Lobbyist pushes govt to address retirement incentives
The current rate of income tax paid by employees aged over 65 discourages them from continuing to work but encourages them to draw down on super sooner, according to Taxpayers Australia.
Speaking to SMSF Adviser, Taxpayers Australia superannuation products and services manager Reece Agland said the lobby group has urged the government to implement a different tax rate for employees aged over 65 to encourage them to remain in work.
“It doesn’t make sense that at age 65 you can get paid $100,000 and be taxed on it, or you can decide to retire and earn $100,000 [from your super] and not pay tax on it,” he said.
“It’s a real disincentive to working longer so something needs to be done in that area, particularly in terms of the 65 to 75 age group.”
Mr Agland suggested that the money saved through the tax cut could be directed towards a specific purpose, such as the super fund of the employee.
Taxpayers Australia is proposing that those aged 65 or older receive a 15 per cent cut to tax on their salary income which would mean a four per cent tax rate for the first tax bracket and 17.5 per cent for those on the secondary rates.
However, it would be unnecessary to implement this for the two top tax rates, he argued.
“Reason for this is to ensure benefit isn’t available to those on high income who will probably have means to a reasonable retirement regardless,” he said.
“Another option could be to tax them as normal but at the end of the year give, say, a 25 per cent refund on income tax paid up to a certain amount of earning.”
Mr Agland said Taxpayers Australia has already raised the question with the government, which has said it intends to address the disincentive issue but that a separate tax rate would be an unlikely option.
“I think there’s [currently] a really big disincentive – why bother to keep working when you’re just going to pay a huge amount of tax? [Receiving] more of it back and less in tax, I think, would be a big incentive to keep working,” he said.