Recent research and policy reforms suggest everyone should pay more attention to the status of their superannuation.
This year has seen an increase in industry and media reports highlighting how people nearing retirement age could be in for some financial problems.
A report released by REST Industry Super, for example, revealed that 86% of people nearing retirement age felt they were “financially unprepared” to some extent.
REST said 35% of people felt they were completely unprepared and 51% were “somewhat prepared”, with findings based on a national survey of 1200 people.
“The research shows that Baby Boomers are largely unprepared for retirement, with most people leaving it very late to start the planning process,” REST CEO Damian Hill said, adding that people seemed unaware of potential problems.
“What we found is some sizeable gaps between what Baby Boomers are envisaging for their retirement and what the reality will be.”
Hill called on the financial services sector and the government to help “educate and encourage people to plan and prepare far earlier.”
Super Expectations: Debts Vs. Standard of Living
Meanwhile, two reports from accounting body CPA Australia have this year shown that increasing personal debts and expectations around standards of living at retirement age undermines the current superannuation system.
“Unfortunately, the knowledge that households have a nest egg coming in retirement appears to make them more comfortable with debt,” CPA Australia’s Twenty Years of the Superannuation Guarantee report said, adding that “the annual superannuation fund statements along with rising house prices and household incomes have made them feel wealthier.”
While the Association of Superannuation Funds Australia (ASFA) estimates singles would need $41,830 per year in super and couples $57,195 per year, CPA Australia said that much of the super people have saved will go towards paying off debts or taking lengthy holidays.
“An expectation gap has formed. This wealth effect is producing higher expectations for living standards in retirement. However, the superannuation nest egg is not keeping pace with either the raising expectations or the need to service debt in retirement.”
Superannuation Changes
The expectations surrounding what super will pay for, combined with the fact that many people at retirement age do not have enough super to live off without subsidisation, has led to all kinds of problems.
But they are just the tip of the iceberg, with the new Coalition Government planning several significant changes that could affect everyone currently in the workforce.
Firstly, the age at which people get access to superannuation is increasing, as The Sydney Morning Herald recently outlined.
“The pension access age is currently scheduled to climb six months from 65 to 65½ in 2017. After that it will climb six months every two years until it reaches 67 in 2023,” Peter Martin reported.
Martin noted that while these plans to increase the superannuation and pension access age are already in place, more extreme proposals are being considered.
“A new proposal from the Grattan Institute would double the pace from 2017 onwards, lifting the access age by six months every year until it hits 70 in 2025. After that it would be progressively lifted further in line with increases in lifespans, with no ultimate limit.”
For people five or more years out from retirement, these changes could mean they have to work longer than planned without any choice in the matter.
Another change that has come into effect swiftly and silently is the way Centrelink assesses eligibility for pensions.
“Under the current income test, superannuation account-based income streams (pensions) are treated differently from other financial assets as the pension you draw is not fully counted under the income test,” Financial advisor and co-founder of Aspire Retire Financial Services, Olivia Maranga explained in a Brisbane Times column.
“Based on the new rules, the treatment of account-based pensions under the income test will change. The deductible amount will no longer be applicable and the entire account-based pension balance will have the deeming rates applied to it, with the potential of losing thousands of dollars in age pension.”
This change is not scheduled to come into effect until 1st January 2015, so people who may be eligible for a pension before then could save some money by applying to Centrelink sooner rather than later.
Low-income workers could also be hit hard by another proposed change from the Coalition, as it plans to scrap the $500 government co-contribution scheme.
This scheme is designed to help people on lower incomes save for retirement, and offers up to $500 when personal contributions are made.
Getting rid of it would take tens of thousands of dollars from the retirement savings of 3.5 million Australians currently eligible for these contributions.
Superannuation funds, financial advisors and the media have been warning that people at or nearing retirement age could be in serious financial trouble when it comes to getting the most out of their money.
But the current proposed and planned changes could have an impact on everyone.
So perhaps REST’s call for more education and planning should be applied to all workers, whether they are just entering the workforce or retiring soon.
The post Struggling To See Superannuation appeared first on Quid.