The Federal Government’s proposal to tax super funds with more than $1million, will lull future retirees into a false sense of what constitutes a comfortable retirement, says Ken Raiss, director at business tax accounting and wealth advisory group Chan & Naylor.
He says that for a married couple with 30 years of retirement ahead of them, $1m isn’t that much. After factoring in expenditures such as medical and aged care costs and inflation, it actually looks “worryingly inadequate”, he says.
Aside from Australians’ current life expectancy forecast to continue growing, the other overlooked issue is that year on year average inflation growth of 3% will irrevocably increase the cost of living and conversely decrease the value of today’s money. Therefore according to Chan & Naylor’s forecast the equivalent value of a $1m pension fund in today’s currency will be need to be at least $2.5m 30 years from now.
Raiss says that although $1m is the benchmark for superannuation, even high-income earners struggle to save this much, and advisers aren’t making it clear enough to clients how much they will actually need. Regulation is making it more difficult for advisers to enter the realm of specialist advice because they’re afraid of litigation, says Raiss.
“I think there are very few financial advisers who are actually retirement advisers; who take a holistic view of a person’s special circumstances…so a majority do not make it clear of what people need and how to go about it. It’s a field that really hasn’t been put under the microscope or spotlight,” he says.
In order to get Australians to their superannuation goals, Raiss says a holistic approach by advisers is fundamental, as well as better education. A lot of people are so unsure they’re putting money into bank accounts at 3%. There’s no education to allow those people to understand they need to increase their cap base. But he says a bit of tough love will be required in making it clear that not everyone will achieve their financial goals.
“It’s hard for the average working Australian today to picture themselves in their parent’s shoes, but to build the necessary funds required for a full 30 years or more of independent retirement income, maximum preparation will be required. In simple terms Australians are going to need more retirement income and the Government of the day is doing surprisingly little to help,” argues Raiss.
He believes the myriad of ever changing rules and limited concession opportunities, particularly those associated with the SMSF sector, means that many people are shunning investing in their super and instead putting their money into more risky investments or simply spending it.