Reduce super taxes now to prepare for the baby boomers' retirement

Research bears this out. Baby-boomers as a group expect they will need a minimum of $30k pa to live on in retirement. That’s almost three times the current age pension. But in terms of the necessary target to maintain their lifestyle, the baby-boomers’ expectations of $30k are probably about right.

But the $19,000 result mentioned above falls far short of this. The Super Guarantee is still a young policy – lots of people have not had the benefit of saving for 30 years, and may have had a broken work history.

ASFA’s research has shown that most people see the task of saving for retirement as a shared responsibility between themselves and government. And most of the people we polled understand and support the need to lift the Super Guarantee to 12-15per cent. The consensus seemed to be that individuals and government need to do more.

While it’s also clearly desirable for individuals to have the option of continuing to work past traditional retirement age if they want to, it’s not – and shouldn’t be – the only retirement income strategy we put into play. It’s important to remember that many people want, or are forced to, retire before age 60.

I’d like to see an indication from government that they are prepared to lift the Super Guarantee – which will rise to its ceiling of 9 per cent in July of this year – and restore confidence that they are a partner in the task of saving for retirement.

And we need to examine the punitive taxation of super. Australia has the unfortunate distinction of being the only country to tax super at the three stages of its life – at contributions, on earnings and at final benefits. Of the 9 per cent to be paid by your employer into your super from July, only a bit over 7 per cent will actually be invested, the rest will go in taxes. If super was taxed only once at the benefits stage, this could actually boost everyone’s retirement savings by nearly 30 per cent or about $55,000 for someone on average weekly earnings.

If government reduced or removed those front-end contribution taxes on super this would help reduce its now mind-blowing complexity. It would also allow the full Super Guarantee contribution from your wages to be invested and grow. It’s not difficult to see that this money would accumulate faster, and would be a clear step towards closing the expectation gap.

We need to move on several fronts. If we don’t sort out our super problems now, within 20 years time, we will be in trouble. Retirees will realise too late that even their modest expectations can’t be met while the government and tax payers of the future will find that super savings have already been raided (and spent)…. leaving a huge black hole for us and for our children and grandchildren.

Time is running out if we want an adequate and sustainable retirement income strategy.