The retirement incomes fiasco

The National Economic Summit was a non-event, a sad spectacle of influential and intelligent people dancing around the fire instead of jumping in and taking the heat for advocating what cannot be ignored.

Their public statement was a motherhood vision that did not contain one specific that will help Australia prosper in a rapidly Ageing world.

This particularly applied to Retirement Incomes where their comments were a perfect exhibition of blandness designed to avoid any chance of a community backlash over actions that most thinking people know are totally unavoidable.

This is what they should have said.

Primary Policy

• A single piece of legislation must combine and coordinate all aspects of Retirement Incomes, with existing legislation repealed so the means of exploiting their competing differences are removed.

Retirement Incomes Authority

• The predominant feature of this legislation must be the establishment of independent Authority which has power to determine policy for clearly defined aspects of Retirement Incomes. The most important of these are,

Pensions

• Since the Age Pension was established in 1908, no one has accurately determined what the amount of the pension must be in order to meet basic needs of Older Australians in modern society.
• The Authority must have power to determine this for the first time and then review the size of the Pension annually in light of actual circumstances rather than using predetermined formulas.
• It would have power also to determine the basis on which anyone qualifies for a part pension so that income they earn from superannuation, savings and other assets, together with a part pension, will give them a sum which is significantly above the full pension thereby encouraging life time savings.

Family Home

• A family home must remain exempt from the Assets Test except when its value is larger than a capital sum that would produce an income of 50,000 dollars a year in excess of a full pension if invested at the Reserve Bank interest rate.

Superannuation

• The access age for superannuation must be the same as for the age pension.
• No person should be able to draw more than 50% of the capital of their superannuation fund as a lump sum.
• Minimum monthly drawings must be at a rate equivalent to that of the pension.
• All capital and income must be consumed by age 90 which is the anticipated lifespan of the average Australian. A revolution in the way annuities are designed is necessary to achieve this.
• Maximum monthly drawings must be capped at a rate that would provide an income equivalent to five times that of the pension.
• Drawings should incur an annual tax of 5% so all retirees contribute towards the nation's income base.
• All personal superannuation funds should be capped at 2.5 million dollars as this sum can provide them with an annual income of 125,000 dollars.
• Remaining funds over and above 2.5 million dollars must be withdrawn immediately after paying a special tax.
• Any capital remaining in a superannuation fund at death should be used to repay all pension drawings received before the remainder goes into an estate.
• Disadvantages that women experience in accumulating sufficient superannuation for an adequate retirement must be rectified.
• The Superannuation Guarantee must increase annually by 1% from 1916 until it reaches 15%.

Savings

• All policies for pension and superannuation must not deter people from saving.
• Incentives are needed to encourage saving so there is an acceptance that superannuation is not the only way to provide for retirement. It provides the foundation for a financially secure retirement.
• To assist with savings, a National Infrastructure Fund should be established to issue capital guaranteed bonds earning tax free interest at 1% above the reserve bank rate. Such bonds can be redeemed and placed in a superannuation fund without any contribution tax on capital at age 75. Bonds redeemed at any time up to age 75 will not be counted in the pension assets test provided the owner remains in employment.
• The Fund would be invested in infrastructure assets created by governments and will earn long term profits and capital gain.
• Superannuants not requiring the legislated minimum monthly drawings should be encouraged to invest the surplus in National Infrastructure Bonds, particularly those fortunate enough to live beyond 90.

Mature Age Employment

• Government policy must encourage people to stay in employment until 75 thereby reducing numbers receiving the pension at 67 and enabling people to contribute to superannuation for a longer period.
• 50% of salary in those years should be contributed to superannuation, in addition to the guarantee.
• If earnings in those years are small enough to make workers eligible for a part pension, the combined amount must be in excess of a full pension without having to draw on superannuation.
• National Work Cover must be established for all workers over the age of 67 with no age limit applying as they are not eligible for State Work Cover.

Taxation

• Taxation of Super Funds, Savings and Mature Age Employment must ensure there are incentives to work and save for a lifetime while contributing to the nation's revenue base.

This Retirement Incomes Strategy has been drawn up by The Longevity Forum which I chair. We will make it the subject of public debate in the run up to the 2016 Federal Elections.

Hopefully one of Abbott, Shorten, di Natale or Xenophon will have the courage to run with it.