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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

How ‘guaranteed’ is a rise in the superannuation guarantee?

Soon after the election Treasurer Frydenberg flagged there would be an inquiry into retirement incomes. Since then, no details have emerged. But there is gossip around Canberra there might be some action in the next couple of weeks on a review that would report before the end of 2020. This issue, with compulsory superannuation its pointy end, and that of industrial relations, on which minister Christian Porter is doing a stocktake, have common threads in political terms. They will test the clout of powerful interests outside the parliament, and of backbench activists within the Coalition. Meaning, they will test the Prime Minister. In another life, Peter Collins was a NSW Liberal treasurer and opposition leader. These days, he’s deputy chair of Industry Super Australia, which he previously chaired for six years. Collins told a Rice Warner summit on superannuation in Canberra on Monday that Scott Morrison had the opportunity to “reset the relationship” with industry and public sector superannuation funds, after the negativity of the Turnbull government - which was preoccupied with trying to curb union power in the industry funds. (It was less than pleased when the industry funds emerged from a Productivity Commission inquiry a good deal shinier than the retail funds.) Collins also recounted how a few weeks ago, US Commerce Secretary Wilbur Ross had invited IFM Investors, the infrastructure investment vehicle for many industry funds (and overseas pension funds of a similar nature), to join the US Investment Advisory Council. This is described as “established by the Secretary of Commerce to solicit private sector advice on the promotion and retention of foreign direct investment” to the US. It seemed the US administration had a rather more positive attitude to industry and public sector funds than the Coalition government. Collins also points to the scope, under a “reset relationship” for these funds to do more on the infrastructure front in Australia. “There is no other pot of gold” for infrastructure, he says. Not surprisingly, these funds are hanging out for the terms of reference for the retirement inquiry, in particular how they impact on the legislated rise due to start from mid-2021, to take the superannuation guarantee gradually from the current 9.5% to 12% by 2025. The Productivity Commission saw the need for “an independent public inquiry into the role of compulsory superannuation in the broader retirement incomes system”. Others question the case for an inquiry when the various policy settings appear to be in place. The PC has reported on necessary administrative reforms. Changes have already been made to the tax treatment of superannuation. Overhaul of the aged pension system doesn’t seem on the radar. And, crucially, the rise in the super guarantee is baked into law - and, Morrison says, into Coalition policy. But some are suspicious (and others hopeful) the retirement inquiry could pave the way for the government to seek to defer the July 2021 rise, and then put to the 2022 election the proposition that workers should be able to get the money through wage increases rather than having it locked away. This would also set up a convenient issue for wedging Labor, which would be committed to the guarantee increasing. It’s easy to see the line – it could be portrayed as another case of the ALP wanting to “increase taxes” rather than giving employees their money. If it all sounds too Machiavellian, it is worth remembering the Coalition has form on the issue. The Howard government proposed workers should be able to “opt out” of the compulsory scheme and receive wage increases instead, although this didn’t go ahead. The Abbott government deferred rises until 2021. New Liberal senator Andrew Bragg, who addressed Monday’s conference (although he avoided the guarantee issue for political reasons) is one of a number of Coalition backbenchers who oppose the rise to 12%. They are looking to the inquiry to leverage change. They have an ally in the Grattan Institute, which argues the increase to 12% should be abandoned, maintaining “it would effectively compel most people to save for a higher living standard in retirement than they enjoy during their working lives”. The temptation for scrapping the rise, or having some “opt out” system, becomes stronger when wages are flat – a problem reinforced by the latest figures this week. But there is a strong counter case that such a course would be bad in practical and policy terms. There’s no certainty workers would actually get the extra money, or all of it, in wage increases. Attempting to compel that would be complex and fraught. More importantly, failure to strengthen further the compulsory system would disadvantage many individual retirees in the future and be an added burden on a later generation of taxpayers, as more people would be pushed onto full aged pensions. While many Liberals don’t like the compulsory aspect of the super guarantee, it’s the history of the scheme (one of Paul Keating’s legacies) and most particularly the unions’ role - and the flow-on power that gives unions - that really rile them. One would think, however, that much about compulsory superannuation fits with Liberal philosophy, which emphasises self reliance. Admittedly the argument for workers having immediate access to their money, at a time of life when they face their most severe cost-of-living pressures, is seductive. But it short term thinking, from the points of view of both individuals and governments. Much of the debate is being conducted around modelling, stretching out decades, calculating the competing financial implications for low income workers. But modelling, with its assumptions, carries a degree of false precision. It also represents one-dimensional thinking. People on low incomes are naturally going to spend any extra money rather than save it. Yet for these people savings are what they need for the long term. This applies especially for women, for whom more, not fewer, ways should be found to augment their superannuation. Forced saving might be unpleasant in the moment, but valued at the time of a more comfortable and secure retirement. Promises of the money being used for wage increases carry political appeal for a government now, but future governments would benefit if the aged pension burden is contained by a healthily growing compulsory super scheme. Written by Michelle Grattan. Republished with permission of <a href="https://theconversation.com/grattan-on-friday-how-guaranteed-is-a-rise-in-the-superannuation-guarantee-121956">The Conversation.</a>

