Deloitte urges later retirement

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The Australian superannuation system has evolved in such a way that risk has been shifted onto individual members.

That is according to Deloitte Actuaries & Consultants partner Wayne Walker, who was a key author of Deloitte’s report, The Dynamics of the Australian Superannuation System – the next 20 years – 2013-2033.

As a result of individuals bearing the investment risk and the longevity risk, Walker says that there will be pockets of members to whom the super system has not delivered what they legitimately expected it to deliver.

“The major pocket over the past few years have been those approaching and entering retirement,” says Walker.

He says that the GFC caused more than a ripple for the aggregate system, bringing lasting adversity for those on the verge of retiring as well as many currently retired Australians.

“Many Australians now approaching retirement have only received super for a limited portion of their working lives as our system is still maturing.

“The concern is that current policy settings, including changes to caps and drawdowns, and the SG 12% increase, will not deliver the lifestyle that the majority of those retiring in the next 20 years are seeking. The reality is that many Australians will need to work longer and where possible contribute more.”

The report showed that deferring retirement would have significant results. By deferring the retirement age by two years to age 67, Australia’s asset pool will increase by $400 billion. If it were possible to defer retirement age by five years to age 70, another $1 trillion would be added to the system. This will bring the total pool of superannuation assets to $8.6 trillion.

However, Walker points out that not everyone will be able to spend extra time in the workforce and the jobs will also need to be available.

Another tool to combat the risks is contributing more. The Actuaries Institute says that 15-16% is the preferable super contribution. For a comfortable retirement, current 30 year olds would need to make an additional contribution of 5.4% as a male and 7.5% as a woman on top of their current SG rate, says Deloitte Actuaries & Consultants partner Russell Mason.

The report concludes that there are a number of ways in which Government and the industry can act to address the issues.

“Specifically, encouraging people to work longer is part of the answer; Encouraging people to contribute more to their retirement is part of the answer; Facilitating the access to quality and independent advice through your working lifetime is part of the answer. And pooling of long risk is part of the answer,” says Walker.

  • John walker on 25/09/2013 9:01:01 AM

    Age 65 retirement and qualifying for a gov pension was brought in by Bismarck in 1850. When life expectancy was 45 We live in a world of entitlement and forget historical truths

  • Ed on 24/09/2013 11:33:49 AM

    There are a number of alternatives I would like to see debated and formerly assessed to resolve the retirement funding shortfall.
    - Re establish the concessional contribution cap (nothing new, how it ever got passed is beyond me - focus on the additional tax revenue not the concessions for funding retirement).
    - Remove the works test for those over 65 to contribute to super yet restrict these contributions to be taken as a non commutable pension.
    - Instead of employers funding the increase in SG. Employees recieve a matched contribution from their employer - an extra 3.0% in savings (SSC) by the member equates to a 6.0% contribution to their super.
    - The current 9.0% to be directed to a non commutable pension from age 65 at a date in the future. For those wanting to retire earlier, any contribution above this by the employee can be matched by the employer up to 3.0% and the current lump sum / pension options apply to this portion only.

    - small business owners with active assets retain current arrangements with full flexability and a meaningful increase to the Lifetime cap - why restrict those that create employment?
    - replace the co contribution with - automatic tax refund option. That is the automatic tax refund is matched by government eg: $500 = $1,000 if the tax refund is directed into members superannuation accounts. This should assist lower income earners with limited deductions.
    - Foreign investors purchasing farm or productive land pay a higher tax on income from that investment. This tax is used to support matched superannuation contributions for farmers creating independant retiremnt assets and avoiding the sale of family farms at the current rate. Alternatively the tax is directed to a Drought Assistance support fund (the focus has been on a minimg tax whilst foreign investors are buying up productive land - a much longer term concern)

    Whilst I'm at it - I'd also like to see the tax on superannuation pension earnings move from 0% to 10% with funds allowing franking credits to reduce the tax for indivdual members (as we do currently under invidual advice outcomes). This will encourage both long term advice outcomes for investment strategy and increase investment in capital markets - long term.

