With 800 Australians due to retire every day for the next decade, giving them access to a whopping $1.5 trillion in superannation, Baby Boomers are being encouraged to stop hoarding and start spending their retirement funds – or risk new taxes being imposed.
Policy reforms focused on improving how Australians spend their superannuation savings would boost retirement incomes by 10 per cent each year or by $397 billion by 2050,
new research released by the Financial Services Council (FSC) showed.
It has called for a range of government reforms, such as making financial advice more affordable, removing regulatory barriers to innovative new retirement income products and potentially stricter means test rules for pensions.
The research found retirees in Australia are using 17 per cent less income in retirement from their super “than what is optimal” and boosting this would raise standards of living, reduce bequests, and take long-term pressure off the federal budget.
Currently, tax breaks on superannuation in Australia are costing a whopping $45 billion a year and are only benefiting the rich, a recent report warned.
Generous superannuation benefits are creating “taxpayer-funded inheritance schemes” for the wealthy, according to a Grattan Institute report, with warnings the tax breaks will soon exceed the cost of the aged pension.
FSC chief executive officer Blake Briggs argued in an opinion piece in The Australian that retirees’ reluctance to spend their super – resulting in large inheritances – was leaving the sector exposed to the potential of higher taxes being imposed on super savings.
His organisation wants to see the annual benefits paid out by superannuation increased by $38 billion more each year by 2050.
“It would halve the amount of superannuation savings left to future generations as bequests each year by 2060, removing a key inefficiency in the system that has become a lightning rod for superannuation’s detractors,” he wrote.
Recently, the Federal Government introduced plans to raise the tax rate from 15 per cent to 30 per cent on earnings in super funds worth more than $3 million from 2025, which would generate $2 billion for the budget.
The FSC research argued the focus on super as savings needs to shift to be seen as a way of financing people’s retirement rather than as a “nest egg” that should be hoarded.
“Realising the superannuation system’s potential to maximise living standards in retirement and higher retiree spending would take the load off a federal budget with a 2 per cent structural deficit partly due to increasing health and aged care pressures that could be better met from individual savings,” Mr Briggs said.
Changes such as a better disclosure framework to allow consumers to more easily compare retirement income products and redesigning pension rules have been proposed.
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It also wants to see reform to tax policies, especially around inheritance, home equity release options and aged and disability care which could increase spending of super significantly, the report found.
It could result in around 100,000 more people drawing down an extra $10,000 in increased retirement incomes per person every year on average.
Meanwhile total assets would be $1.6 trillion lower by 2060 with superannuation representing 30 per cent, rather than 40 per cent, of total assets.
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