Retirement Life

Is your superannuation safe? The little known changes starting from July 1

There are major changes coming to Australian superannuation from July 1, which were designed to stop super balances from being eaten up by insurance fees. However, the new changes mean that thousands of Australians could be about to lose the only form of insurance they have and not be aware of it until they need it. The new changes will involve “ghost accounts” being transferred to the Australian Taxation Office if they haven’t had any contributions in the past 16 months or have a balance of less than $6,000. Financial counsellors spoke to the<a rel="noopener" href="https://www.abc.net.au/news/2019-06-07/superannuation-changes-to-strip-remote-australians-of-insurance/11182772" target="_blank"> ABC</a> about what these changes would mean to those who need it most, which include remote Australians. The counsellors believe that people who don’t have a bigger account balance will no longer be covered by insurance policies attached to the funds, which includes life and total and permanent disability (TPD) cover. Broome, WA, financial counsellor Alan Gray explained he had been “losing sleep” over the new changes coming July 1. "We're talking about amounts of money that could be more than $100,000, in some cases more than $200,000 or even $300,000 in insurance payouts to some of the poorest people in Australia," he said. "What really is making me lose sleep at the moment is that no-one in the cities who framed these laws realised that there are thousands upon thousands of Indigenous Australians who never got street delivery of mail," Mr Gray said. "What will happen if they don't hear about these changes, then they will lose all of those benefits on July 1 and the insurance companies will no longer have to pay out any of those large amounts of money." TPD and death benefits that are attached to super funds are massively important, especially for Indigenous communities where the life expectancy is lower and rates of illness are higher than the general population. Broome resident Leah Dolby hasn’t been able to work since 2017 due to suffering health complications, including renal failure. She has had five super accounts over the course of her life with four having active insurance policies. She’s recently qualified to receive a disability support pension and planned to make a claim for TPD on her insurance policies. Dolby has only recently received a letter outlining the changes and has a small window to contact her fund to keep the account alive. "I didn't like the sound of the letter when I read it, and I think nah, this can't happen, I can't work and all this, I'm going to lose out on my super, so I need to do something about it," she told the ABC. "It just made me feel a bit upset, for me to work that hard, and all this super I'm going to lose out on it. "So, I thought I'm going to need to get some help to see what I can do about it." She’s been encouraging others to contact their superannuation funds. "I've been encouraging some people, but I think there's a big need out there for our people to get this help and have this discussion about their super," she said. "Because in the end we might lose out, we might not, we might be lucky. But it'd be good to have that discussion and remind families about superannuation." However, Nick Kirwan from the Financial Services Council, has said that the industry is “worried” about those with smaller balances that may be impacted. "We're especially worried about some of those people, because their accounts are quite likely to be inactive, they may not get that communication," he said. "If people are on parental leave, it might be the last thing they want to have their life insurance cancelled if they've got a new baby to think about, or people who are on long-term sick leave. "Insurance companies want insurance customers, so they absolutely don't want people to have their insurance cancelled, if the person needs the insurance." What can you do? Find your super: You can try finding it yourself or go the easy way and sign onto your MyGov account to find your “lost super”. Ask about your super: You can go online to see how much money your super is earning, as well as find out about fees and default payments for things like insurance. You can also check what kind of insurance cover you’ve got and make changes. Consolidate your funds: Under the new changes, some funds will automatically be consolidated by the ATO. However, if you have active funds with more than $6,000, you can consolidate them yourself. You’re able to nominate a fund through a form from the ATO website. You need a MyGov account for this to work.

