The recent announcement by the Prime Minister that as a nation we are going to need more older workers to plug anticipated gaps in the workforce underlines the need for further reforms to Australia’s super system. The Investment and Financial Services Association (IFSA) welcomes the associated commitment to examine and to fix anachronistic and inflexible superannuation rules.
Attitudes to ageing and what actually defines a person as ‘old’ have changed.
These days, 40 is the new 30, so I’m not entirely sure we can even agree when life is supposed to begin anymore, let alone when a working life should finish. This must be a decision for the individual concerned to make. Not government.
Unlike the superannuation legislation, parts of which were drafted a couple of decades ago, some things in life are not black and white. The transition to retirement for many people requires far more flexibility than the law currently permits.
The legislation was drafted in an era when it was assumed that a person retires once and once only, and on a day they have selected in advance. All very nice and neat if you happen to be male and have worked for the same company for 40 years.
Unexpected or early redundancy, ill health, carer responsibilities and many other upsets may take people out of the workforce earlier than they had planned and with insufficient retirement income.
People who retire early or voluntarily and then find they would like to return to work for whatever reasons, face an extraordinarily difficult and complex process trying to move into and out of periods of paid employment after ‘retirement’.
A retirement income stream, once commenced, cannot be suspended if the purchaser returns to work. It must be commuted and re-started. Once commenced, it cannot be topped up, even by later release from other super accounts.
The release of benefits rules don’t allow people to continue in the same employment, say on a part-time or project basis, and draw the benefits that they had accumulated up to the change in the nature of their employment.
An unwanted side-effect of this inflexibility for employers is that it makes succession planning for employees in business far more stressful than it need otherwise be.
The transition from work — at, or close to peak income — to not working at all, can be quite long. Even current settings could see a transition stretch over the two decades from preservation age at 55, to losing eligibility to contribute for part time work at 75, particularly in an era where people often work as consultants in their area of expertise.
Legislation assumes virtually no transition from work to retirement, but the reality suggests people will increasingly see combinations of work and retirement over quite a lengthy period.
The main provisions affecting retirement have not changed since the Occupational Superannuation Standards Act, which the SIS legislation replaced a decade ago. As a society, we have not explored the nature of changes in labour market participation patterns, although the Prime Minister’s recent focus on the nature of these changes is a welcome beginning.
A wholesale rewrite of the release of benefit rules and income stream provisions in superannuation, tax and social security legislation is required to remove these anachronisms. The amendments introduced to income tax legislation to overcome Reasonable Benefits Limit problems arising from internal rollovers are also a good start, as is the increase in the age for personal super contributions from 70 to 75. However, much more legislative effort is needed.
— Richard Gilbertis CEO of IFSA
