8 February 2020
Katrina Grace Kelly – Columnist
The result of last year’s federal election is described as a miracle, but I prefer to deal in facts. So, if we examine a long list of facts and sum them up in a few words, the Coalition didn’t win the election, Labor lost it.
And the reason Labor lost, again summing up a long list of facts, is because it gave the impression that it was going after people’s ability to create and preserve personal wealth.
Mind you, before the election the Coalition also had given the community this impression with its superannuation changes. However, the Coalition came after the retirement savings of the self-funded, and therefore only a certain number of people in a certain age category felt assaulted. When the time came, as much as those people wanted to object at the ballot box, anger probably gave way to fear of something even worse.
Hindsight is a wonderful thing, and now senior thinkers in the government have engaged in some reflection. A few grudging concessions have been muttered; there is acceptance that the government went too far and that some of the adverse superannuation changes have been counter-productive.
So, there is a desire to undo some of the damage, as long as the government isn’t seen to be unwinding its changes. It wants a remedy that isn’t a backflip, a retreat without an undoing. In other words, the government wants to give the cake back that it has already eaten, without the indignity of regurgitation.
A government review into something can cover a thousand sins and provide enough justification for anything. It is just fortuitous then, isn’t it, that Treasury has commissioned a retirement income review that is tasked with “establishing a fact base to help improve understanding of how the Australian retirement income system is operating and how it will respond to an ageing society”.
The independent panel leading the review released a consultation paper last year and this week the timeframe for submissions passed.
The review is due to report by June, and if there is a pathway to redemption then here is where we will find it. The clues to this intention are sprinkled right throughout the consultation document.
A section headed “Changing trends and one-off shocks” admits “the trend in interest rates … has (continued), and may continue, to affect the public cost of the retirement income system through changes in the social security deeming rates and the interest rate used by the Pension Loans Scheme”. One consultation question asks: “What factors should be considered in assessing how the current settings of the retirement income system (eg tax concessions, superannuation contribution caps and Age Pension means testing) affect its fiscal sustainability?”
There is an opportunity here, then, to remedy a past error.
In a low interest rate environment, the self-sufficient need far more money than anyone imagined. We need to relax the contribution caps and allow people to shovel their savings into superannuation. Unfortunately, the idea of people creating wealth for themselves causes policymakers to break out in hives.
The paper says “the tax advantaged status of superannuation may encourage some individuals to partly use superannuation for wealth accumulation and estate planning rather than solely for retirement income purposes.”
What a shame that everybody cannot organise themselves to save precisely the right amount for their retirement and then promptly drop dead the minute they’ve spent it, ensuring there is nothing left over.
Spare a thought now for politicians and Treasury, who are tortured by two competing desires. On the one hand, they don’t want to bear the cost of people on the pension but, on the other, they don’t want people to be too wealthy either.
Perhaps the only thing worse than the poor who require support are the rich who generate envy. Maybe this is why there is the endless search for the in-between solution, one that brings comfort but cannot possibly exist: the not-too-poor but not-too-rich perfect retiree.
In a global free market with a fluid cost of living, the measure of what is needed to be self-funded will always change. Therefore, it is impossible to keep people down to a level of poverty that is just above the level where they require government support.
Fundamentally, nothing of substance will ever be achieved in the retirement savings space unless the government comes to terms with the following: if you don’t want people on the pension, you must allow them to create their own wealth. Tax some of it if you will, but at least allow it to be created.
Further, it is time our political class accepted that superannuation is a wealth-creation vehicle. It should be a wealth-creation vehicle. It must be a wealth-creation vehicle, for if retirees are not going to be poor enough to go on the pension, then they must be too rich to go on the pension, by a long way, because the market can easily erode a slim margin.
Governments of all persuasions, but especially a Coalition government, must get over their squeamish reaction to the idea that people are using their superannuation to create wealth because that is exactly what superannuation is for.