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They want to keep your money for longer

23 April 2014  |  Super

keeping your money longerAnyone who thinks the purpose of super is to fund people's retirement must be questioning the latest move by the finance industry. The push is on to lock up super for as long as possible, as The Age notes:

"The Financial Services Council wants the preservation age, the age at which superannuation can be accessed, increased to 65. Of course, that would benefit the council's members, which includes the banks and other wealth managers.

They would be able to hold on to superannuation savings longer and skim off more in fees and increase profits for their shareholders. The proposal is being dressed up as one that is in the public interest. We all know the story: how the ageing population is making the retirement system unsustainable."

The push to increase the retirement age to 70 is being used as the rationale to increase the age at which people can gain access to their super:

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"The signs are the government could lift the age pension access age to 70. Already, the age pension access age is on its way up to 67 from 65 and the preservation age is on its way to 60. A pension age of 67 is what most developed countries are moving towards. Many of these countries have populations that are ageing more quickly than Australia's and have much larger budget deficits.

If the government does announce an increase in the pension age to 70 in the May 13 budget, it would be phased in to a date beyond 2023, when the pension age of 67 is reached. Any increase in the preservation age would also be phased in.

Anyone in their 40s or younger in physically demanding jobs should be worried. The gap that they have to worry about is how to live between being made redundant or being unable to work because of ill-health and when they can access their superannuation savings and age pension.

If the preservation age increased, there would have to be much more generous hardship conditions allowable for people to access their super early than the strict conditions that apply now."

Here is the Australian Tax Office's table of when the preservation age kicks in:

Date of birthPreservation age (years)

Before 1 July 1960

55

1 July 1960 – 30 June 1961

56

1 July 1961 – 30 June 1962

57

1 July 1962 – 30 June 1963

58

1 July 1963 – 30 June 1964

59

After 30 June 1964

60

 

The Age rightly suggests that this is mainly a ploy to benefit the banks and wealth management firms, who have such a vested interest in keeping hold of other peoples' money. It is yet another reason to have a DIY super fund, because at least you are hanging on to your own money:

"The wealth management industry likes to talk up the problem of double-dipping. It is being used to help justify the wealth managers' call to align the preservation age and pension age. Double-dipping is where retirees spend their super as soon as they can and go on to the age pension.

The reality is that people with low super-account balances may use the money to pay off the mortgage, buy a new car or carry out repairs on the house. It may be $50,000 or so. Most people are careful with their super, but those with small balances can see more immediate needs for the money."

The claims that Australia has an out of control pension system simply do not stand up. According to the OECD public cash benefits as a per centage of GDP are one of the lowest in developed economies. They are 8.6%. Only Iceland, Chile and Korea are lower.

The situation has also not worsened over the last few years. Indeed it has fallen since 2001, when it was 9.1% of GDP.

Why? Because Australia has the most targeted welfare system in the world. The OECD has found that that Australia directs more of its cash benefits to the poorest 30 per cent and less to the richest 30 per cent than any other developed nation.

Australia also has the fourth lowest expenditure on public pensions in the OECD at 3.5%.

Meanwhile, tax concessions for superannuation see the government foregoing around $27.6 billion in revenue. Negative gearing amounts to about $14 billion a year. The government spent $39.4 billion on the aged pension this financial year.

At least the super concessions are designed to take pressure off the pension system, athough the extent to which they actually will do so is debatable. And for people under 40, getting access to the money will become progressively harder. The wait will get longer. It is a good reason to at least pay yourself the wealth management fee in a personal super fund, rather than to wealth advisers or banks.

 

 

 


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