(An expanded version of my earlier article entitled The Use and Abuse of Superannuation)
Even those who do not like him will acknowledge that Australia owes a huge debt of gratitude to Paul Keating.
During his term as Prime Minister two decades ago, he established compulsory superannuation despite a hostile Opposition that declared it to be a step towards socialism.
A few weeks ago, I chaired a Per Capita function in Sydney at which Keating reminded the capacity crowd that the original intention of his superannuation legislation was for everyone to accumulate as much Super as possible thereby ensuring that, in all of our retirement years, we could enjoy a lifestyle better than that which is the lot of someone who struggled to survive on the age pension.
The Keating plan was for every one of us to draw down all of our superannuation capital and income within our anticipated lifetime. It was never ever intended that anyone would leave their Super as a legacy to their family. Such a legacy is, in reality, a taxpayer funded gift.
The reality of this has now impacted on us via the huge cost to the nation of an ever growing number of ageing citizens. They are on the verge of creating a situation that will place a significant burden on young taxpayers if most of us old guys go onto the pension too quickly.
So, paying a part pension to people who have inadequate superannuation will become an extravagance that Australia can no longer afford. It will have to cease until they qualify for a full pension.
This means that a future government will reach a point where they will have no option but to pass legislation decreeing that none of us will be eligible to claim the age pension in any shape or form until we have used up all of the accumulated capital in our Super Fund through regular and adequate monthly payments that will eventually leave us with a nil balance.
The same legislation will certainly decree that none of us can ever draw our superannuation in a lump sum. We will probably be enabled to draw a monthly amount which is 50% better than the pension and finally go on the pension when we enjoy so long a life that our fund dies before we do.
In addition, legislation will be needed to cap the amount of Super that can be held in anyone’s fund. It will probably be set at a sum that will provide monthly drawings at five times the rate of the pension for 25 years from age 65 to 90.
The most controversial issue will be the ultimate requirement to cap the value of the family home that can be excluded from the assets test in pension allocation. Clearly, a person living in a home worth millions of dollars cannot be eligible for a pension, but it will take a very wise person to decide what the cap should be. I reckon that two million dollars would be a sound starting point for discussions.
Equally controversial will be a decision to tax our drawings from our Super Fund. If we don’t have a nominal tax on them, then we will eventually have a situation where half the nation won’t be paying tax.
So long as adequate advance notice is given of all legislative changes and there is adequate community consultation, the sooner we do all of this, the better it will be for our tax paying grandchildren – and for Australia.
However, a number of wise decisions can lessen the impact of these changes.
A good one will be to decide to work beyond the traditional retirement age of 65. Ten years of extra work, even part time, will enormously increase the size of your Super Fund.
If the Superannuation Guarantee is immediately increased to 15%, the impact on retirement incomes would be very significant.
Perhaps the most important attitude change that we need to accept is that Superannuation is not the only way to save for old age. Prior to 1990, we all simply saved by buying shares, bonds, term deposits, property etc with no taxation benefits being available to us. We must try doing this again instead of illegally using superannuation as a tax haven.
All of the above will be pointless, if the basic age pension is inadequate. The Federal Government must appoint an independent Pensions Commission to objectively determine what the size of the Age Pension should be. Up until now, its size has always been determined by political decisions of very doubtful validity. Quite simply, this is not good enough.
We are all aware that we live in a world of rapid and unending change. We all have no option but to adapt to those changes while making sure that we work towards attaining a lifestyle that the nation can afford.
We are living in an era of responsible citizenship.
The Longevity Forum
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