Contributed by Ben Wilson
Australia’s Treasurer Josh Frydenberg has announced a sweeping review of the nation’s retirement income system.
In the first such review in 30 years, the link between the age pension, superannuation and voluntary savings will be looked at.
If the recommendation from the Productivity commission last year is a guide, there will be offsets to the current policy of increasing employer compulsory contributions for all employees to 12 percent of wages by 2025. The Commission did not back the rise.
Should the review be a cost cutting exercise to reduce the government’s outlay, something’s got to give.
Although Frydenberg insists that there will be no change in the existing policy, there remains concern that the rise will be delayed.
The retirement age is being gradually increased, and there is worry that despite claims to the contrary, the home may be included in a tighter means test to qualify tor the age pension.
From a different point of view, an argument against the rise in the employer superannuation contributions has been raised. And this is that it will benefit most those on the highest incomes.
For most, who are on average incomes, the superannuation rise will not bring enough to compensate for the loss of the value of what they miss out in the form of higher take home pay, and loss of the value of the age pension when they do retire. The typical worker will lose up to $30,000 more over their lifetime.
The assets test is already a problem. It is unreasonably tight for many, and many of those who fail are forced into a lower income and therefore a lower standard of living. If the test is tightened further, it will become a bigger problem.
any review of retirement income should be based on the principle of how to ensure that no one is left in poverty. This is not the case here.
The impact of compulsory superannuation has been that it has lowered the government’s spending on the age pension. But it has not illuminated the cost. A large part has been transferred to the government’s contribution to superannuation payouts, which will cost $2,5 billion a year at the 12 percent benchmark.
It will cause more pressure to push down, or at least limit the rise of, the age pension, and bring about changes to make it more difficult to access will throw even more people into poverty.
Superannuation has the added weakness that it leaches out a portion of the contributions to private sector providers. It might be good for them. But is also means less money going back to retirees to live on.
If the emphasis was to be on ensuring that no one lives in poverty, the emphasis would be on providing an age pension that guarantees this, which includes a rent assistance component that is in line with the real cost of housing, given that the proportion of Australians reaching retirement without owning their own home is rising rapidly.