Most people know that saving for their retirement – like eating green vegetables and exercising daily – is good for them. But while gym memberships are booming and low-fat cookbooks are flying off the shelves, it’s a lot harder to convince the average Australian of the merits of boosting their superannuation balance. But saving for retirement isn’t just a matter of discipline. It’s also about having sufficient disposable income to take advantage of salary sacrifice opportunities. And for most Australians, this doesn’t happen until they reach the tail end of their working life. Until then, buying a home, paying off the mortgage and meeting the costs of raising children understandably takes top priority. With this in mind, AIST is urging the Federal Government to rethink its new concessional cap limits on voluntary contributions for older workers. We believe that the new measures – announced in this year’s Federal Budget – will hamper the ability of a significant number of older members with relatively modest superannuation balances to catch-up on their super as they approach retirement.

AIST has long argued that the previous regime of concessional caps – brought in as part of the Howard Government’s Better Super changes – were skewed too heavily in favour of high income earners. Super tax incentives are an important component of our retirement income system but they must be fairly targeted to assist those who need the most help to save for their retirement. We therefore support the Government’s decision to lower the concessional cap to $25,000 for the Under 50s. The previous $50,000 cap for younger workers was far too generous and of little benefit to all but those on very high incomes. These changes will help make our superannuation system more equitable and more fiscally sustainable in the face of increased strains from population ageing. But the planned reversion to the lower $25,000 concessional cap from 30 June 2012 for the Over 50s is a concern and out of step with the way most people save for their retirement.

Older workers have been hit hard on several fronts. Not only have their super balances suffered from the impact of the world financial crisis, but they have only had the full benefit of 9 per cent SG contributions for seven years. Indeed, many of those currently aged 55 and over did not receive any superannuation until more than half way through their working life. Older women who took time out of the workforce have had even less time to build up their superannuation balances. The industry estimates that a single person requires a super balance of about $500,000 (in today’s dollars) to achieve a ‘comfortable’ retirement lifestyle and generate an annual income of about $37,500 (lasting 24 years – ie from age 65 to age 89). With the average balance of those aged between 50 and 60 years estimated at between $65,000 to $70,000, it’s clear that many people will not achieve a modest retirement lifestyle, let alone a ‘comfortable’ one, without the opportunity to make sizeable catch-up contributions.

While AIST recognises that there will of course be many older Australians who will not be able to make large topups to their super, we believe that the Government needs help those who can, up to a reasonable limit. One way to do this would be to introduce a higher $50,000 cap for older members with low balances, thus putting a ceiling on the ‘cost’ of tax concessions and ensuring that such concessions helps those most in need. Linking eligibility for a higher cap to low balances also recognises that those with higher incomes have already benefited from generous tax concessions through the 15 per cent contributions tax, while those on lower incomes have not received the same benefits. Such a two-tiered, targeted approach to contribution caps would ideally see the Government adopt an official definition/ benchmark of an adequate retirement income.

As outlined in our joint submission with Industry Super Network to the Henry Review, such a definition would put a floor and a ceiling on government responsibility for retirement income. It would also give working Australians a better idea about what is regarded as an ‘adequate’ retirement nest egg. One of the strengths of our three pillar retirement income system is the joint and overlapping responsibility between the individual and the government for achieving an adequate retirement income. For the third “voluntary savings” pillar to pull its weight, there must be adequate support and encouragement by government through targeted tax concessions for older workers.

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