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ABA SUBMISSION CALLS FOR ADEQUACY, SIMPLICITY AND LITERACY FOR
IMPROVING SUPERANNUATION SAVINGS OF PEOLPE UNDER AGE 40 Sydney, 25 August, 2005: The Australian Bankers’ Association (ABA) said public policy initiatives in superannuation should concentrate on adequacy, simplicity and literacy to encourage Australians under age 40 to plan and save earlier for retirement. The ABA has lodged its submission to the House of Representatives Standing Committee on Economics, Finance and Public Administration.
While superannuation is the second largest component of wealth after home ownership, a retirement savings gap still exists between the aspirations and expectations of Generation X1 and Y2 for their standard of living in retirement and what the current system will deliver.
Adequacy of retirement incomes should be a public policy priority. The ABA believes that it is important for the Government to conduct thorough analysis of the drivers and barriers to saving for people under age 40 as part of its inquiry.
The ABA has the following suggestions for public policy strategies for improving superannuation savings of people under the age of 40: - Promote the importance of individuals making additional voluntary contributions. At least three percent of additional voluntary contributions are necessary for Generation X and Y to achieve adequate retirement income levels. For the broad group of low-middle income earners, where the bulk of adequacy problem lies, an additional five to six percent contribution will be necessary;
- Improve incentives for additional voluntary contributions. Some incentives could include extending co-contributions or providing tax deductions for those people that do not have access to co-contributions or salary sacrifice;
- Remove disincentives for additional voluntary contributions, such as age-based limits, and apply a lifetime cumulative limit. Age-based limits disadvantage those with broken work patterns, particularly women that enter and exit the workforce due to family commitments;
- Simplify the superannuation system by removing the complexity of the legislative framework, which will be a benefit to all ages, for example by shifting the taxation of superannuation to the benefit stage and removing the distinctions in tax treatment between employees and self-employed. Australia is the only country to tax super three times – contributions tax, benefits tax and earnings tax;
- Enhance opportunities for accessing financial advice by providing a rebate to those that seek professional advice about their superannuation and retirement incomes;
- Place greater emphasis on financial literacy programs which could lead to greater confidence in, and understanding of, the performance of superannuation savings and other private savings.
David Bell, Chief Executive of the ABA, said: “Knowledge of superannuation and other private savings options, coupled with the capacity and incentive to save, will better promote a savings culture.”
“Further reform is necessary as both men and women are living longer in retirement but not saving enough for their needs.”
“Life cycle decision-making including, planning, building and protecting wealth will be important for Generation X and Y as the increasing cost of living and higher consumption expectations will affect total wealth accumulation.”
“There are some Australians that will face a significantly different financial position than the previous generation with demands from ageing parents, maturing children and their own age-related expenses.”
The ABA is already contributing to information that consumers can access which may improve their understanding of the options that might be available as a result of ‘Super Choice’. The ABA has produced a consumer guide, with the Financial Planning Association and the Investment and Financial Services Association, called ‘Smarter Super, Make the Most of your Retirement’.
To read the guide go to the ABA website: www.bankers.asn.au or free call 1800 633 855 for a free copy
For further information:
Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439
ENDS
1Born between 1961 and 1976
2Born between 1976 and 1991
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