Lifting pension age no silver bullet: SPAA

The SMSF Professionals’ Association of Australia (SPAA) says the Australian public will be best served if there is a measured debate about the suggestion to increase the pension age to 70. The flow on effect of any change must consider the impact on other social security benefits and the age at which superannuation can be accessed.

SPAA Director Technical and Professional Standards Graeme Colley said: “Increasing the preservation age beyond the current graduated increase to age 60 by 2024, and potentially aligning it with the age pension age, will mean there will be more pressure on cost of social security. People will be forced to seek other types of benefit and if current rules continue with an increased pension age any amounts accumulating in superannuation are excluded for the assets test.

“Sustainability of the superannuation system is not the issue as some say but whether adequacy is able to be attained within the current settings.

“So that sustainability and self provision of retirement benefits can be achieved SPAA believes stronger links should be made to integrate the age pension system and the retirement income system.

“But as in all fields of endeavor for every action there is a consequence or reaction. Our nation, and particularly future retirees, will be best served by mature and reasoned consideration of the issues rather than seeking out silver bullets such as simply aligning preservation age with an increased age pension age.

An increase in the pension age will mean those in labour intensive jobs whose physical condition is likely to fall behind those in less physical jobs may need to access Newstart, or some other type of social security benefit to survive. What’s saved in the cost of the age pension may result in an increase in other government social security expenditure.

Double dipping may be seen as an issue by some. However, the vast majority of those currently nearing retirement have only a relatively small amount of super saved for their retirement. Their superannuation is drawn as a lump sum which allows them to pay for things in preparation for retirement.

It could be expected that younger generations will be able to access a larger amount accumulated as a result of superannuation guarantee contributions over most of their working life. This is expected around 2030 when a person who commenced work at the start of the superannuation guarantee system may be considering retirement.

Some of the lump sums being paid from many funds for anyone retiring today are so small that using them to start a pension is ludicrous and would make little of no impact. In most of these cases the person would have qualified for the age pension or a reduced pension. If they had saved an adequate amount for retirement they would be more likely to draw a reasonable income stream and reduce or eliminate the amount of social security benefits.

Self managed super funds (SMSFs) are well positioned to meet the adequacy requirement of retirement income policy partially due to the engagement of members who have maintained SMSFs over a reasonable period and the ability to control their retirement destiny.

We need to ask ourselves is there a need for Australia to have the highest retirement age in the OECD, which would be the consequence of moving to 70.

We need to really understand the true measurement of our retirement sector and its cost to the government’s bottom line. We need to measure Pillars 1 – government pension, 2 – superannuation guarantee and 3 – voluntary savings as well as the offset of investment returns along the retirement savings journey.

The SMSF retirement sector is working well. Those that have been able to save appropriately to self fund their retirement are managing their adequacy and how this will be met with increased longevity. They are also not reliant on the age pension or health care as much as those that don’t self-fund.

This model can assist in addressing the age of retirement and the preservation age.

Whether the superannuation system is sustainable is not the issue. The issue is whether the superannuation system is able to be funded so that a person receives an adequate income in retirement.