Super policy for over 50s
Once people hit their fifties the issue of retirement comes more clearly into view. Even if retirement is still a decade or more off, the need to ensure adequate superannuation savings becomes more pressing. What’s more, this demographic is more likely to have greater disposable income. They are more likely to have paid off their mortgage and no longer have dependent children.
This group is the most primed for superannuation policies aimed at encouraging greater personal contributions. For the current generation of over 50s there is an additional issue. Unlike those who have entered the workforce in the last 20 years, many over 50s will not have had life-long superannuation. They will retire with considerably less than later generations. They therefore have a very pressing need to top up their superannuation.
In our view, this demographic is the one that most needs government policy. Unfortunately it is the group that the Government seems most keen to thwart with – in our view – a false focus on the current cost to government and allegations it is abused by the rich.
We believe the Government should re-introduce the co-contribution caps of the Howard Government, if not for all, then at least for those over 50. We also believe that those over 60 should have even greater contribution caps to make the most of the remaining years of employment to put money into superannuation.
If the Government is keen to claw back some of the cost of increasing the contribution cap, one solution would be to tax personal contributions once an individual’s superannuation balance reaches a threshold, say $500,000. The tax would be at their individual tax rate less 15 per cent. This would mean that the wealthier would not receive greater tax benefits than others.
We do not believe the Government should be so concerned with the tax benefits of superannuation. Research undertaken by David Knox of Mercer has indicated that when you take into account the situation over an individual’s lifetime, the net cost to government is no different for the person on low income (who receives relatively less tax savings through superannuation but is on the government pension for longer) and wealthier people (who receive the greater tax benefit but save the government in pension payments).
One therefore has to ask, if the net impact on the Government is zero, is it not better policy to promote the outcome that results in the greater number of people being well funded in retirement than one that leads to more people dependent on the pension? As the population ages, the economy is better off by having economically active retires generating jobs and income than having large numbers of people dependent fully on the government pension.
Carers
Another demographic we believe needs policy consideration is carers. Predominantly we are talking about parents who take time out of the workforce to raise their children. However, it also applies to those looking after a parent, older child or even spouse who requires regular care and leads to a person being out of the workforce (or limits their workforce participation).
The whole premise of superannuation is based on people being able to work. The longer they work, the more they save. For some, however, there is little choice but to spend time out of the workforce. For women, the traditional demographic who take on carer roles, this is a real issue. While the gap in superannuation balances between men and women has narrowed, in 2007 it was still significant. Men had balances on average of $87,589 while for women it was only $52,272.
This disparity is made up of two main factors: one is that women have traditionally been in lower-paying occupations while the second is that women are more likely to take significant time out of full-time employment to take up a carer role.
If the Government is intent on closing the gap between men and women, it needs to address the issues faced by this demographic group. We advocate that the Government undertake a review of superannuation policy to find means to address this issue. The only way this can be done is through analysing this group in demographic terms and adopting policies aimed to help this group specifically. One suggestion we have raised is to double the contribution cap for those who have taken time out to be carers for at least the period of time they have taken off to be a carer.
Conclusion
With an ageing population, getting the issue of superannuation right is one of the biggest and most important challenges for government. Policy-makers must take the long view. This means looking at the lifetime costs and benefits of superannuation.
We believe the only way to get superannuation right is to adopt a demographically-based policy and focus less on the cost today and more on the benefits tomorrow.
