news/australias-hesta-accused-of-greenwashing/">Woodside and Santos</a>. So how can you check what your superannuation fund invests in? Super funds are legally obliged to disclose how they invest your money in two different disclosure documents – a Product Disclosure Statement and a Portfolio Holdings Disclosure. Both will be available on a super fund’s website, though how easily you can find them will vary. The rest of this article is going to explain what information these documents provide, how useful this information is likely to be, and your best bet to ensure your super fund reflects your values. <h2>The Product Disclosure Statement</h2> Product disclosure statements are required by the financial regulator (the Australian Securities and Investments Commission) for all financial products. This document outlines the most basic but important information of an investment product’s features, benefits, risks and costs, including fees and taxes. The format is standardised, with one section (Section 5) covering with “How we invest your money”. The information it contains is broad. At best you’ll learn how the fund splits its investments between safe and riskier assets, and between different asset classes – Australian shares, international shares, property trusts, infrastructure trust, cash and so on. <h2>Portfolio Holding Disclosure</h2> For a comprehensive look at where your money is invested in, you can consider the Portfolio Holdings Disclosure. This document lists a fund’s complete holdings – including the percentage and value of every single company stock held. Portfolio holdings disclosures are relatively new, being obligatory only since March 2022 under <a href="https://www.legislation.gov.au/Details/F2021L01531">legislation</a> meant to improve transparency in the sector. However, super funds aren’t obliged to provide this information in a consistent, easily understandable way. For a non-expert who doesn’t know what to look for, the level of detail can be mind-boggling. You may find yourself scrutinising a spreadsheet listing thousands of items. The Australian Retirement Trust’s Portfolio Holdings Disclosure for its “Lifecycle Balanced Pool”, for example, has more than <a href="https://www.australianretirementtrust.com.au/investments/what-we-invest-in/superannuation-investments">8,000</a> line items. Some super funds have made the effort to provide this information in a more user-friendly format. An example is Future Super, which allows you to <a href="https://www.futuresuper.com.au/everything-we-invest-in/?utm_source=google&utm_medium=cpc&utm_campaign=1757241588&utm_content=68234193065&utm_term=future%20super&campaigntype=SearchNetwork-1757241588&device=c&campaignid=1757241588&adgroup=68234193065&keyword=future%20super&matchtype=p&placement=&adposition=&location=9069039&gclid=CjwKCAjwmJeYBhAwEiwAXlg0AYOEe2tJViZiZBgUk3bt1h9LNuHx1jWnGy6VzqGaNjBzOEi60852JRoCel8QAvD_BwE">search and filter</a> portfolio holdings by asset class and country of origin. But if your concern is to avoid investing in some specific activity such as in mining fossil fuels or gambling, you’ll need to know the companies and other assets you want to avoid for this to be helpful. <h2>Your best options</h2> This is not to say portfolio holding disclosure obligations are useless. They are incredibly useful – a huge leap forward in the sector’s accountability. They just aren’t designed for consumers. So there is still much work to be done to make the sector truly transparent. What would really help is independent certification and ratings of super products, similar to government websites and programs that certify energy efficiency and allow comparison of electricity plans. In the meantime, I can offer you one big tip. Choose a specific superannuation product that markets itself on its environmental or social sustainability credentials. Most super funds now provide these choices alongside their more traditional investment options. There is a variety of “screening” approaches to ethical investments. Some exclude entire sectors. Others include the best environmental and social performers even among “sinful” industries such as tobacco or weapons. So just because a super product is marketed as “ethical” or “sustainable” doesn’t guarantee you will agree with all its investments. But there is a much higher likelihood of it living up to its claims due to greater scrutiny by third parties such as environmental groups as well as the financial regulator. The Australian Securities and Investments Commission put super funds on notice earlier this year with a “<a href="https://asic.gov.au/regulatory-resources/financial-services/how-to-avoid-greenwashing-when-offering-or-promoting-sustainability-related-products/">guidance note</a>” about the growing risk of greenwashing in sustainability-related financial products. It reminded funds that “making statements (or disseminating information) that are false or misleading, or engaging in dishonest, misleading or deceptive conduct in relation to a financial product or financial service” is against the law. So super funds know their portfolios are being scrutinised. Switching your investment option or fund is simpler than you think. You only need to fill out and lodge a form. Just be sure to compare fees and performance, and seek a second opinion from trustworthy adviser before “voting with your wallet”. Image credits: Getty Images This article originally appeared on <a href="https://theconversation.com/how-do-i-find-out-what-my-superannuation-fund-invests-in-a-finance-expert-explains-188802" target="_blank" rel="noopener">The Conversation</a>.

