The government has been warned about the significant complexities of increasing the preservation age to 65, despite the Productivity Commission’s report finding that an increase would save taxpayers $7 billion.
The Superannuation Policy for Post Retirement report found that, as expected, raising the preservation age encourages some people to work longer and accumulate more superannuation.
The Commission’s modelling suggests that raising the preservation age to 65 would see a modest increase in the participation rate of older workers of approximately two per cent by 2055.
It also found households that delay their retirement are likely to do so by around two years and will have superannuation balances around 10 per cent larger in real terms when they retire.
Overall, there will be an indicative annual fiscal improvement of around $7 billion by 2055, the report said.
As acknowledged by the Commission, The SMSF Association’s senior manager for technical and policy, Jordan George, said raising the preservation age is a “complex policy solution”.
“While it may have some positive effects, there are a number of complexities such as people who can’t work beyond 60 because of illness, or physical issues, or caring for an ill partner. Also, people who are retrenched later in their career [may] find it hard to get back into the workforce,” Mr George told SMSF Adviser.
He noted that people who cannot access their superannuation if they are retrenched, for example, will need to depend on other forms of welfare, which defeats the government’s overall objective of reducing spending.
While leaving the preservation age unchanged would mean there is a significant gap between the retirement age and the preservation age, Mr George is confident this will not result in reckless spending of retirement savings.
“The Productivity Commission showed that people who do access their super are using it in a very prudent way. So, we’re not so worried about people utilising their retirement savings before accessing the age pension. The report showed that people are pretty careful in how they draw down on their super,” Mr George said.
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