Retirees in the crosshairs

The Australian

21 February 2019

Bernard Salt

It’s a time of reckoning for middle-class retirees who held the flawed assumption that concessions in the past would remain in the future.  Retiring boomers can expect to be mugged by reality – and ingratitude.

In 2001 I published my first book, The Big Shift, which included a thought piece I had published some years earlier. Here’s what I wrote 20 years ago: “Greedy Boomers Bleed Xers. So runs the headline … in 2021. The story proceeds, ‘The Australian president today launched a stinging attack on the now-retiring baby boom generation for what she calls its bleeding of the taxpayer after a life of self-indulgent spending. We, the X generation, are now being asked to support a bunch of bludgers,’ the president said.”

As you can see my taste for satire, which peaked with the smashed avocado brouhaha of 2016, was evident early in my writing. Plus, it’s nice to see that the term “bludgers” remains as relevant and as piquant today as it was back then. And we may not have a president today, but we have had a female prime minister, so I’m claiming this entire piece as a prediction proven.

You will immediately see the parallels with today’s debate around proposed plans to limit the payment of dividend franking credits. This is a policy designed to rein in what is being presented as generous if not unfair concessions to the mostly baby-boomer self-funded-retiree set.

It is indeed a time of reckoning for middle-class retirees who have built nest eggs and a lifestyle on the apparently flawed assumption that concessions granted in the past would be maintained into the future. Or that previous concessions would be grandfathered, meaning existing arrangements would continue to be honoured.

The president continues: “Baby boomers had it better than their kids, and certainly much better than their parents. They are the ‘spoilt generation’ who forged culture around their every whim: hippies, punks, dinks and yuppies. Now they want us to install them as WOPs (wealthy old people). Well, it’s not on. They should have provisioned better in their time. Not ours.”

I admit I was also way off the mark about generation X — born between 1965 and 1982 — being ­incensed. It’s the millennials (1983 to 2000) — the children of baby boomers (1946 to 1964) — who seem to be most aggrieved about the perceived privileges of the once mighty but now wounded baby boomersaurus.

As it turns out the Xers have been both a placid and a stoic life form. Oddly, the generation that entered the workforce in the 1990s recession didn’t complain about their lot. It’s the later-blooming millennials who are angry, including Adam Creighton, The Australian ’s economics-writing Xer-millennial cusper, who has put (and I think quite enjoys putting) the case for limiting all forms of generationally bestowed largesse.

Actually, to the growing bucket of boomer critics should be added politicians who are remarkably adept at spotting a taxation opportunity.

“The problem for baby boomers is that there is no unifying voice to argue their case. They’re scattered across the country in electorates that aren’t likely to shift an election, and are divided.”

I have an idea. Let’s have a special “fairness tax” levied on all Australian billionaires, shall we? I mean, they can’t have amassed such wealth without at least the tacit support of the Australian people and nation. And to be entirely transparent and fair, if they don’t like the proposal, they are most welcome to vote against it. All 76 of them. What do you think?

Here is the problem that well-to-do baby-boomer retirees have. There’s a lot of them and so any concessions granted in their favour are significant and expensive. This underlying logic will never change. There’s a lot of quite healthy 65-year-old baby boomers now; there’ll be vastly more quite frail (and expensive) 85-year-old baby boomers in 20 years than there are today. This equation will tempt politicians to be even bolder and even “fairer” every election for another generation. Welcome to retirement, baby boomers. .

No one complained when baby boomers were pouring en masse into the workforce in the 70s and 80s, paying taxes to governments, which spent that money on infrastructure and defence and education … but which made no provision for the retirement of the boomer-boosted worker bulge. Other than, of course, setting in place generous defined-benefit superannuation schemes for state and federal government workers, including the political class.

I guess boomers are at fault because in their 30s they didn’t hold governments of the day to account — saying, “You shouldn’t be spending money on infrastructure and health, you should be setting up a national retirement scheme for when we retire in 30 years.” Although I suspect that had boomers made this case, politicians of the day would have said, “Yeah, right, let some future administration deal with that problem; we have an election to win!”

For the record, the superannuation guarantee come into play in 1992. The first baby boomers entered the workforce as 15-year-old apprentices in 1962 and subsequently paid tax for 30 years of a 50-year career, with nothing being saved by the governments of the day for their collective retirement. That kind of lack of a safety net builds a culture of self-reliance and of frugality. Here’s the logic of that 1962 apprentice, now aged 72: Fine, I’ll look after myself, but you can’t come along after the fact and commandeer what I have fairly saved by the rules of the day.

Self-funded retirees have a problem. If the proposal to limit franking credits is rewarded with success at the upcoming election, it will merely confirm the logic that they are fair game. All that scrimping and saving and self-denial; all the principles of effort-and-­reward that boomers learned from their Depression-raised parents, is diminished, and not just in terms of monies lost.

It’s the idea that a lifetime’s sustained effort and frugality is no longer rewarded by a me-me-me society that cannot remember a recession of double-digit unemployment or of a time when interest rates topped 18 per cent. It’s more than money. It’s putting your heart and soul into a place, into a country, over a lifetime with an eye to retaining your dignity and your pride through self-sufficiency in retirement. And then discovering late in the game that the social contract on which you have built your life, your savings, your sense of pride, your independence, can be whipped away.

And not only whipped away but quite reviled by an ascendant zeitgeist for supposedly having unfairly garnered more than your fair share. Baby boomers will say they have worked hard, they have paid all required taxes at every stage of their lives, they raised families and scrimped and saved to buy a house, and on top of all this they will also say that they have provisioned for their own retirement. This isn’t an issue of money. This is an issue of the kind of society we want for our nation. Do we want to encourage self-reliance and resilience and pride in work whereby the efforts of a lifetime are protected, or are at least respected? Or do we want a society where the underlying ­social contract can be changed at any point in the future? And for such changes to be made by a political class whose own retirement is assured by an uncommon level of generosity?

