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AUSTRALIANS UNDER 40 REQUIRE INCENTIVES TO ENCOURAGE RETIREMENT SAVINGS
Sydney, 14 October, 2005: The Australian Bankers’ Association (ABA) said Australians under 40 require improved incentives to boost superannuation savings so that they will have enough retirement income.
Appearing today in front of the House of Representatives Standing Committee on Economics, Finance and Public Administration, David Bell, Chief Executive of the ABA, and Diane Tate, ABA Director Corporate and Consumer Policy, explained that those under 40 needed to make more voluntary superannuation contributions.
David Bell, Chief Executive of the ABA, said: “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 X and Y for their standard of living in retirement and what the current system will deliver.”
“At least three percent of additional voluntary contributions are necessary for Generation X1 and Y2 to achieve adequate retirement income levels. However, there is no point in simply telling people they must save more without simplifying some of the superannuation law and providing some incentives.”
The ABA said the following incentives could be considered:
- Extending access to co-contributions for low to middle income earners by pegging the maximum contributions threshold to the 30% personal tax rate;
- Extending access to co-contributions for low to middle income earners by re-scaling phasing-out (currently 5 cents for every $1000) so they can gain access to the full co-contribution;
- Removing work test for superannuation co-contributions to permit access for the self–employed;
- Consideration of the impact on Government revenue of providing tax deductions for additional voluntary standard employee contributions (excluding co-contributions) as an incentive to those middle income earners not eligible for co-contributions;
- Consideration of the impact of Government revenue of removing the 15% contributions tax and shifting taxation to the benefit stage. Australia is the only country to tax superannuation three times – contributions tax, earnings tax and benefits tax;
- Removing age-based limits on annual contributions and applying a lifetime cumulative limit;
- Adjusting Reasonable Benefits Limits (RBLs) to encourage income streams or a combination of income streams and lump sum payments;
- Removing differences in taxation between employed and self-employed;
- Removing rules that exclude non-superannuation monies from retirement income stream products, thereby enhancing retirement savings.
David Bell, Chief Executive of the ABA, said: “It is also important for the Government to consider not just incentives, but also to understand and address the disincentives that exist within the current system, with a view to implementing sustainable public policy.”
“For example, we believe that as part of this inquiry, it would be useful for the Government to conduct thorough analysis of current levels of superannuation savings, current consumption and expenditure rates, and expected retirement incomes for people under age 40.”
“Such analysis would give us a better understanding of motivations for saving and spending and therefore help in identifying strategies that will have a real impact on lifting the long-term level of superannuation and private savings.”
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’, that may help explain some of the technical aspects of superannuation.
The ABA has lodged a submission on Superannuation Under 40 with the House of Representatives Standing Committee on Economics, Finance and Public Administration.
For further information:
Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439
ENDS
1 Born between 1961 and 1976
2 Born between 1976 and 1991
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