Retirement Income

Superannuation isn't a retirement income system

Discussions about Australia’s retirement income system typically begin by reciting the political slogan that there are “three pillars” to the system — the age pension, compulsory super, and voluntary savings. It was the way the Abbott and Turnbull government’s <a href="https://slideplayer.com/slide/4872297/">tax inquiry</a> looked at retirement incomes, and a frame of reference used by this government’s <a href="https://treasury.gov.au/sites/default/files/2019-11/c2019-36292-v2.pdf">retirement income system review</a>. Missing is discussion of what makes something a “retirement pillar”. Requiring retailers to <a href="https://www.fresheconomicthinking.com/2020/01/the-easiest-retirement-system-retiree.html">provide the elderly free goods and services</a>, with the cost absorbed in the prices paid by others could be another. To be a pillar, something would have to allocate goods and services in retirement to people who are no longer earning wages. In my <a href="https://www.fresheconomicthinking.com/p/scrap-superannuation.html">recently released report</a> I argue that superannuation fails this test. <h2>Super isn’t a retirement pillar</h2> Among other things, super can be spent many years before retirement, beginning anywhere from age <a href="https://www.ato.gov.au/Super/Self-managed-super-funds/Paying-benefits/Preservation-of-super/">55 to 60</a>, even though the retirement age specified the pension legislation is <a href="https://www.humanservices.gov.au/individuals/services/centrelink/age-pension/who-can-get-it">66 to 67</a>. Many financial planners advise intending retirees to spend a lot of their super quickly in order to shelter it in income-test-exempt assets <a href="https://www.yourlifechoices.com.au/finance/property/how-upsizing-protects-your-pension">such as housing</a> and qualify for the pension. The super system also can’t guarantee retirement incomes for people who are self-employed, casually employed, homemakers, have chosen their super fund unwisely or lost the proceeds in things such as online romance scams. As a system, super comes with unnecessary financial risks, such as suddenly losing 21% of its funds, as happened between September 2007 and March 2009 during the global financial crisis. It is better thought of as a growth-sapping, resource-wasting, tax-advantaged asset purchase scheme aimed at the already wealthy, which is <a href="https://theconversation.com/myth-busted-boosting-super-would-cost-the-budget-more-than-it-saved-on-age-pensions-119002">unlikely to do much</a> to reduce reliance on the age pension. We would be better off abandoning it and letting workers spend or save their money as they see fit. <h2>The super system is inefficient</h2> The superannuation system employs <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/6291.0.55.003">55,000 people</a> at a cost of <a href="https://www.selectingsuper.com.au/superannuation-fees-fall-for-the-first-time-in-six-years">A$32 billion</a> per year to produce <a href="https://www.apra.gov.au/quarterly-superannuation-statistics">$40 billion</a> per year in retirement incomes. This is nearly as many people as the enlisted Australian Defence Force (58,000) with a similar total cost ($34 billion). The rest of Australia’s entire welfare system, including administering the age pension, disability, unemployment benefits and Medicare, costs just $6 billion per year and employs <a href="https://www.servicesaustralia.gov.au/sites/default/files/2018/10/8802-1810-annual-report-web-2017-2018.pdf">33,000 people</a>, while providing <a href="https://www.servicesaustralia.gov.au/sites/default/files/2018/10/8802-1810-annual-report-web-2017-2018.pdf">$45 billion</a> in pension benefits. <h2>It directs money where it isn’t needed..</h2> Each year the superannuation system takes in <a href="https://www.apra.gov.au/quarterly-superannuation-statistics">$117 billion</a> and spits out <a href="https://www.apra.gov.au/sites/default/files/Quarterly%20Superannuation%20Performance%20Statistics%20September%202019_0.pdf">$80 billion</a> in payments (including lump sum withdrawals), leaving $38 billion in asset markets, sapping spending and economic growth. That’s roughly as much as the <a href="https://www.smh.com.au/business/saving-the-nation-20090203-7wsb.html">$40 billion</a> stimulus package introduced during the 2009 financial crisis. Unlike it, the super system depresses rather than stimulates the economy. Unlike the super system, the age pension system is likely to stimulate the economy because it takes purchasing power away from high-income taxpayers with a relatively low likelihood of spending extra dollars to to lower-income pensioners with a high likelihood of spending them. <h2>…and away from those who do need it</h2> Unlike the age pension system, the super system can’t provide poverty relief, or broadly adequate retirement incomes. For the bottom 40% of earners it does the opposite of smoothing income, making them poorer than they would have been while working, and somewhat <a href="https://theconversation.com/super-shock-more-compulsory-super-would-make-middle-australia-poorer-not-richer-120002">richer</a> than they would have been while on the pension and retired. The <a href="https://treasury.gov.au/publication/p2020-51153">$18 billion</a> of tax breaks on super fund contributions and <a href="https://treasury.gov.au/publication/p2020-51153">$20 billion</a> of tax breaks on super fund earnings are predominately directed to <a href="https://treasury.gov.au/programs-and-initiatives-superannuation/distributional-analysis-of-superannuation-taxation-concessions">high income earners</a>. In a comprehensive study released this week the Grattan Institute has demolished the claim that super contributions come out of employers pockets. Instead it finds that, on average, <a href="https://grattan.edu.au/report/no-free-lunch/">80%</a> of each super contribution comes out of what would have been wages. <h2>Here’s how to escape it</h2> Scrapping the system altogether would massively improve Australia’s economic performance, including the performance of our only true retirement income system, which is the age pension. It can be done by forcing employers to pay what are now super contributions directly into wage accounts and allowing super fund holders to withdraw up to a maximum amount each year during a transition period, after which all super balances would receive no special tax treatment. The tens of billions saved in the budget could be used to enhance the size and scope of the age pension. It could incorporate <a href="https://theconversation.com/fall-in-ageing-australians-home-ownership-rates-looms-as-seismic-shock-for-housing-policy-120651">appropriate rent assistance</a> and begin at age 60 instead of 67. It’s possible. Certainly, there would be job losses, but in other industries we have come to accept that there is no point in continuing to pay people to do things that aren’t needed, and especially no point in making those payments compulsory. It’d be one of the best things we could do to enhance the working of our economy. This article originally appeared on <a href="https://theconversation.com/superannuation-isnt-a-retirement-income-system-we-should-scrap-it-130191">The Conversation</a>. Image: Getty

Retirement Income

Should I pay off the mortgage ASAP or top up my superannuation? 4 questions to ask yourself