    This additional tax must be directed into National Projects of Importance starting with a dual national highway / VFT rail link / Sponsored Cancer Treatment facilities across regional Australia / Direct link passage from Asia to North West Food Bowl and Aged Care Accomodation - incentives to superfunds for partnering with private enterprise to develop suitable independant Aged Care lifestyle accomodation with care facilities availble on site.

    A guarenteed income return for the funds investment strategy.

    The above to be managed by a Board represented by Private Enterprise not public service authorities. It may also assist skilled workers coming out of the mining industry over the next 10 years and growing employment opportunities across regional Australia.

  • Clem on 24/09/2013 10:49:01 AM

    Unfortunately for a raft of reasons superannuation has been prostituted. In its original general iteration the idea was to move it from a perk available to a lucky few to something which underpinned a sensible retirement system - personal savings (non-super), superannuation and the aged pension for those who for whatever reason were unable to save enough for retirement.
    Superannuation has morphed into a tax driven structure where the game is to stash as much in as you can, get all the benefits of low or no tax and pass as much as you can onto the next generation. A whole industry now feeds off this and makes good money from it - the game is to minimise tax and maximise Centrelink if you can. This is legal and you cannot blame people for taking advantage of the system but the discussion needs to come back to talking about retirement and how you fund this rather than tax concessions.
    Its interesting how despite the tax concessions now being better than they were 10 years ago (overall) people are still complaining about them.

  • Alistair on 24/09/2013 10:16:05 AM

    Isn't this just another mindless report to point out the bleeding obvious.
    Legislation around the topic of superannuation has been a farce.
    The last 6 years of inept thought bubbles by incompetent nitwits has undermined confidence in super.
    This together with consecutive budget disasters now creates a massive fiscal issue while we deal with an aged population and people living longer.
    Superannuation as a system for retirement needs folks to have the confidence to invest.
    Undermine this for any reason apart from dealing with the aged, longevity and dignity in retirement and you have the makings of concern not only for the industry but for the economy.
    Currently it has been said that 1000 baby boomers are retiring per week. Imagine the strain on age pensions, healthcare, nursing homes etc and our tax dollars.
    With fewer on the other end of the scale, we will start to have the same issues as most European nations along with Japan and North America as population demographics skew to the older generation
    This is the result of hiring people with no vision to run an entity called Australia.
    Lets see what the current government brings as all the last one did was shuffle paper, hire more incompetent nit wits, run up debt, fiddle the super system so their union mates benefit....need I go on. No as I'm sure you get the drift.
    By the way, as an industry, where is the FPA ?
    Ought not our "association" be a stronger voice advocating for a better system and shouting foul when those in the gene pool of decision making get it wrong.
    Or are they also voiceless and preferring to have pleasant cups of tea and biscuits with ministers to merely give the illusion of doing something.
    After 28 years in practice, I am finding it harder to suggest superannuation is the way to go in retirement. As a 48 year old, I find the superannuation system of question when their is such confusion and nonsense around such a system along with the obvious lack of control over ones assets.
    Seriously, does anyone have confidence to place hand on heart and advise a client that super is right for them ?
    Markets from an investment view aside. Its time for a rethink on this.

  • IFAdviser on 24/09/2013 9:47:17 AM

    What an absolute waste of time and money completing the above report. It was apparent when defined benefit plans ceased and the current system started operating that risk had been shifted to members.

    Secondly Super is only one way someone can save for retirement. There are plenty of self funded retirees with not a dollar within the Super system.

    The problems aren't contained within the Super system, the problem is the populations mindset with basic monetary skills to provide for them today whilst at the same time saving for tomorrow. It's challenging for most, and that is what a Financial Advisers role is to do, work out a plan to cater for the now and the future. Unfortunately the last Government has not supported our industry (who knows about this Government) to help deliver lower cost Advice and there's too many instutions with vested interests that have access to our law makers ears and they don't give a damn about what's right, only what makes them more market share.

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