Noel Whittaker writes exclusive weekly blog updates for the Ban Tacs Group, with IN8 Business Advisory, a member of that group. Here, he talks about how hard it will be to plug the 2020 government COVID cash outputs by tinkering with bits and pieces of super and tax legislation. What’s the answer?
Last week Treasury released the latest review of the Australian Retirement Income system. What made this one unusual is that it made no recommendations – It just provided information. But don’t hold your breath, without doubt it will go the way of all the other inquiries.
Remember the Henry tax review, which was commissioned by the Rudd government in 2008, and published in 2010. The report contained 138 recommendations, most of which have been ignored.
In 2014 we had the 320 page Murray report which made 44 recommendations, most of which never saw the light of day. In 2015 CEDA published a comprehensive paper “The Super Challenge of Retirement Income Policy” which pointed out that “constant tinkering around retirement income policies makes it difficult for those planning for retirement to make informed decisions about how best to fund their retirement.”
Of course, if you’re in government you need to be seen to be doing something. In December 2016 Treasury released a discussion paper titled Development of the Framework for Comprehensive Income Products for Retirement (CIPR’s) which required fund managers to develop products which would give retirees security in the later years of their life. The May 2018 budget took the process a step further when they announced a retirement income covenant that would require Trustees of superannuation funds to offer CIPRs. As of today, they are still a work in progress.
Just last Thursday Reserve Bank Governor Phillip Lowe urged the Morrison government to move faster on reform, and pointed out that the Productivity Commission’s Shifting The Dial report has been languishing in the government is too hard basket for over three years.
A key finding of the latest Retirement Income enquiry was that the present retirement income system, which revolves around the three pillars of age pension, compulsory superannuation, and voluntary savings was serving retirees well. Consequently, there was no urgent need to increase compulsory employer superannuation.
Predictably, reaction by the many stakeholders in our retirement system were mixed as they all fought to defend their own positions.
The Association of Superannuation Funds of Australia (ASFA) strongly disagreed with the inference that raising the employer superannuation to 12% was not of great importance. CEO Martin Fahey claimed “for many Australians the increase to 12% is essential to offset the financial loss from super withdrawn under the Covid 19 early release scheme”
The big debate now is between more employer super, or more money in the pay packet. Valid arguments can be made for both positions, but in my view, most workers spend every dollar they earn, and would be far better off trading smaller pay rises today, for $800,000 or more in their superannuation when they retire. That would give every retiree the equivalent of a big Lotto win.
The main problem with the review is the assumption that our present pension system can continue at its present generous level. Let’s face it, we have a major structural demographic problem. Our fastest growing group is the over 65’s, who demand more and more in welfare as they age, yet thanks to a wide range of offsets they pay little or no income tax.
Australia, like every other developed nation, is in debt to the hilt thanks to Covid. The big question is where will the money to pay all this welfare come from. Raising the GST to 15% with no exceptions is the obvious answer – how to sell that to parliament is the big question.
Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. noel@noelwhittaker.com.au
29 Nov 2020
