The ABC program Q & A, skillfully compered by Tony Jones, is always a delight, but last night’s debate was exceptionally engrossing, covering as it did, weighty questions of retirement income, and home ownership.
Far from being outgunned, Treasurer Joe Hockey was at his ebullient best, expressing caution at some of the intemperate positions some panelists were expressing, and reserving his judgment on critical issues that deserve the close scrutiny and public debate he has invited.
Other speakers were united in their condemnation of the concept of investing any super to pay off a home loan, when it is by far and away the most profitable investment possible, especially for young employees struggling to pay off a HECS debt, furnish a home, run a car, and support a young family needing to be fed, clothed and educated.
They were also united in condemnation of tax subsidies for superannuation contributions. This measure advantages the wealthy, who they claimed, do not need it. Respected public policy thinker John Daley of the Melbourne Grattan Institute alleged that they simply provided a legal tax scam for the wealthy.
One speaker expressed outrage at a lump sum provision of $1.1 million when workers had to make do on the aged pension. Obviously no one spoke from personal experience.
I dearly wanted to point out what a generous entitlement the pension affords. The maximum benefit for a couple living together at present is $1288 per fortnight. This equates to an annual income of $33,488. The lump sum that could generate this benefit at 5% return p.a. is $669,760.
When I retired in 2000, the upper limit of lump sums was about $600,000. Invested this amount now would scarcely generate the aged pension with its ancillary benefits. After the global financial crisis the balance was half that at retirement, and now in the second decade of retirement we, together with 90% of fellow retirees of that vintage, are dependent on a part-pension.
Opponents of tax-provisions for super contributions, invariably quote the saved balance at retirement, when at its highest. This is the amount that governments would target in any tax take on super. A truer guide to what is needed becomes clearer with time, particularly in the second decade of retirement, when more not less capital may be needed to meet escalating medical and nursing costs.
I was surprised that no no one mentioned the Canadian pension and superannuation arrangements, in view of their superior returns.
A Mercer Consulting Report was quoted in the Australian, and referred to in my post August 27, 2013, showing that the average Canadian worker is almost 20% or $72,905 better off in net retirement benefits than Australian counterparts, with an average of $369,905. Further Australia lags Canada also in terms of home ownership.
The Canadian system:
- is based on employee contributions, but can be supplemented with employer supplements.
- it empowers the saver to make their own choices according to their needs and priorities.
- it is not depended on government tax concessions through reduction in the rate of taxation.
- it does however provide a tax deferral concession which encourages short-term as well as long-term savings.
- Access to savings is not quarantined until the pension entitlement age.
I would hope that Australia’s advisers and planners would seriously look at alternatives to the present super arrangements, and the value of home ownership to the elderly.