A report issued by the SMSFOA has found that raising the pension age will narrow the gap between what people can save in superannuation at the mandatory superannuation guarantee (SG) rate and what they will need to retire.
“We’ve waited for some of the initial hysteria to fade somewhat in the hope that there may now be some serious commentary on the longer term effect of key Budget measures,” the report said.
“The changes proposed in the 2014 Budget go a long way towards achieving a more sustainable superannuation system.”
“Government Age Pension costs will be lower and tax receipts higher. Many more individual taxpayers will be able to retire independent of the government.”
The report found that the compounding effect of an extra five years of super savings together with the reduction of years someone in retirement has to live off their savings had a significant impact in improving the savings gap.
In addition, the SMSFOA found that contribution caps are less of a constraint under the current system but remain a problem for particular population segments.
The report highlighted that older Australians who have only been saving for a few years under the current system, and whose contributions have been constrained by caps, still face problems in saving for retirement.
“We suggest that the $35,000 cap for older Australians be indexed and retained for a few more years to allow them to become independent of the Age Pension,” the report said.
“Furthermore, although for the younger Australian taxpayers the existing cap appears to be adequate, we reiterate our earlier suggestion that the government introduces some flexibility.”
“A system of, say, rolling 3-year caps similar to the non-concessional contribution cap will reduce any disadvantage for women and other taxpayers who are more likely to have broken work patterns.”