At a certain point in life, many wonder what’s better: to pay off the home loan ASAP or top up your superannuation? If your emergency cash buffer looks OK and you have enough to cover you for around three to six months if you lost your job, the super versus mortgage question is a good one to ponder. There’s no one-size-fits-all answer. On the face of it, there’s a compelling case for building up your super; you can take advantage of the <a href="https://moneysmart.gov.au/budgeting/compound-interest-calculator">magic of compound interest</a> (and, potentially, some <a href="https://moneysmart.gov.au/grow-your-super/super-contributions">tax breaks</a> as well) – all while interest rates on mortgages are low. If you’re getting <a href="https://www.superannuation.asn.au/media/media-releases/2021/media-release-29-june-2021">8% compound interest on super</a> and paying only 3% on your mortgage, building up super might seem a good option. But financial decisions are about psychology as well as numbers. Much depends on your debt comfort zone. It’s best to seek professional assistance from a <a href="https://moneysmart.gov.au/managing-debt/financial-counselling">financial counsellor</a> or adviser. But here are some questions to consider along the way. <h2>1. Am I ‘on track’ to have enough super upon retirement?</h2> Use the government’s Moneysmart <a href="https://moneysmart.gov.au/retirement-income/retirement-planner">retirement planners</a> or your super fund’s calculator to check. If it’s looking sparse – perhaps due to career breaks or part-time work – you might consider <a href="https://www.ato.gov.au/individuals/super/growing-your-super/adding-to-your-super/salary-sacrificing-super/">salary sacrificing</a> extra into your super (on top of what your employer already puts in there). An additional A$50 a week, for example – even just for a few years – can help remedy your meagre super projections. According to <a href="https://moneysmart.gov.au/grow-your-super/super-contributions">Moneysmart</a>: <blockquote> The payments, called concessional contributions, are taxed at 15%. For most people, this will be lower than their marginal tax rate. You benefit because you pay less tax while you boost your retirement savings […] The combined total of your employer and salary sacrificed concessional contributions must not be more than $27,500 per financial year. </blockquote> Try the <a href="https://www.industrysuper.com/understand-super/salary-sacrifice-calculator/">Industry Super</a> or <a href="https://moneysmart.gov.au/grow-your-super/super-contributions-optimiser">Moneysmart</a> calculators to see how much extra you’d have at retirement if you salary sacrificed into super for a few years. Consider seeking advice from your super fund on your super investment options and Age Pension entitlements. You might also consider an after-tax <a href="https://www.ato.gov.au/individuals/super/growing-your-super/adding-to-your-super/personal-super-contributions/">personal super contribution</a> (that is, putting extra money from savings or from your take-home pay into super). The contributions may be <a href="https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/claiming-deductions-for-personal-super-contributions/">tax deductible</a>, but even if not, the returns in super are tax friendly. <a href="https://images.theconversation.com/files/430652/original/file-20211107-9872-q6fqib.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/430652/original/file-20211107-9872-q6fqib.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="A middle aged couple do financial planning together on a laptop." /></a> Are you ‘on track’ to have enough super upon retirement? Use online calculators to find out. Shutterstock <h2>2. What about the pension?</h2> Are you expecting a full Age Pension? To find out if you’re likely to qualify for one, use an <a href="https://www.superguide.com.au/in-retirement/age-pension-calculator">online calculator</a> or ask your super fund. People with “too much super” don’t get the pension (although most retirees get some part pension). For some, the more you put into super, the <a href="https://grattan.edu.au/wp-content/uploads/2020/03/Grattan-Institute-sub-balancing-act-retirement-income-review.pdf">less you get in Age Pension payments</a>. For single homeowners, the total asset threshold for a full Age Pension is $270,500 (including super but excluding your main residence), while the part-Age Pension threshold is $593,000. For couple homeowners, the combined total asset threshold for a part-Age Pension is $891,500 (also including super but excluding the main residence). If you’re on a median income and your super balance is predicted to land between the lower and upper asset thresholds for the pension, <a href="https://grattan.edu.au/wp-content/uploads/2020/03/Grattan-Institute-sub-balancing-act-retirement-income-review.pdf">some models predict</a> that for every extra $1,000 put into super at age 40, you would only be around $25 per year better off in terms of retirement income (due to the tapering off in eligible Age Pension income). For people on low incomes, extra super contributions may not be the answer at all if the result is more financial stress during your working life and immediate housing security risk. <h2>3. If I retired with a mortgage, could I cope?</h2> Many people end up retiring earlier than planned, due to health or other issues. If you were still paying off your mortgage at retirement, would you feel comfortable about that? Or would it be a source of worry? Traditionally, most people enter retirement having paid off their home loan but now <a href="https://theconversation.com/more-people-are-retiring-with-high-mortgage-debts-the-implications-are-huge-115134">more are approaching retirement</a> with some mortgage remaining. It might not be the end of the world if you had $100,000 left on the mortgage when you stop working. After all, you can draw out up to <a href="https://moneysmart.gov.au/retirement-income/super-lump-sum">$215,000 of your super tax free at retirement</a> to pay off debt. Doing so can also increase your Age Pension entitlement (as your primary residence is exempt from pension assets tests while super is not). The wealth accumulation in superannuation is going to outpace the interest on a mortgage in most cases for some time, even after you retire. Even so, you might feel it’s worth making the last vestiges of your debt go away in retirement so you can stop worrying about it. <img src="https://images.theconversation.com/files/430653/original/file-20211107-10121-1tkhmjc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="An older same sex couple laugh together in the garden." /> If you and your partner retired with a mortgage debt, would you feel OK about that or would it be a source of worry? Shutterstock <h2>4. Will the choices I make today cost me later – and am I OK with that?</h2> Australian property values have skyrocketed and many have borrowed more to pay for renovations. The full “cost” of a renovation may not be apparent at first. The true cost of a $150,000 renovation over the next 20 years could be more like $700,000. How? Well, if that $150,000 was put into a balanced allocation in super for a couple of decades, it would likely grow to be about $700,000. That’s compound interest for you. You’d hope to get that in capital gains from the renovation. But it’s never just about the finances. The extra mortgage might be worth it because it paid for a home that brings comfort and joy (as well as the capital gains). Likewise, paying off your mortgage ASAP might mean forgoing the extra you’d get if you’d put it in super. But for some, wiping out a mortgage will be worth it to be debt-free. Perhaps after the mortgage is gone, you can maximise salary sacrificing into super until retirement, while also reducing your tax bill. <h2>At least do the sums</h2> There’s always more than one solution. To know what’s right for you, you’ll need to get advice for your personal circumstances. But it’s good to look at where your super is now and where it’s heading, and <a href="https://www.canstar.com.au/home-loans/debt-income-ratio/">calculate your debt-to-income ratio</a> (debt divided by income). It’s often used to guage how serious (or not) your debt is. Lenders and regulators might consider a debt-to-income ratio over <a href="https://www.apra.gov.au/sites/default/files/2021-09/Quarterly%20authorised%20deposit-taking%20institution%20property%20exposure%20statistics%20-%20Highlights%20June%202021.pdf">six times your income to be “high”</a>, but your personal debt comfort zone might be much lower. Emotions play a bigger part in financial planning than many like to admit. Desire to pay off a mortgage quickly can be influenced by how you were raised, feelings of anxiety and stigma that often come with debt, and Australia’s cultural bias toward debt-free home ownership. Depending on circumstances though, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. At least do the sums, so you can make an informed choice.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/170470/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/di-johnson-1265246">Di Johnson</a>, Lecturer in Finance, <a href="https://theconversation.com/institutions/griffith-university-828">Griffith University</a> This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/should-i-pay-off-the-mortgage-asap-or-top-up-my-superannuation-4-questions-to-ask-yourself-170470">original article</a>. Image: Shutterstock

