Quadrant Super : Wayne's Word Feed

The DoFD wants to align preservation and retirement ages

23/12/2010

The Department of Finance and Deregulation (DoFD) has suggested locking super money up until retirement age, effectively shortening retirements.

The aging Australian population is already putting pressure on the government’s retirement income and pension outlays. And despite proposals designed to amplify self-funded retirements (such as raising the super guarantee to 12%), the current retirement income system will become more expensive as the population ages.

In short, if they’re left as they are, the government’s retirement arrangements will eventually break the budget.

For anybody born before 1 July 1960, the current age for withdrawing super is 55. On average, people are drawing down about a third of their super savings before they’re 65. Only compulsory savings carried through to retirement take pressure off the government’s pension expenditure via the pension means test.

Shortening retirements would moderate total pension costs and increase retirement incomes derived from lifetime savings. These arrangements would also increase work participation rates and reduce the tax burden on those who work. They would also be consistent with the need to consider ways to reduce the risk of people outliving their savings due to increasing life expectancies.

The preservation age will increase to 60 years by 2024. The DoFD says the preservation age should continue to be adjusted until it is aligned with the age pension age. After that, they say the preservation age should remain aligned with the age pension age.

One argument against this proposal says that leaving the preservation age below the retirement age creates a sort of pressure valve in the system for those who need or want to retire early. So, if it’s going to lock super up for longer, the government may need to enhance concessions to entice people to continue to invest in super.

But in the longer term, there is no doubt aligning the access ages for the age pension and super would be good for Australia’s economy.

The DoFD also proposes tightening age pension eligibility criteria, especially means testing people who inherit valuable assets. Most people in this situation can access super concessions, a full or part pension and/or other concessions as well as generous tax arrangements.

The government will need to address whether the health and aged care services of the wealthy (and their inheritors) should continue to be subsidised by taxpayers, many of whom are not as well off.

What’s in the crystal ball for Cooper’s proposed reforms

8/10/2010

The new Labor Government will probably implement Jeremy Cooper’s SuperStream proposal. However, the rollout of MySuper looks a bit shaky and an increase in the super guarantee is not guaranteed.

The government’s proposed mid-2011 tax forum will revisit the Henry Tax Review – this will probably cause holdups to any Cooper Review changes.

We can expect to see efficiency gains like SuperStream get a look in. SuperStream has broad support and provides perceived cost savings for fund members. Implementing SuperStream is important as, unlike Quadrant, some funds have back office systems which are 20 years out of date.

We’re also likely to see financial advice reforms and competency training implemented because they point to increased consumer protection. Many funds, like Quadrant, have already been moving towards remodelling these areas of their organisations for some time.

The other big ticket item listed among Cooper’s proposals, MySuper, could go either way. It is hard to predict whether MySuper will gain traction because the cost of implementing it might not compare favourably to the likely member benefits. While creating a product for the disengaged is not a bad idea, it’s hardly one that would revolutionise the super industry as many funds already have a default product similar to the proposed MySuper option. I am not going to lose any sleep if Julia Gillard doesn’t pick it up and run with it.

The proposed increase to the super guarantee amount from nine to 12 per cent and the additional tax offset for low income super contributions are unlikely to be rolled out any time soon because they need tax changes to help fund higher costs to both government and employers. There would also need to be consensus on the Henry tax reform proposals first.

This is unfortunate, given that a retirement shortfall of about $450 billion – or $80,000 per person – has been estimated nationwide. A three percent boost would have gone some way to closing the gap.

The ball we need to keep our eye on, though, is not the crystal ball. It is the way forward for super governance. We need to make sure all funds have robust and transparent governance structures. This will help the industry move towards quality, effectiveness, stability and accountability across the board. It’s important that we make sure the government keeps governance on its superannuation development agenda.

It won’t happen overnight… but it will happen

22/6/2010

At the risk of stealing a shampoo slogan, this is pretty much the outcome of last month's announcement by the Government about the increase in super. And while I could go on about how it needs to be introduced sooner, or needs to be more, if we take the glass half full approach, it’s still great news for your super any way you look at it.

The Federal Budget change will see the increase of compulsory super contributions (the amount your employer must pay) from the current 9% to 12%. It will be phased in from 2013 until it gradually reaches 12% in 2020.

If you’re one of the lucky ones with plenty of time on your side, this will have the most significant impact. Some recent stats I saw from the Australian Superannuation Funds Association estimate that the impact on someone on an average wage for the next 40 years will see their estimated future retirement benefit rise from $349,538 to $466,051. That’s pretty good.

Of course, if you’re like a lot of us and don’t have anywhere near that much time left in the workforce, it’s a reminder that you do need to regularly review how much will be enough for you to fund a comfortable retirement. Call us at Quadrant if you need some help piecing this together – we’re here to help.