Retirement Incomes Review highlights growing divide
The Retirement Incomes Review found that the annual cost to taxpayers of superannuation tax concessions is an eye-watering $41.5 billion.
In response to the Review, the Australian Council of Social Service said people on the highest incomes disproportionately benefited from these generous superannuation tax concessions, while older people on pensions who rent their homes are struggling to keep a roof overhead.
ACOSS CEO Dr Cassandra Goldie said: “We must fix the mounting inequality in our retirement incomes system, which sees people on high incomes benefit greatly from generous superannuation tax concessions, at a cost of tens of billions of dollars per year to the federal budget.”
Lift the incomes of retired people in greatest need
“At the same time, the report shows people over 65 who do not own their own home are really struggling to keep a roof over their head, with 48% living in poverty. Also, a growing number of older people are stuck on the poverty-inducing Jobseeker payment, with 42% of people on JobSeeker over 45 years of age.
“We urgently need to increase the Rent Assistance payment received by people on income support, and to lift Jobseeker Payment permanently to a decent level. In addition, we must invest in social housing to boost dwelling numbers across the country. These are without doubt the most effective way to lift the living standards of older people in greatest hardship,” said Dr Goldie.
Remove glaring inequities in super tax breaks
The flat 15% tax on employer superannuation contributions means that a cleaner earning $20,000 (who normally does not pay tax on earnings) receives no taxation support for compulsory employer contributions, yet a fund manager on $200,000 receives a tax break of 32 cents per dollar contributed.
This inequity is a major cause of the superannuation ‘’gap’’ on retirement between men and women. Pre-retirement super balances for women average just two-thirds of those for men (In 2017/18, average superannuation savings for a woman aged 60-to-64 were $279,167 compared with $344,718 for a man of the same age).
“Thirty years after the Super Guarantee was introduced, these inequities must finally be removed, by taxing all contributions up to a modest annual cap at people’s marginal tax rate minus a rebate,” said Dr Goldie.
Properly fund aged care by removing excessive post-retirement tax breaks
“At a time when aged care is grossly under-funded, and the cost of fixing this is about to rise rapidly, it makes no sense to continue to exempt super fund earnings (interest, dividends and capital gains paid to super funds) from income tax. This exemption should have been removed years ago when super benefits paid to members were made tax free.
“To properly fund aged care and health services for an ageing population, ACOSS is calling for superannuation fund earnings after retirement to be taxed at the same rate as in the ‘’accumulation’’ phase (15%), minus a tax credit for people on the lowest incomes. This would raise $5 billion a year in the short term and much more in later years,” said Dr Goldie.
Increase the Super Guarantee to 10% as legislated, but reconsider any further increases
“We support the increase to the Super Guarantee from 9.5% to 10% of wages in July 2021 as collective pay agreements may already include this increase and on its own is likely to have minimal impact.
“For increases beyond 10%, we need to see the evidence on whether it’s worthwhile for people with low and modest incomes to save more for retirement, given much of the increased contributions are likely to come out of future pay rises.
“In the absence of fundamental reform of the tax concessions as we propose, increases to compulsory super contributions beyond 10% would be of doubtful benefit to people with low incomes who face greater financial pressure during working life, and are more likely to achieve close to income replacement in retirement at a 10% contribution level,” Dr Goldie said.
Read full Retirement Income Review at https://treasury.gov.au/publication/p2020-100554
23 November 2020.