In a report examining the effect of the government’s superannuation policy, the former head of School of Economics at the University of NSW, Dr Ron Bewley, said that to achieve a retirement income of around four times the age pension, the benchmark set by the Treasurer in the budget, a balance of $3.2 million would be necessary.
This is double the $1.6 million cap balance suggested by the Treasurer, he said.
Dr Bewley used life expectancy tables published by the Australian Bureau of Statistics and ASIC’s Moneysmart capital guaranteed indicator to work out how much superannuation people need to support themselves independently without having to resort to the age pension.
“Even an account balance of $3.2 million is not enough to ensure that everybody is able to make their super savings last for the whole of their lives,” said Dr Bewley.
“For example, for a woman who retires at 60 with $2 million in her pension account there is a 50 per cent chance that she will run out at 85, two years earlier than the life expectancy of 87 that she had at age 60.”
If the woman reaches 85, he said, she then then has an expected life span of another seven years.
“That is, she has a 50 per cent chance of living more than seven years after her superannuation savings have run out,” he said.
The analysis, he said, is based on a conservative asset allocation.
“To guard against running out of funds too soon, people may invest in riskier investment options which do increase the chance of not outliving their pensions but also increase the risk of running out at an earlier age,” said Dr Bewley.
“A much higher cap will allow most people to have enough to live off their super savings without having to go on the age pension and become a burden to taxpayers.”
Agree with you Andrew that for the vast majority of Australians, having $1.6M in super combined is a pipe dream, let alone having $1.6M each. So that’s potentially $3.2M tax free. And that’s not enough for people like Dr Terry? Please.
I would never vote Labor but even the most died in the wool Liberal supporter must acknowledge that the treatment of super, tax-free for all, for unlimited amounts, is simply a policy that the country cant afford.
It’s the same as people being in the position of owning a home (that is not means tested), having $1.1M in assets and still being able to access a part pension. In what world does someone with this sort of accumulated wealth need a handout from the government and other tax payers? The argument that ‘I’ve paid tax all my life and I deserve a pension’ just doesn’t cut it.
This article is spurious for the following reasons:1) Saying “a much higher cap will allow most people to have enough to live off their super savings without having to go on the age pension and become a burden to taxpayers.” is wrong. “Most people” will never reach a super balance of $1.6m, let alone $3.2m because they simply will not earn enough over their working lifes for the cap to be of any relevance to them. We don’t have a cap now, and according to the AFSA “In 2013/2014 the median figure for men 60 to 64 years of age was $100,000, while for women it was only $28,000.”2) The analysis is over simplified. It is is based on a “conservative asset allocation” and uses the example of a woman retiring at 60 and with a life expectancy of 87, which is 27 year investment horizon. If you have a time frame of this length (or even a 10 or 15 year investment horizon) it would be wiser to apportion some of her investment in something with a higher return for at least the initial stages of her retirement instead of putting it all in conservative in year 1. I would also question how wise it is to use the assumption that the person in this case would retire at 60. The current age pension age is 65. 5 extra years of retirement saving and not drawing down on super makes a difference.3) The article completely ignores that fact that the proposed cap is, to quote the budget website a “$1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into retirement phase accounts. This puts a limit on taxpayer support for tax-free retirement phase accounts, but does not limit the savings that can be accumulated outside these accounts or outside superannuation”. That is, once the people who are lucky enough to rollover their $1.6m into their tax-free pension phase have done so, any amount they have above that can stay in the accumulation phase, which, admittedly, will be taxed, but at a lower rate than if it were outside super, plus they would have received tax concessions when putting the money in.Although, I am not saying that the $1.6m cap is necessarily a good idea, if you would like to argue against it, it would be more effective to do some proper analysis with something based on something more sophisticated than back of the envelope calculations and an online calculator that would have a included disclaimer along the lines of “The results from this calculator are based on the limited information that you have provided and assumptions made about the future. The amounts projected are estimates only provided by this model and are not guaranteed.” (the MoneySmart wesbite is excellent, but not something you should use to argue for or against serious policy decisions).Also, if you’re interested in what affects “most people” then the proposed changes to the TRIS scheme rules will be more deleterious for more people (although I can’t say whether it would affect most), but I suspect like many of our politicians, you don’t understand it either.
It smacks of the usual public service “too clever by half” trickery which Ministers usually fall for. If they had been half rational they would have simply have limited the current pension deduction to number of pensioners times tax-free threshold and not mucked around with contributions limits or retrospectivity. Yet they walked in, eyes wide shut, and are still wondering what the fuss is about. Oh well, at least they have created work for lawyers who can suggest other legal strategies for wealth protection and accumulation.
Of greater concern is the limit of $500,000 on undeducted contributions. If this stays then there is no chance of anybody being able to get to the $1.6m short of buying a lotto ticket.