Superannuation is a significant financial asset for most Australians, yet many don’t understand why it matters or even how it works.
A recent government review into retirement incomes has stirred the pot on opinions regarding the nation’s superannuation system – Should a planned contribution increase be axed? Should early access to super be allowed? Should what happens to the family home change?
University of Southern Queensland Accounting Associate Professor Suzanne Maloney said currently employers must direct 9.5 per cent of an eligible employee earnings into a superannuation account and that the minimum is legislated to rise to 12 per cent by 2025. “But there have been calls to ditch the increase, with some flagging that lifestyle pre-retirement could be worse than post-retirement if allowed to go ahead,” she said.
Associate Professor Maloney said that unless long-term savings was forced, it might not happen. “Just because it is good for us does not mean everyone will do it – many people are not going to voluntarily put away extra funds,” Associate Professor Maloney said. “There’s a similar concern when it comes to early access to super funds. If we really want a system that supports retirement, then we’ve got to lock it down. The super system should not be relied upon to fill a gap where social policy fails.”
Associate Professor Maloney, who is also a member of the CPA Australia’s Centre of Excellence on Retirement Planning (a national committee), said the recent Retirement Income Review showed the system was working well but could be improved. “The review hasn’t taken into account behavioural economic research and the way people save and spend,” she said. “Theoretically, it would be ideal to use the funds accumulated in retirement and have a dollar left when you pass away.
“Yet we’re not wired to think that way – we like to preserve for a rainy day and we want to leave something for the next generation. Retirement life is highly uncertain and when people are met with insecurity, they will save. So telling retirees that they should be spending their capital goes against the grain of that behaviour.”
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