Government intentions to revisit new taxes on superannuation payouts for retirees could set up Australia’s retirement infrastructure for a massive failure, says Accounting Group Chan & Naylor.
“During recent weeks of political tax grab barracking the government has successfully managed to stigmatise Australian retirees who have managed to set aside their own monies for independent retirement while simultaneously eroding public confidence in super as a mechanism to plan for the future,” says Ken Raiss, Chan & Naylor director.
Raiss believes the government’s plan to tax super funds with over $1m will create an ‘us and them’ perception likely to lull future retirees into a false sense of security of what constitutes a comfortable retirement.
“$1m in today’s terms is a considerable sum, [but] for a married couple with 30 years of retirement ahead of them… this nest egg begins to look worryingly inadequate especially when inflation erodes your buying power,” Raiss says.
According to Chan & Naylor’s forecast, the equivalent value of a $1m pension fund in today’s currency will need to be at least $2.5m in 30 years.
“Australians are going to need more retirement income and the government of the day is doing surprisingly little to help,” Raiss says.
Raiss further argues that other factors are discouraging Australians from maximising their future retirement income.
“The myriad of ever changing rules and limited concession opportunities, particularly those that are associated with the increasingly popular 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.”
A group particularly at risk is relatively affluent Australians in the 50 years bracket who have paid off their mortgage and children’s education and are now looking at ways of investing for their retirement.
With disposable income and the high likelihood of inheritance, this group may shy away from investing in their super due to unrealistic contribution caps and severe penalties for breaching arbitrary limits, says Raiss.
He warns that to avoid a crisis where retirees run out of money halfway through their retirements future governments must restore public confidence in super.