Retirement Income

BREAKING: Pension payments could halve in July due to COVID-19 changes to superannuation

<div class="post_body_wrapper"> <div class="post_body"> <div class="body_text "> Superannuation funds are currently warning retirees that their pension payments are about to be cut by half under new changes that come into effect from July 1. "You know, as far as I know, I'm not cognitively impaired and I do have a tertiary education and English is my first language — and yet, I had difficulty,” explained Sandra Luntz to<a rel="noopener" href="https://www.abc.net.au/news/2020-06-15/pension-payment-could-halve-july-because-covid-19-changes/12348612" target="_blank"> ABC</a>. The 76-year-old former speech pathologist had to turn to her daughter to explain the letter. Currently, the Federal Government requires retirees collecting on their superannuation to withdraw a minimum amount each year. At times of financial instability, like now with the COVID-19 pandemic, the Government has moved to reduce the minimum drawdown as one of the measures in its COVID-19 stimulus package as it can be counterproductive to force people to draw on their super too quickly. If they withdraw too much too quickly, the superannuation that is supposed to last the rest of their lives will not do the job. Retirees are able to elect to set the payment to a higher level if it suits them better, but Luntz’s daughter Ann Pearson is worried about the people who might be caught unawares. "So my mum's on the minimum pension and I know for certain that mum could not live on half the amount of money that she's getting at the moment," she told AM. As Pearson is Head of Wealth products with Australian financial services company ClearView, it’s her job to understand the superannuation system of Australia. "My mum is quite financially savvy, but she wasn't aware that this would be happening," Ms Pearson said. "And when I told her, she was horrified, and not just horrified because her income was halving, but also horrified that someone had actually made this decision on her behalf without consulting her, and [horrified at] having had her choice taken away from her." Jason Poole from financial planners GPA Matrix said that more could have been done to alert people about the changes. "It's the sort of thing that could almost have its own TV campaign, a government announcement: 'You can reduce your pension if you wish and your administrator may well just forcibly do this to you,'" he said. The Assistant Minister for Superannuation and Financial Services Jane Hume said that superannuation trustees should do what’s best for its members. "Trustees should be carefully examining what's in the best interests of their pensioner members and not risk being perceived to hold on to people's money," Senator Hume said. "Some pensioners may need the money now, others may want to only take the minimum drawdown." The way that superannuation funds will handle the changes coming July 1 will be handled differently depending on the fund. "They are automatically reducing people's pensions to the new minimum. For those people, it could be quite difficult for them to suddenly discover that they don't have enough money in their bank account to pay their bills," explained Pearson. </div> </div> </div>

