Australia’s wealthiest are given twice as much financial support as those on the lowest incomes, says a new government report on the state of the nation’s retirement income system.
The report is sure to spark debate over the intended purpose of superannuation, as well as other tax breaks that favour the rich.
It revealed that government payouts and tax concessions are, by retirement, worth more than $700,000 to Australia’s top 10 per cent of earners, but just $350,000 to the nation’s lowest earners.
So far, the three-person panel leading the retirement income review is not recommending any changes. It has, however, tabled a paper intended for community response and has signalled its interest in making the system fairer for younger taxpayers as well as for those in retirement.
The paper also points out how our ageing population may eventually put pressure on remaining workers to fund older people.
“Age Pension expenditure is funded from government revenue, affecting the tax impost on working Australians,” said Treasurer Josh Frydenberg.
“Australia’s ageing population means there will be a declining number of workers for every retiree. It is, therefore, important the retirement income system does not place an undue fiscal burden on future generations.”
However, in contrast to this supposition, the paper also showed that super savings had increased from $229 billion in 1995 to $2.9 trillion today and that reliance on the Age Pension had dropped from 80 per cent to around 68 per cent.
While the staggering increase in accumulated super means more self-funded retirees and fewer people reliant on the Age Pension, the paper warns against the use of super by those in higher income brackets as a way to accumulate wealth or pass on wealth to ensuing generations.
“The retirement income system is not intended to boost private savings per se, nor is it intended to be a source of savings for the purchase of large assets during an individual’s life (such as housing), or to assist with wealth accumulation in order to provide for inheritances,” says the paper.
One table in the report clearly illustrates how wealthier people benefit from government support and generous tax concessions.
While some are critical of these tax concessions, others defend them, saying that wealthier people pay more tax over their lifetime and that outlay for the pension outweighs revenue lost on favourable tax treatment of super.
However, according to research from Anglicare and Per Capita, tax concessions to the wealthiest fifth of households cost the budget about half as much as the total cost of welfare payments.
“Using Treasury data, as well as various ABS figures and the University of Melbourne’s HILDA survey, Per Capita calculated that major tax concessions totalling $135 billion per year were costing the budget more than the four main welfare payments – the Age Pension, family assistance payments, disability benefits and Newstart – combined,” says an ABC report.
The paper also raises questions about equitable outcomes for women and whether the system did enough to support poorer workers. It also noted how home-ownership levels had dropped in the past two decades.
“Does the system provide most support to those with the least capacity to save for and support themselves in retirement?” the paper asks. “Is support for non-homeowners equitable?”
It questions how the family home is treated under the assets test:
“There has been debate about whether the exclusion of the value of an owned primary residence from the Age Pension means test may result in Australians overinvesting in their family home,” says the paper.
And it points out the complexity of Age Pension and aged care tests: “The means test for the Age Pension is structured differently to the means test for aged care and the interaction can be complex to understand.”
Overall, the paper highlights the almost overwhelming complexity of the system and how lack of understanding of the system could lead to poor decisions when planning retirement.
“Given the complexity of the retirement income system, it is important individuals are able to achieve good outcomes even where they have not engaged in retirement planning. Default settings have the potential to improve outcomes by guiding individuals’ behaviour in saving for, and consuming, their retirement incomes, whilst still providing support for individual choice and decision making,” it says.
“The degree to which individuals can understand how the system affects them, the impact of their decisions on their income during their working life and in retirement, and whether the system supports them to engage without difficulty will affect its overall adequacy and sustainability.”
Labor has called the paper a “stalking horse” for the government to put a freeze on raising compulsory contributions to 12 per cent, but the government maintains that it has no intention of changing plans to raise contributions, nor does it wish to change any tax concessions.
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