First Super chief, Bill Watson, has hit back at calls to require superannuation members to withdraw their super as an annuity to ensure that retirement savings last longer and create less of a drain on the Aged Pension. From The Canberra Times:
Mr Watson said he was very concerned by the “kite flying by the Financial Services Council on denying retirees the option of a lump sum and forcing them to take a pension of some description”.
Referring to the council’s push to require retirees to use part of their savings to buy a product that makes periodic payments, such as an annuity, Mr Watson said there was no evidence to support the myth that workers waste their super on luxuries such as trips and boats…
It is not until they retire that they use some of the money to pay off debts, make repairs to their home, replace whitegoods and buy a new car.
To the contrary, Mr Watson, retirees withdrawing their super as a lump-sum, and then using the proceeds to pay-off their home (which is sheltered from the Aged Pension asset test) or consumption is a significant issue.
As for evidence, consider the latest Retirement and Retirement Intentions survey, released last year by the Australian Bureau of Statistics, which revealed that more than half of retirees withdraw their super as a lump sum, with many then blowing the windfall on their homes or a new car:
Of the 3.3 million people aged 45 years or over who were retired from the labour force, 2.0 million (61%) had made contributions to a superannuation scheme…
Of those who had made contributions, 55% had received all or part of their superannuation funds as a lump sum payment (54% of men and 57% of women). Many of those who received a lump sum payment used it to pay off or improve their existing home or purchase a new home (32% of men and 31% of women) or to buy or pay off a motor vehicle (14% of men and 11% of women).
Clearly, one of the many flaws in Australia’s superannuation system is that it allows an individual to retire at 55 or 60, withdraw their super tax free as a lump sum, piss the money away on their homes or on consumption, and then go on the Aged Pension from 65 years of age. In such instances, the taxpayer is left wearing the cost of superannuation concessions throughout the individual’s working life, and then again once that same individual goes on the Aged pension. It is a loop hole that must be closed, and taxing superannuation lump sums over a threshold amount, whilst at the same time encouraging retirees to withdraw their savings as a annuity is a sensible reform.
Thankfully, Watson does better elsewhere:
Mr Watson said… that superannuation tax concessions to high-income earners should be restricted.
He also said that the tax concessions on super contribution should cease for people who have saved more than seven times the annual non-concessional limit of $180,000.
Even better, why not replace the 15% flat tax on super contributions with a flat 15% concession/rebate, so that all taxpayers receive the same benefit? While you are at it, why not start taxing super earnings at the marginal tax rate less the 15% concession?
These changes would be fairly simple to implement and would greatly improve the equity and sustainability of the system.