Retirement Income

Coronavirus: Government greenlights early access to superannuation

Australians who have lost work due to the new coronavirus outbreak will be allowed to access up to $20,000 from their superannuation, Prime Minister Scott Morrison announced on Sunday. Starting mid-April, workers and sole traders who have lost part or all of their income as a result of the ongoing COVID-19 pandemic would be eligible to make tax-free withdrawals of up to $10,000 this financial year and another $10,000 next financial year. To be eligible, applicants must meet at least one of the following requirements: <ul> <li>Be unemployed.</li> <li>Be eligible to receive a job seeker benefit, youth allowance for jobseekers, parenting payment or special benefit or farm household allowance.</li> <li>Have been made redundant or had their working hours reduced by 20 per cent or more since 1 January this year.</li> <li>If you’re a sole trader, your business operations have been suspended or your turnover has fallen by 20 per cent since 1 January this year.</li> </ul> Treasurer Josh Frydenberg said the super fund regulator APRA has assured him the easing of access to super would not have “a significant impact on the industry overall”. Ben Butler of <a href="https://www.theguardian.com/australia-news/2020/mar/22/australia-is-easing-superannuation-access-for-those-worst-hit-by-coronavirus-but-can-we-afford-it">The Guardian</a> warned that allowing withdrawals will diminish the super funds’ ability to invest in long-term, high-growth assets and may lead to redemption freezes, which some funds experienced during the global financial crisis. The Australian Institute of Superannuation Trustees’ chief executive officer Eva Scheerlinck said people should only access their super as a last resort. “Australians who are facing financial hardship to access all other sources of income measures before tapping into their super,” she told <a href="https://www.heraldsun.com.au/moneysaverhq/australians-have-been-given-the-green-light-to-access-super-early-amid-the-coronavirus-pandemic/news-story/1366f9d205543310cd29e8810fb2d47c">The Herald Sun</a>. The initiative was announced as part of the federal government’s second stimulus package. The $66 billion package also included $750 payments for those on the age pension, carers allowance or family tax benefit and Commonwealth senior card holders, which will be <a href="https://www.abc.net.au/news/2020-03-22/coronavirus-second-stimulus-package-how-much-money-you-will-get/12078972">made automatically from July 13</a>.

Retirement Life

Superannuation as a retirement income system doesn't work

Discussions about Australia’s retirement income system typically begin by reciting the political slogan that there are “three pillars” to the system — the age pension, compulsory super, and voluntary savings. It was the way the Abbott and Turnbull government’s <a href="https://slideplayer.com/slide/4872297/">tax inquiry</a> looked at retirement incomes, and a frame of reference used by this government’s <a href="https://treasury.gov.au/sites/default/files/2019-11/c2019-36292-v2.pdf">retirement income system review</a>. Missing is discussion of what makes something a “retirement pillar”. <a href="https://images.theconversation.com/files/313028/original/file-20200131-41495-b580y4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/313028/original/file-20200131-41495-b580y4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="" /></a> <a href="https://slideplayer.com/slide/4872297/" class="source">Treasury tax white paper slideshow, 2015</a> It’s possible to think of other retirement pillars. Moving to India for a cheap lifestyle would be one. Requiring retailers to <a href="https://www.fresheconomicthinking.com/2020/01/the-easiest-retirement-system-retiree.html">provide the elderly free goods and services</a>, with the cost absorbed in the prices paid by others could be another. To be a pillar, something would have to allocate goods and services in retirement to people who are no longer earning wages. In my <a href="https://www.fresheconomicthinking.com/p/scrap-superannuation.html">recently released report</a> I argue that superannuation fails this test. Super isn’t a retirement pillar Among other things, super can be spent many years before retirement, beginning anywhere from age <a href="https://www.ato.gov.au/Super/Self-managed-super-funds/Paying-benefits/Preservation-of-super/">55 to 60</a>, even though the retirement age specified the pension legislation is <a href="https://www.humanservices.gov.au/individuals/services/centrelink/age-pension/who-can-get-it">66 to 67</a>. Many financial planners advise intending retirees to spend a lot of their super quickly in order to shelter it in income-test-exempt assets <a href="https://www.yourlifechoices.com.au/finance/property/how-upsizing-protects-your-pension">such as housing</a> and qualify for the pension. The super system also can’t guarantee retirement incomes for people who are self-employed, casually employed, homemakers, have chosen their super fund unwisely or lost the proceeds in things such as online romance scams. As a system, super comes with unnecessary financial risks, such as suddenly losing 21% of its funds, as happened between September 2007 and March 2009 during the global financial