The Idealist: It’s time to stop SKIing through retirement

As we brace ourselves for the final few days of election spin doctoring, it’s clear yet another opportunity has passed for an incumbent Government, and Government wannabe, to prescribe a comprehensive vision for retirement planning and national savings for future generations of Australians.

Political expediency, political short-termism, piecemeal band-aiding and buck passing all spring to mind when thinking about more than 50 years of successive Governments failing to get retirement planning right for Australia.

There’s nothing new in the retirement numbers and the ageing of the population. After all, the numbers were apparent from the mid 1950s with the so-called ‘baby boomer’ demographic bubble.

While the initial push in the 1980s by the then Labor Government introduced the non-public servant population to the word ‘superannuation’, over the past 20 years, Governments have simply tinkered at the edges of sound long-term retirement income policy development.

It seems quite clear both sides of politics have devoted more time and resources to developing superannuation as a source of tax revenue than setting the overall superannuation landscape in the real world.

It’s reprehensible that the incessant fiddling with legislation gives rise to high levels of suspicion and derision on the subject of superannuation.

How can it be that a policy, which is supposedly about making retirement more financially secure for members, generates fear and apprehension in the minds of so many Australians?

Financial planners and their clients work in an environment where the legislative goal posts move annually as politicians look to superannuation for increased tax revenue, which, in part, is used to pay age pensions to those who failed to save or who couldn’t save because of life circumstances.

No sane financial planner would dare give a client the impression that today’s superannuation rules will prevail for the client’s lifetime.

Thinking financial planners will readily advise their clients that one day superannuation capital will only be available via an income stream — not a lump sum.

These same financial planners will manage this legislative risk by ensuring clients accrue capital both in and outside superannuation.

It seems everyone talks about it and gets the super member ready for it, but not enough political strength inhabits Canberra to go through with banning lump sums.

The political bastardisation of compulsory superannuation contribution levels is an indictment on those who fail to prescribe a realistic proportion of salary for retirement saving.

This politicising of contribution levels simply further burdens future generations with a higher income tax environment than need be.

Superannuation needs urgent attention on three main issues.

Firstly, a much needed visionary government — a government prepared to risk its political skin for the long-term economic health of the nation — should increase super guarantee contributions from the current insufficient 9 per cent of salary to 15 per cent over a maximum six-year period.

Secondly, in order to cease the outright waste and squandering of retirement capital in many Australian households, lump sum benefits should be phased out sooner rather than later.

For some obscure reason, too many Australians seem to think it’s their birthright to pick up the big lump sum cheque — buy the four-wheel drive and caravan, tour around the country and then claim full or part age pension benefits.

In a small country like Australia, why does legislation allow retirees to ‘SKI’ (spend the kids’ inheritance) their way around the country, robbing capital markets and future generations of investment capital eroded in short-lived consumption?

And that’s not to mention pushing the income generation burden on to taxpayers to fund age pensions.

Finally, such a visionary government would commit to simply leaving superannuation legislation alone — for at least a decade.

It’s outrageous that superannuation fund members and their financial planners must develop, implement and then manage long-term investment strategies through the constant uncertainty of when and what the next legislation change will be?

The fact we now have household debt levels that are five times higher than in the early 1990s, confirms that national savings in this country is a major economic problem.

And while many would look down on them, third-world countries like India simply get on with the job of building and encouraging national savings.

As a case in point, household savings in India sit at well above 30 per cent of GDP and yet here in the ‘lucky country’, they are below 5 per cent of GDP. The same ratio in Australia in the 1970s was around 15 per cent.

And although the political environment in Singapore is somewhat adrift of our own, there they have done an outstanding job of planning retirement savings for the population.

In Australia, we have borrowed and spent too much for way too long.

There will come a day when the grim reaper of debt comes knocking on the door to call in this largess.

We have lived life on the high of an overabundance of credit that some day must be repaid. The economy sits atop an Achilles heel of future interest rate rises — whenever that day may be — regardless of what the politicians would like us to believe.

It would be inordinately inspiring to hear a political leader wishing to retain or gain office, prescribe a long-term retirement and national savings plan — a financial plan — for the nation.

A plan that rewards and encourages saving — not borrowing. A plan that finally starts to instil confidence in the majority of Australians about the benefits of saving generally and, specifically, for superannuation saving. A plan that is free of tax grabs to fund short-term election promises and one which is likely to achieve bi-partisan support.

Perhaps naively, I live in hope that one day such vision and strength will inculcate the corridors of Canberra.

Ray Griffin is a Tamworth-based planner and former chairman of the Financial Planning Standards Board International CFP Council.