Sustaining us all in retirement

by David Ingles and Richard Denniss

As Australia’s population ages, government policies that assist retirement will become even more essential. Superannuation tax concessions and the age pension are the two key government policies that assist the ageing, but they are becoming increasingly expensive. Increasing costs have prompted the Treasurer, Mr Joe Hockey to suggest the pension age be increased to 70. This suggestion is part of an austerity narrative being used by the government to justify broader spending cuts to health, education and welfare support. This paper shows super tax concessions, most of which are being claimed by people able to afford early retirements if they choose, will soon cost more than the age pension.

The age pension currently costs $39 billion and superannuation tax concessions will cost the budget around $35 billion in 2013-14. These concessions are projected to rise to $50.7 billion in 2016-17, an increase of around 12 per cent per annum. By this time superannuation tax concessions will be the single largest area of government expenditure. The overwhelming majority of this assistance flows to high income earners. Low income earners receive virtually no benefit. The combined cost of these two policies will be $74 billion in 2014 alone. With an ageing population the dual pension/superannuation system will become increasingly expensive. The government’s own projections are that the cost of super tax concessions as a share of GDP will exceed that of the age pension by 2016-17.

This paper presents an alternative model that could produce a fairer, more adequate and more sustainable retirement system. It proposes that we abolish tax concessions for superannuation and create a universal (non-means-tested) age pension. This proposed system is similar to the approach taken in New Zealand where labour force participation among older people is higher than in Australia. 

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