crisis. It is better thought of as a growth-sapping, resource-wasting, tax-advantaged asset purchase scheme aimed at the already wealthy, which is <a href="https://theconversation.com/myth-busted-boosting-super-would-cost-the-budget-more-than-it-saved-on-age-pensions-119002">unlikely to do much</a> to reduce reliance on the age pension. We would be better off abandoning it and letting workers spend or save their money as they see fit. The super system is inefficient The superannuation system employs <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/6291.0.55.003">55,000 people</a> at a cost of <a href="https://www.selectingsuper.com.au/superannuation-fees-fall-for-the-first-time-in-six-years">A$32 billion</a> per year to produce <a href="https://www.apra.gov.au/quarterly-superannuation-statistics">$40 billion</a> per year in retirement incomes. This is nearly as many people as the enlisted Australian Defence Force (58,000) with a similar total cost ($34 billion). The rest of Australia’s entire welfare system, including administering the age pension, disability, unemployment benefits and Medicare, costs just $6 billion per year and employs <a href="https://www.servicesaustralia.gov.au/sites/default/files/2018/10/8802-1810-annual-report-web-2017-2018.pdf">33,000 people</a>, while providing <a href="https://www.servicesaustralia.gov.au/sites/default/files/2018/10/8802-1810-annual-report-web-2017-2018.pdf">$45 billion</a> in pension benefits. It directs money where it isn’t needed.. Each year the superannuation system takes in <a href="https://www.apra.gov.au/quarterly-superannuation-statistics">$117 billion</a> and spits out <a href="https://www.apra.gov.au/sites/default/files/Quarterly%20Superannuation%20Performance%20Statistics%20September%202019_0.pdf">$80 billion</a> in payments (including lump sum withdrawals), leaving $38 billion in asset markets, sapping spending and economic growth. That’s roughly as much as the <a href="https://www.smh.com.au/business/saving-the-nation-20090203-7wsb.html">$40 billion</a> stimulus package introduced during the 2009 financial crisis. Unlike it, the super system depresses rather than stimulates the economy. Unlike the super system, the age pension system is likely to stimulate the economy because it takes purchasing power away from high-income taxpayers with a relatively low likelihood of spending extra dollars to to lower-income pensioners with a high likelihood of spending them. …and away from those who do need it Unlike the age pension system, the super system can’t provide poverty relief, or broadly adequate retirement incomes. For the bottom 40% of earners it does the opposite of smoothing income, making them poorer than they would have been while working, and somewhat <a href="https://theconversation.com/super-shock-more-compulsory-super-would-make-middle-australia-poorer-not-richer-120002">richer</a> than they would have been while on the pension and retired. The <a href="https://treasury.gov.au/publication/p2020-51153">$18 billion</a> of tax breaks on super fund contributions and <a href="https://treasury.gov.au/publication/p2020-51153">$20 billion</a> of tax breaks on super fund earnings are predominately directed to <a href="https://treasury.gov.au/programs-and-initiatives-superannuation/distributional-analysis-of-superannuation-taxation-concessions">high income earners</a>. In a comprehensive study released this week the Grattan Institute has demolished the claim that super contributions come out of employers pockets. Instead it finds that, on average, <a href="https://grattan.edu.au/report/no-free-lunch/">80%</a> of each super contribution comes out of what would have been wages. Here’s how to escape it Scrapping the system altogether would massively improve Australia’s economic performance, including the performance of our only true retirement income system, which is the age pension. It can be done by forcing employers to pay what are now super contributions directly into wage accounts and allowing super fund holders to withdraw up to a maximum amount each year during a transition period, after which all super balances would receive no special tax treatment. The tens of billions saved in the budget could be used to enhance the size and scope of the age pension. It could incorporate <a href="https://theconversation.com/fall-in-ageing-australians-home-ownership-rates-looms-as-seismic-shock-for-housing-policy-120651">appropriate rent assistance</a> and begin at age 60 instead of 67. It’s possible. Certainly, there would be job losses, but in other industries we have come to accept that there is no point in continuing to pay people to do things that aren’t needed, and especially no point in making those payments compulsory. It’d be one of the best things we could do to enhance the working of our economy.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/130191/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/cameron-murray-172480">Cameron Murray</a>, Research Fellow - Henry Halloran Trust, <a href="https://theconversation.com/institutions/university-of-sydney-841">University of Sydney</a> This article is republished from <a href="http://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/superannuation-isnt-a-retirement-income-system-we-should-scrap-it-130191">original article</a>.

