Superannuation will never be more than a minor part of the retirement income for most Australians, with a Productivity Commission report showing only those on higher incomes will ever be fully self-funded in retirement.
The commission says there is a need to reconsider the generous “transition to retirement” tax concessions which it says are being exploited exclusively by those on high incomes and the wealthy in full-time work as a form of tax planning.
And it challenges the idea that retirees squander lump sums, knowing they can fall back on the age pension, saying the overwhelming majority use their superannuation wisely.
The commission has defied the Abbott government in joining Labor and age people’s groups in calling for a comprehensive review of retirement policy, saying the incentives for superannuation need to be “fine tuned”.
“There is merit in a holistic review that examines reform of retirement income policies collectively.”
The Abbott government has both ruled out any change to superannuation tax concessions and said a review of retirement policy was not necessary.
Commissioner Karen Chester, who had charge of the report into post-retirement superannuation policy released today, said that a retirement policy review was not needed immediately, but would become urgent if it was put off indefinitely.
“It needs to be informed by considered and extensive community consultation; because we know from this research that the hum circumstances of older Australians is much more diverse than we thought.”
The report warns there is a danger that changing small details in superannuation can have unintended and negative consequences on different groups of retirees.
Treasurer Joe Hockey is considering a recommendation contained in the Murray Inquiry that would force superannuation trustees to offer a pension product to retirees before they considered taking a lump sum.
Although there would be no compulsion for retirees to take a pension product, the commission warns this policy could damage the financial interests of those who are forced to retire and those with low incomes.
It also cautioned that raising the age at which superannuation benefits can be drawn to align it with the pension age, which have been advanced by the Henry Tax Review, the Actuaries Institute, and by the commission itself, would have adverse consequences on the large numbers of people who are forced to retire, whether by their employers, or for ill-health or family reasons.
The commission says most people retire with very little in their superannuation accounts. Although industry reports say the average retiree has superannuation savings $300,000, the Productivity Commission found this was skewed by very a smaller number of very high balances. More than half retirees aged 65 and over have no superannuation savings at all.
By the time people reach 80 years or more, only 17 per cent have any superannuation savings remaining.
There will be an increase in the number of people with some superannuation earnings as people with a lifetime of superannuation savings start retiring, reducing the cost of part-pensions, however the report cites Treasury estimates that the numbers with no pension will only rise from 30 per cent to 33 per cent over the next 40 years.
“Even under a ‘mature’ superannuation system, a fully self-funded retirement is likely to remain the province of those who were relatively well off during their working years,” the report says.