Superannuation - Age Old Dilemma
Lump-sum superannuation withdrawals could be in the firing line during the next round of changes to our retirement system, amid warnings Australia faces a "tsunami of longevity". Quoting Neil Howard
A briefing paper published by the Actuaries Institute paints a dramatic picture of an unsustainable welfare and superannuation system, as we live longer and healthier lives than previously forecast.
At the heart of the new debate is the suggestion of banning lump-sum withdrawals, increasing the preservation age before first accessing super and further raising the age level to qualify for the Government’s age pension.
Despite 20 years of compulsory superannuation, designed to offset the drain on welfare from our ageing population, the savings are still set to fall short, say the life expectancy experts.
"By 2050, almost a quarter of the population will be aged over 65, compared with 14 per cent now," Actuaries Institute chief executive Melinda Howes says.
"Australians are already one of the longest lived populations on the planet and our longevity is steadily improving with future improvements potentially more rapid.
"Underestimating life expectancy will have major implications for retirement incomes policy, which must take into account individual financial security as well as the economy-wide costs of providing for an ageing population." Policy changes proposed by actuaries include:
INCENTIVES to pay super only as a pension.
A TAX or ban on lump-sum withdrawals.
INCREASE the preservation age before allowing initial access to super (presently 55).
INCREASE the age pension eligibility age.
INTRODUCE an automatic default to pension mode at retirement.
REMOVE age limits on super contributions.
ENCOURAGE people to work longer.
ENCOURAGE employers to hire older people.
Although the ageing population pressures were widely acknowledged, financial planners said yesterday successive central governments had failed to make the hard decisions that could be unpopular with many people in the short term.
"The actuaries’ description of a longevity tsunami is apt when it comes to retirement savings," Westpac financial planner Glenn Calder says.
"Like a tsunami, the slow build-up of retirement savings requires smart decisions to be continually made." HLB Mann Judd senior superannuation manager Neil Howard supports the recommendations, or at least further debate about them, however, he says the hard job is to find a government willing to put the changes in place.
"There is still a seven-year difference between the preservation age and the age pension, which is crazy.
If you have a window where you can draw down or access superannuation tax free, of course some people will run down their super and then go on the age pension," Mr Howard says.
Small Independent Superannuation Funds Association director John Mcllroy also supports most of the suggestions in the white paper, however, he says any change must also manage the repercussions.
"It’s all very well to increase the preservation age and the age pension age, but you have to also encourage people to work longer and employers to take on or keep mature aged workers," Mr Mcllroy says.