Retirement Income

The superannuation change that helps the wealthy at the expense of the young

Another federal budget, and yet more tinkering to superannuation tax breaks. But the latest changes will only help older wealthier Australians. The losers are younger workers and taxpayers. What's the plan? From July 1 2020, Australians aged 65 and 66 will be able to make voluntary pre- and post-tax superannuation contributions without having to pass the <a href="https://www.ato.gov.au/Definitions/?anchor=P1358-111493#P1358-111493">Work Test</a>, under which they are required to work a minimum of 40 hours over a 30-day period. About 55,000 Australians aged 65 and 66 will benefit from these changes at a cost of A$75 million over the next four years. It's another boost for tax planning Treasurer Josh Frydenberg says the changes will help Australians save for their retirement. But most 65- and 66-year-olds still working to top up their superannuation are already eligible to make voluntary super contributions, because they satisfy the Work Test. Working 40 hours over a 30-day period – or little more than one day each week – is hardly onerous. For every dollar contributed to super that genuinely helps Australians save more for their retirement as a result of these changes, there will be many more dollars funnelled into super to make extra use of superannuation tax concessions. The biggest winners will be wealthier retired 65- and 66-year-olds with other sources of income, such as from shares or property, which they will now be able to recycle through superannuation. They will be able to put up to $25,000 into super from their pre-tax income and then – because super withdrawals are tax-free – take the money back out immediately. Their contributions to super are taxed at only 15%, whereas ordinary dividends or bank interest is taxed at their marginal tax rate. The tax savings can be <a href="https://theconversation.com/tax-free-super-is-intergenerational-theft-60369">as high as $5,000 a year</a>. Such strategies aren’t costless: other taxpayers must pay more, or accept fewer services, to make up the difference. It will mean larger inheritances The government is also allowing 65- and 66-year-olds to make three years’ worth of post-tax super contributions, or up to $300,000, in a single year. These changes will mainly boost inheritances. Most people who make after-tax contributions already have large super balances and typically contribute from existing pools of savings to minimise their tax. Grattan Institute’s 2016 report, <a href="https://grattan.edu.au/wp-content/uploads/2016/09/876-A-better-super-system.pdf">A Better Super System</a>, found that only about 1% of taxpayers have total super account balances of more than $1 million, yet this tiny cohort makes almost one-third of all post-tax contributions. These changes will turbo-charge so-called “recontribution strategies” that minimise the tax paid on superannuation fund balances passed on as inheritances. When inherited, super fund balances originally funded by pre-tax contributions can be <a href="https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-using-your-super/Withdrawing-your-super-and-paying-tax/?page=6#How_tax_applies">taxed</a> at 17% (including the Medicare levy), depending on the age of the deceased and the beneficiary. To avoid this tax on their estate, individuals can withdraw superannuation funds tax-free and contribute them back as a post-tax contribution, up to the annual <a href="https://www.ato.gov.au/Super/Self-managed-super-funds/Contributions-and-rollovers/Contribution-caps/#Nonconcessionalcontributions1">post-tax contributions cap</a> of $100,000 each year. It fails the government's own test In 2016, the government tried – but failed – to define the <a href="https://grattan.edu.au/news/when-comfort-in-retirement-comes-at-too-great-a-cost/">purpose</a> of superannuation as providing “income in retirement to supplement or substitute the Age Pension”. The proposed objective <a href="https://grattan.edu.au/news/submission-to-senate-standing-economics-committee-inquiry-into-the-superannuation-objective-bill-2016/">rightly</a> implied that super should not aim to provide limitless support for savings that increase retirement incomes. The benefits of super changes should always be <a href="https://grattan.edu.au/news/submission-to-senate-standing-economics-committee-inquiry-into-the-superannuation-objective-bill-2016/">balanced</a> against the costs of achieving them. The government’s latest changes fail that test. Written by Brendan Coates. Republished with permission of <a href="https://theconversation.com/the-budget-super-change-that-helps-the-wealthy-at-the-expense-of-the-young-114811">The Conversation</a>.

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