Money & Banking

5 questions about superannuation the Australian government's new inquiry will need to ask

The government’s new <a href="http://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/review-retirement-income-system">retirement incomes review</a> will need to work quickly. On Friday Treasurer Josh Frydenberg said he expected a final report by June, just seven months after the issues paper he wants it to deliver by November. The deadline is tight for a reason. In recommending the inquiry in its report on the (in)effeciency of Australia’s superannuation system this year, the Productivity Commission said it should be completed “<a href="https://theconversation.com/frydenberg-should-call-a-no-holds-barred-inquiry-into-superannuation-now-because-labor-wont-114079">in advance of any increase in the superannuation guarantee rate</a>”. In other words, in advance of the next leglislated increase in compulsory superannuation contributions, which is on July 1, 2021. The next increase (actually, the next five increases) will hurt. The last two, on July 1 2013 and July 1 2014, took place when wage growth was stronger. In 2013 wages growth was 3% per year. <a href="https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" alt="" /></a> <a href="https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=Superguaranteepercentage" class="source">Source: Australian Tax Office</a> And they were small – an extra 0.25 per cent of salary each. The next five, to be imposed annually from July 1 2021, are twice the size: <a href="https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=Superguaranteepercentage">0.5% of salary each</a>. If taken out of wage growth, they’ve the potential to cut it from its present usually low 2.3% per annum to something with a “1” in front of it, pushing it below the rate of inflation, for five consecutive years. If we were going to do that (even if we thought the economy and wage growth could afford it) it would be a good idea to have a good reason why. After all, compulsory superannuation is the compulsory locking away of income that could otherwise be spent or used to pay down debt or saved through another vehicle, regardless of the wishes of the person whose income it is. Question 1. What’s it for? Fortunately, the new inquiry doesn’t need to do much work on this one. For most of its life compulsory super hasn’t had an agreed purpose. At times it has been justified as a means of restraining wage growth, at times as means of restraining government spending on the pension, at times as means of boosting national savings. In 2014, more than 20 years after compulsory super began, the Murray Financial System Review asked the government to <a href="http://fsi.gov.au/publications/final-report/executive-summary/#recommendations">set a clear objective for it</a>, and two years later the government came up with one, enshrined in a bill entitled the <a href="https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5762">Superannuation (Objective) Bill 2016</a>. The bill lapsed, but the objective at its centre lives on as the best description we’ve come up with yet of what compulsory super is for: <blockquote> to provide income in retirement to substitute or supplement the age pension </blockquote> Which raises the question of how much we need. For compulsory super, the answer is probably none. People who want more than the pension and their other savings can save more through voluntary super. People who don’t want more (or can’t afford to save more) shouldn’t. Question 2. How much do people need? Assuming for the moment that how much people need in retirement is relevant for determining how much compulsory super they need, the inquiry will need to examine what people need to live on in retirement. The “<a href="https://www.superannuation.asn.au/resources/retirement-standard">standards</a>” prepared by the Association of Superannuation Funds of Australia are loose. The more generous of the two allows for overseas travel every two or so years, A$163 per couple per fortnight on dining out, $81 on alcohol “or equivalent spent with charity or church”. It isn’t a reasonable guide to how much people need to live on, and certainly isn’t a reasonable guide for how much the government should intervene to make sure they have to live on. They are standards it doesn’t intervene to support while people are working. And there’s something else. Super isn’t what will fund it. Most retirement living is funded outside of super, either through the age pension, private savings, or the family home (which saves on rent). Most 65 year olds have <a href="https://grattan.edu.au/wp-content/uploads/2018/11/912-Money-in-retirement-re-issue-1.pdf">more saved outside of super than in it</a>, and a lot more than that saved in the family home. It’s a slight of hand to say that retirees need a certain proportion of their final wage to live on and then to say that that’s how much super should provide. Question 3: Does it come out of wages? The best guess is that, although paid by employers in addition to wages, compulsory super comes out of what would otherwise have been their wage bill. <a href="http://treasury.gov.au/sites/default/files/2019-09/foi_2534_document_set_for_release_re.pdf">Treasury</a> puts it this way: <blockquote> Though compulsory superannuation guarantee contributions are paid by employers, wage setting generally takes into account all labour costs. As such, it is widely accepted that employees bear the cost of higher superannuation guarantees in the form of lower take home pay. </blockquote> The inquiry will probably make its own determination. If it finds that extra contributions <a href="https://theconversation.com/productivity-commission-finds-super-a-bad-deal-and-yes-it-comes-out-of-wages-109638">do indeed come out of what would have been pay rises</a>, it will have to consider the tradeoff between lower pay rises (and they are already very low) and the compulsory provision of more superannuation in retirement. Question 4: Does it boost private saving? It’d be tempting to think that the compulsory nature of compulsory superannuation meant that each extra dollar funnelled into it increased retirement savings by an extra dollar. But it doesn’t, in part because wealthy Australians who are already saving a lot have the option of offsetting it by saving less in other ways. For them, the increase in saving isn’t compulsory. For financially stretched Australians unable to afford to save (or for Australians at times in times life when they can’t afford to save) the compulsion is real, and unwelcome. The inquiry will have to make its own assessment, updating <a href="https://www.rba.gov.au/publications/rdp/2007/pdf/rdp2007-08.pdf">Reserve Bank research</a> which found in 2007 that each extra dollar in compulsory accounts added between 70 and 90 cents to household wealth. Question 5: Does it boost national saving? Boosting private saving (at the expense of people who are unable to escape) is one thing. Boosting national savings (private and government) is another. The tax concessions the government hands out to support superannuation are expensive. The concession on contributions alone is set to cost $19 billion this year and $23 billion in 2022-23, notwithstanding some tightening up. It predominately benefits high earners, the kind of people who don’t need assistance to save. On balance it is likely that the system does little for national savings, cutting government savings by as much as it boosts private savings. But because the question hasn’t been asked, not since the Fitzgerald report on national saving in 1993 shortly after compulsory super was introduced, we don’t know. It’ll be up to the inquiry to bring us up to date.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/124400/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/peter-martin-682709">Peter Martin</a>, Visiting Fellow, <a href="http://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a> This article is republished from <a href="http://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/5-questions-about-superannuation-the-governments-new-inquiry-will-need-to-ask-124400">original article</a>.