It doesn’t seem fair to self-funded retirees. They are upset.

The problem for baby boomers is that there is no unifying voice to argue their case. They’re a disparate lot scattered across the country, in electorates that aren’t likely to shift an election, and are divided among themselves.

Some self-funded retirees agree that past concessions have been too generous. The problem isn’t so much with well-to-do self-funded retirees losing concessions, it’s the barely rich.

It’s the private-sector worker who has worked and scrimped and saved and who has taken pride in being independent. It’s the worker whose big plan for retirement is to look after grandchildren and to spoil them a bit, to help out their kids a bit, to go around Australia in a campervan, or to take a single “big trip” to Europe and to come back declaring that Australia is the best place on earth.

It’s hardly a glamorous lifestyle.

But it has taken hard work, sacrifice and belief in a social contract with the Australian people to achieve. We will work hard. We will provide for our own retirement. We will make the required sacrifices. But we need you to keep your side of the bargain and either maintain the social contract on which our retirement planning has been built, or at the very least honour existing arrangements.

I think baby boomers — or at least self-funded retirees — would say, “We get that if there’s a war or if there’s a recession then sacrifices need to be made by the collective. But these are prosperous times — unemployment is at a record low, employment growth is strong. This is a shift in the social contract and it’s unfair. “

Bernard Salt is managing director of The Demographics Group and is not planning to retire anytime soon.

Darwin, Northern Territory

Retirees Ken Moffitt (66, retired financial-software consultant) and Sue Moffitt (69, retired head of a luxury travel business) say, ‘They (Labor) think they’re going to get the rich, but they’re not. They’re going to get all the people in the middle who’ve worked hard and saved hard to provide for their retirement — to give themselves independence from government handouts.’ – Ken Moffitt

‘What I can’t abide is the discrimination’

When Ken and Sue Moffitt retired in their mid-50s a little over a decade ago, they thought they had enough money in their self-managed super fund to last a lifetime.

The couple sold their Sydney home and businesses to pay for a camper-trailer and four-wheel-drive and set off on a five-year dream trip around Australia, before finally settling in Darwin.

If Labor’s proposed superannuation changes become law, Ken says he and his wife will have to “die six years earlier”, or begin claiming a government pension to cover their expected losses.

“I could swallow the loss of money if everyone was treated equally,” he says. “What I can’t abide is the discrimination: people in the exact same (financial) circumstances are being treated differently. I find that un-Australian and very unacceptable.”

The couple has about $1.7 million in joint fund earning around $13,000 in franking credits annually.

Ken estimates Labor’s changes will cut the fund’s total yearly income by up to 30 per cent but says franking credits contributed 15 per cent of its income in 2016-17.

Sue says the only alternatives to relying on government handouts are restructuring their portfolio with riskier assets or reducing their standard of living.

“Why should we have to when we worked for (a combined total) of 60 years and planned for our retirement?” she says. “It’s really, really annoying, frustrating and ridiculous.”

She ran a luxury travel business tailoring itineraries for wealthy clients while her husband consulted to large companies about financial software. They have godchildren who they “spoil rotten”, but no children of their own.

Experts have warned Labor’s proposed changes are unfair because someone with the same assets as a self-managed retiree would still receive franking credits if they held those assets via an industry fund.

On arriving in Darwin, Ken helped establish the Association of Independent Retirees to help others manage their savings. Some of those affected by Labor’s policy could move their money into industry funds, while others might take extra risk and potentially “shoot themselves in the foot”, he says.

More still could burden the pension system. The combined superannuation, capital-gains and negative-gearing policies could “profoundly impact” markets.

“The problem we’ve got is that I now no longer have the capacity to make up the difference,” Ken says. “They (Labor) think they’re going to get the rich, but they’re not.

“They’re going to get all the people in the middle who’ve worked hard and saved hard to provide for their retirement — to give themselves independence from government handouts. The rug has just been pulled out from underneath them.” While critical of the Coalition’s past modifications to “taper rates”, Ken puts Labor’s policies in a different league. “I don’t think anybody truly understands the ramifications of what’s going to happen,” he says.

Labor could make its plan more palatable by capping “excess” franking credits for everyone and correspondingly curtailing generous defined-benefit pension schemes.

Although a Coalition-leaning voter, Ken says he is not a member of any party. Labor’s changes will not cause him to join, but he might independently canvass people.

“I feel probably more political now than I have at any time before in my life,” he says.

Helensvale, Queensland

John Cadzow, 68, former construction site supervisor and Rhonda Cadzow, 64, former office administrator.

They will lose about $15,000 a year — about 15 per cent of their income — under Labor’s proposal.

“At some stage in the future we will rely on government handouts. At the stroke of a pen, our retirement plan, worked towards as paying taxpayers, is null and void.”– Rhonda Cadzow

Tweed Heads, NSW

Vicki Fitzgerald, 60, former accountant and Peter Fitzgerald, 64, former general manager at the Australian Securities Exchange.

The Fitzgeralds will lose 30 per cent of their income and will eventually be forced to take a part-pension under Labor. The residents of the marginal seat of Richmond say they will vote against Labor for the first time.

“You make plans, save money, put money away and try and get a balance that you can live on and you do that based on the rules of the day … We believed Paul Keating when he told us to save for the future because there would not be enough taxpayers to fund pensioners when we retired.” – Peter Fitzgerald