According to the Australian Bureau of Statistics (ABS), approximately 15% of the Australian population have retired from gainful employment as at 2012. By 2061, approximately 30% of the Australian population will have ceased working and will therefore be reliant on some form of retirement benefit.
To emphasise the significance of the potential problem of too many relying on government assistance in retirement, one only needs to look at the current median superannuation balances of Australians in the 55 – 64 year age bracket. According to the ABS, the median superannuation balances of males in this age group is just $90,000, and females $60,000.
Considering in 2012 males can expect to live approximately 15 more years after retirement, and women another 20 years, this equates to a lot of people that are going to be reliant on some form of government assistance.
But the problem is likely to worsen should something not be done to encourage Australians to put away more super. Based on historical increases in the life expectancy of Australians, by 2061 the average Australian male will potentially live to be 92 years old, and females 97 years old. Therefore, if superannuation balances are not increased by over this same time, the government will need to fund not only a 100% increase in the number of Australians receiving government assistance, but the government will also need to provide this assistance for another 15 to 20 years.
The problem raised above is a complex issue that has existed for a long while. One of the many causes however leading to the above problem stems from legislative changes implemented by the Australian Labor Party to reduce the concessional contributions caps afforded super fund members. One of the reasons for the reduction in this cap was to potentially remove the potential inequity between high and lower income earners that arises from such caps. Therefore, any consideration given to increasing the cap to past limits will therefore need to equitable for the Australian population of all income levels.
Another problem associated with the contributions phase of superannuation results from the ‘flat cap’ for both concessional and non-concessional contributions. The existence of a flat concessional contributions cap of $25,000 ($35,000 for some from 2014 onward), and non-concessional contributions cap of $150,000 ($450,000 for those eligible to use the bring forward rule), gives no consideration to the income earning phase of an individual’s life cycle. For instance, a mother may take five to ten years out of the work force to have and raise children, thereby foregoing superannuation contributions during this period. Yet when she re-enters the work force she can only make catch up contributions up to her caps. Would it not be better to have the ability to carry forward any short fall in contributions that were foregone during absences from the work force? Alternatively, what about a family concessional contributions cap that would allow the family member who is still working to make concessional contributions on behalf of his or her spouse, beyond the limits that currently exist?
Considering the current economic factors the government must contend with and its need to fix a budget deficit, it may be a big ask to suggest amending legislation to increase the concessional contributions caps. Doing so would also re-ignite the ‘inequity’ claims associated with superannuation.
However, what if the income lost by the government as a result of increased concessional contributions caps could be recuperated from other areas of superannuation? For instance, there are a plethora of benefits afforded a member’s superannuation once the member retires or withdraws his or her benefits. In most instances, once the member has retired, there is little to no tax payable on the member’s benefit. Or whether it be tax free treatment of the income and capital gains of the fund, or no tax payable on any benefit taken as a lump sum or pension, legislation to generate more government income at the benefits phase could be considered and still keep most of the benefits that exist at the retirement phase of superannuation.
Your feedback sought
Whilst a number of options to recuperate the income lost from increasing concessional contributions may exist, the IPA would like to hear your thoughts on which, if any, areas of superannuation and taxation legislation could be changed to assist with this recuperation.
Whether it be legislation to reduce some of the benefits associated with a superannuation fund in the the benefits phase, the earnings phase, or anything else you may have to suggest, the IPA is interested in your feedback.
But to conclude this article, as mentioned in the opening paragraphs, if something is not done to encourage Australians to increase their superannuation balances, due to the increasing population, and the increasing age of the Australian population, the pressure placed on the government to fund Australia’s retirement will only get worse.