Money & Banking

5 questions about superannuation the government's new inquiry will need to ask

The government’s new <a href="http://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/review-retirement-income-system">retirement incomes review</a> will need to work quickly. On Friday Treasurer Josh Frydenberg said he expected a final report by June, just seven months after the issues paper he wants it to deliver by November. The deadline is tight for a reason. In recommending the inquiry in its report on the (in)effeciency of Australia’s superannuation system this year, the Productivity Commission said it should be completed “<a href="https://theconversation.com/frydenberg-should-call-a-no-holds-barred-inquiry-into-superannuation-now-because-labor-wont-114079">in advance of any increase in the superannuation guarantee rate</a>”. In other words, in advance of the next leglislated increase in compulsory superannuation contributions, which is on July 1, 2021. The next increase (actually, the next five increases) will hurt. The last two, on July 1 2013 and July 1 2014, took place when wage growth was stronger. In 2013 wages growth was 3% per year. <a href="https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" alt="" /></a> <a href="https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=Superguaranteepercentage" class="source">Source: Australian Tax Office</a> And they were small – an extra 0.25 per cent of salary each. The next five, to be imposed annually from July 1 2021, are twice the size: <a href="https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=Superguaranteepercentage">0.5% of salary each</a>. If taken out of wage growth, they’ve the potential to cut it from its present usually low 2.3% per annum to something with a “1” in front of it, pushing it below the rate of inflation, for five consecutive years. If we were going to do that (even if we thought the economy and wage growth could afford it) it would be a good idea to have a good reason why. After all, compulsory superannuation is the compulsory locking away of income that could otherwise be spent or used to pay down debt or saved through another vehicle, regardless of the wishes of the person whose income it is. <h2>Question 1. What’s it for?</h2> Fortunately, the new inquiry doesn’t need to do much work on this one. For most of its life compulsory super hasn’t had an agreed purpose. At times it has been justified as a means of restraining wage growth, at times as means of restraining government spending on the pension, at times as means of boosting national savings. In 2014, more than 20 years after compulsory super began, the Murray Financial System Review asked the government to <a href="http://fsi.gov.au/publications/final-report/executive-summary/#recommendations">set a clear objective for it</a>, and two years later the government came up with one, enshrined in a bill entitled the <a href="https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5762">Superannuation (Objective) Bill 2016</a>. The bill lapsed, but the objective at its centre lives on as the best description we’ve come up with yet of what compulsory super is for: <blockquote> to provide income in retirement to substitute or supplement the age pension </blockquote> Which raises the question of how much we need. For compulsory super, the answer is probably none. People who want more than the pension and their other savings can save more through voluntary super. People who don’t want more (or can’t afford to save more) shouldn’t. <h2>Question 2. How much do people need?</h2> Assuming for the moment that how much people need in retirement is relevant for determining how much compulsory super they need, the inquiry will need to examine what people need to live on in retirement. The “<a href="https://www.superannuation.asn.au/resources/retirement-standard">standards</a>” prepared by the Association of Superannuation Funds of Australia are loose. The more generous of the two allows for overseas travel every two or so years, A$163 per couple per fortnight on dining out, $81 on alcohol “or equivalent spent with charity or church”. It isn’t a reasonable guide to how much people need to live on, and certainly isn’t a reasonable guide for how much the government should intervene to make sure they have to live on. They are standards it doesn’t intervene to support while people are working. And there’s something else. Super isn’t what will fund it. Most retirement living is funded outside of super, either through the age pension, private savings, or the family home (which saves on rent). Most 65 year olds have <a href="https://grattan.edu.au/wp-content/uploads/2018/11/912-Money-in-retirement-re-issue-1.pdf">more saved outside of super than in it</a>, and a lot more than that saved in the family home. It’s a slight of hand to say that retirees need a certain proportion of their final wage to live on and then to say that that’s how much super should provide. <h2>Question 3: Does it come out of wages?</h2> The best guess is that, although paid by employers in addition to wages, compulsory super comes out of what would otherwise have been their wage bill. <a href="http://treasury.gov.au/sites/default/files/2019-09/foi_2534_document_set_for_release_re.pdf">Treasury</a> puts it this way: <blockquote> Though compulsory superannuation guarantee contributions are paid by employers, wage setting generally takes into account all labour costs. As such, it is widely accepted that employees bear the cost of higher superannuation guarantees in the form of lower take home pay. </blockquote> The inquiry will probably make its own determination. If it finds that extra contributions <a href="https://theconversation.com/productivity-commission-finds-super-a-bad-deal-and-yes-it-comes-out-of-wages-109638">do indeed come out of what would have been pay rises</a>, it will have to consider the tradeoff between lower pay rises (and they are already very low) and the compulsory provision of more superannuation in retirement. <h2>Question 4: Does it boost private saving?</h2> It’d be tempting to think that the compulsory nature of compulsory superannuation meant that each extra dollar funnelled into it increased retirement savings by an extra dollar. But it doesn’t, in part because wealthy Australians who are already saving a lot have the option of offsetting it by saving less in other ways. For them, the increase in saving isn’t compulsory. For financially stretched Australians unable to afford to save (or for Australians at times in times life when they can’t afford to save) the compulsion is real, and unwelcome. The inquiry will have to make its own assessment, updating <a href="https://www.rba.gov.au/publications/rdp/2007/pdf/rdp2007-08.pdf">Reserve Bank research</a> which found in 2007 that each extra dollar in compulsory accounts added between 70 and 90 cents to household wealth. <h2>Question 5: Does it boost national saving?</h2> Boosting private saving (at the expense of people who are unable to escape) is one thing. Boosting national savings (private and government) is another. The tax concessions the government hands out to support superannuation are expensive. The concession on contributions alone is set to cost $19 billion this year and $23 billion in 2022-23, notwithstanding some tightening up. It predominately benefits high earners, the kind of people who don’t need assistance to save. On balance it is likely that the system does little for national savings, cutting government savings by as much as it boosts private savings. But because the question hasn’t been asked, not since the Fitzgerald report on national saving in 1993 shortly after compulsory super was introduced, we don’t know. It’ll be up to the inquiry to bring us up to date.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/124400/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> Written by Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University. Republished with permission of <a rel="noopener" href="https://theconversation.com/5-questions-about-superannuation-the-governments-new-inquiry-will-need-to-ask-124400" target="_blank">The Conversation</a>.

Retirement Income

Our Partners

Over 60

News

Shop

Catalogues

Contests

Entertainment

Travel

Health

Lifestyle

Finance

Property

Games

Information

Keep up to date

Search

More Australians are using their superannuation for medical procedures. But that might put their financial health at risk

Retirement tips for Australians without a full superannuation safety net

Australian superannuation changes and your retirement savings

Why millions of Aussies are falling behind on superannuation savings

After a lifetime studying superannuation, here are 5 things I wish I knew earlier

Women and low-income earners miss out in a superannuation system most Australians think is unfair

Who is the one Australian with over $500 million in superannuation!?

Anthony Albanese confirms changes to superannuation

Jelena Dokic slams government superannuation legislation

Major overhaul of Aussie superannuation system touted

5 myths about superannuation

A trip through superannuation history

How do I find out what my superannuation fund invests in? A finance expert explains

Superannuation isn't a retirement income system

Should I pay off the mortgage ASAP or top up my superannuation? 4 questions to ask yourself

BREAKING: Pension payments could halve in July due to COVID-19 changes to superannuation

Coronavirus: Government greenlights early access to superannuation

Superannuation as a retirement income system doesn't work

5 questions about superannuation the Australian government's new inquiry will need to ask

5 questions about superannuation the government's new inquiry will need to ask

Our Partners