I hope you’re not planning on relying on the Government’s Age Pension to support you in retirement. The government simply won’t be able to afford it.
Australia has an ageing population. That means it will have less workers paying less taxes and more people wanting to receive the Age Pension. Taxes are the financial lifeblood of any government. If the Government of the day is receiving less tax then they have less to spend on things like the Age Pension.
I have provided some exerts from an article I read recently that discusses the problem facing Australia and some suggested solutions. I think you will find it interesting.
A recent study by CPA Australia found Australia is on the brink of a retirement disaster.
According to data from the Department of Human Services, around 75 per cent of retirees (some 2.27 million people), are dependent on a full or partial pension, despite the introduction of compulsory superannuation in 1992. To make matters worse, an ever increasing number of baby boomers are spending their superannuation shortly after retirement and then resorting to the Age Pension. Not only that, the Association of Superannuation Funds of Australia (ASFA), which represents about 90 per cent of all Australians holding superannuation accounts and more than $870 billion in assets, says that the government’s constant tinkering with superannuation policy is undermining confidence in the superannuation system. A lack of confidence discourages people from increasing their superannuation contributions.
In a bid to stave off a retirement savings disaster, ASFA is calling for an overhaul of the Age Pension system. It wants to make it tougher for retirees to qualify for the pension. ASFA says the government’s income and asset test limits for the aged pension are too generous.
The asset test limit, which excludes the family home, for the full pension is currently $273,000 for a home-owner couple and $412,000 for a couple who don’t own a home. For a part pension it is $1.05 million for a home-owner couple and $1.189 million for a non-home-owner couple.
ASFA Chairman Tony Lally says a tightening of the means test limits by the government would help prevent a blowout in future pension costs and curb the government’s need to look for savings via changes to the superannuation system. Lally says, “We’re not saying the superannuation rules have to stay the same forever, but we need to debate how we structure superannuation to make it sustainable for the long term. In Australia there are too few self-funded retirees, and other countries enjoy a much more stable superannuation system.”
The pressure on the government to fund the retirement of Australians is set to intensify, with the Australian Bureau of Statistics predicting that by 2016, 20 per cent of Australia’s population will be over 65. The federal government’s 2010 Intergenerational Report estimates that 8.1 million Australians will be over 65 by 2050, pushing the ratio of working Australians to retirees down to just 2.7:1.
The Managing Director of Towers Watson, Andrew Boal, is more concerned about a blowout in the cost of healthcare, maintenance and income support for the elderly. He cites statistics showing that the cost of aged care currently represents 4.8 per cent of GDP but will almost double by 2050. By comparison, the Age Pension represents 3.7 per cent of GDP but will only rise to 4.9 per cent by 2050.
“The government has indicated that the increases to the Age Pension are essentially affordable, but the thing that concerns us greatly, and should be a concern to everyone, is the cost of healthcare and aged care,” Boal says.
Speaking at last week’s annual ASFA conference in Sydney, former Prime Minister Paul Keating proposed the superannuation guarantee be boosted to 15 per cent from 9 per cent. He said the government’s move to gradually increase the levy to 12 per cent by 2020 was still not enough.
Pretty scary stuff isn’t it?
Even more reason to get good financial advice as soon as possible.
Bye for now
Source: The Australian Financial Review – Calls for cuts in means test 6 December 2012