Australia’s compulsory superannuation systems is decades away from maturity, according to a new report released by the Productivity Commission today. That means there will be continued heavy reliance on the age pension and other government support by Australian retirees.
It also throws up some questions about how Australia will best be able to manage the major social and economic change as more Australians make calls on the age pension and the health and aged care systems.
The commission is trying to understand how well the retirement income system is placed to deal with these changes, and how its reform might ease these pressures while delivering sustainable retirement incomes for older Australians.
One of the questions they asked was, “what might happen if the age that individuals can access their superannuation (the ‘preservation age’) were raised?”
The commission said the preservation age is legislated to gradually increase from 55 to 60 years in 2025. But with the pension age also being ratcheted up toward 70 the gap between preservation age and pension entitlement means individuals have to run down their superannuation before reaching pension age.
Social services minister Scott Morrison said this is the point of superannuation. But the commission says by increasing the preservation age to 65 the Australian economy can gain significant benefits.
These benefits include:
- A modest increase in the participation rate of older workers (of around 2 percentage points in 2055) — mainly among those with higher wealth at or near retirement.
- Households that delay their retirement are likely to do so by around two years and will have superannuation balances around 10% larger in real terms when they retire.
- An indicative annual fiscal improvement of around $7 billion (in 2015 prices) in 2055 — mainly due to tax revenue increases from wealthier households.
- Changing the preservation age will have little, if any, impact on the workforce participation of individuals who retire involuntarily — almost one half of men and over one-third of women who retire between the ages of 60 and 64.
These look like solid proposals to buttress Australia’s fiscal position in the years ahead. More workers, higher super balances, $7 billion dollars in savings and no impact on involuntary retirees.
But this morning on ABC NewsRadio, Australia’s shadow treasurer Chris Bowen said “making people wait longer would be a retrograde step”, calling on the government to “rule out doing this in the future.”
Acting treasurer Bruce Bilson took the bait and told NewsRadio the government has no plans to change superannuation arrangements.
Once again, it looks like another policy which might help Australia’s economy in the decades ahead is going to be stuck on the launchpad due to a lack of political will or vision.