POWERED BY MOMENTUM MEDIA
A generation in denial
If one thing clearly emerges from the Parliamentary Committee report into improving the superannuation savings of people under 40, it is that Australia still remains largely unprepared to cope with an ageing population.
This much is reflected in the opening paragraph of the foreword written by the Chairman of the House of Representatives Standing Committee on Economics, Finance and Public Administration, Bruce Baird, who pointed out that by 2042 Australia’s population was projected to comprise significantly more people aged over 60, and that this would coincide with the retirement of the majority of Australians currently aged under 40.
“Given the high cost associated with an ageing population, it is vital that the future retirement income needs of this age group are considered now,” Baird said.
But the most important fact included in Baird’s foreword to the Parliamentary Committee report is that Australians currently aged under 40 will be the first to benefit from a fully mature Superannuation Guarantee system spanning most of their working lives.
This represents a highly important fact for Government policymakers, because it is clearly arguable that those aged 40 have far fewer excuses for not having provided adequately for their own retirements.
While the baby boomers currently headed towards retirement may be regarded as having been somewhat profligate, they at least have the excuse of not having been legislatively compelled towards providing for their own retirements.
Until the advent of the Superannuation Guarantee, superannuation was not compulsory in Australia, and it took nearly a decade before the employer contribution reached the current level of 9 per cent. The difference for those currently aged under 40 is that they will have served a lifetime in the workforce with their wages attracting a minimum 9 per cent employer contribution.
It is in those circumstances that the Government will find it heartening that the Parliamentary Committee report suggest that, unlike previous generations, the under 40s age group actually believes in the concept of self-funded retirement.
What will disturb the Government, however, is the committee’s finding that while the under 40s may accept the need to provide for their own retirement, many of them do not understand precisely how much money they will need to put aside to maintain a comfortable lifestyle once they stop working.
To quote Baird’s foreword: “The lifestyle expected in retirement by many under 40s far exceeds that which could be funded from Superannuation Guarantee savings alone.
“At their current rate of contributions, most under 40s would not meet their retirement income expectations without the aid of a part pension,” he said. “Additional voluntary savings would be required to bridge this ‘expectations gap’.”
It was this clear-cut evidence that prompted the Parliamentary Committee to recommend its so-called “opt-out” formula, under which new employees would find themselves voluntarily contributing an additional 3 per cent to superannuation, unless they formally decided to “opt out”.
This, of course, represents the exact opposite of the existing regime, under which employees can “opt-in” to making additional superannuation contributions at any time, and if they are earning less than about $60,000 a year, can expect to pick up a portion of the Government’s superannuation co-contribution.
Perhaps one of the most important recommendations to flow from the Parliamentary Committee’s report was its countering of the recommendations of the Business Regulation Taskforce to lift the Superannuation Guarantee Threshold beyond its existing level of $450 a week.
In circumstances where too many Australians are finding themselves under-superannuated, it is hard to know what was on the minds of the men and women making up the Business Regulation Taskforce, and it is to be hoped that the Government opts for the sensible alternative.
Equally important from the point of view of future retirement savings was the committee’s recommendation that people not be allowed access to superannuation for the purchase of a home or the like.
Schemes proposing people be allowed access to their superannuation for the purposes of buying homes or other major investments have been a hardy annual in Australia, and it is high time that they were dismissed for what they usually are — the opportunistic ramblings of real estate spruikers and the like.
As Baird’s foreword so succinctly put it: “The Committee found that preservation of superannuation should not be eroded by schemes allowing early access to superannuation.
AUTHOR
Mike Taylor
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