The Productivity Commission (PC) has provided the Federal Government with a strong argument to review and possibly ditch transition to retirement arrangements.
While most attention on the Productivity Commission’s supplementary report on Superannuation Policy in Post-Retirement has focused on its canvassing of raising the superannuation preservation age, the report delivers a telling criticism of transition to retirement arrangements.
The PC report said that transition to retirement pensions, though intended to encourage a gradual shift from full-time work to full-time retirement, could be used to reduce a worker’s tax liability.
What is more, the report said such arrangements appeared to mostly the preserve of the wealthy.
Discussing those likely to be utilising transition to retirement arrangements, the report said they were “more likely to be working full-time and earned higher incomes than those not using transition to retirement pension arrangements”.
“In terms of the households discussed earlier and used in the Commission’s modelling, those using transition to retirement pensions were almost exclusively in the two wealthiest quartiles of couple households,” it said. “While the data are imperfect, the available evidence does tend to suggest that transition to retirement pensions are used almost exclusively by the wealthy.”
The PC report event obliquely points to the likelihood that those accessing transition to retirement arrangements are doing so on the basis of financial advice, stating: “Why this should be the case is unclear. From the age of 55 years onwards, the tax incentives are strong enough that most who are employed and facing a marginal tax rate of greater than 15 per cent should avail themselves of the transition to retirement pension”.
“It may be a case that those with lower incomes have less of an incentive to do so relative to those facing higher income tax liabilities, or it may also be the case that many are unaware of the transition to retirement pension arrangements that currently exist.”
