One of the strangest, certainly one of the hardest to justify, measures in last week’s budget were called “supportive retirees.”
A better title would be “supercharging the assets of retirees who already have more than enough to live on”.
This flies in the face of the findings of the government’s own retirement income review and legislation introduced earlier this year partly in response.
It happens that the standard of living of retirees is not supported at all. it would be able to cost some Less Enabling those with serious assets to accelerate the accumulation of even more, tax-free, they will have.
The measure extends a temporary COVID relaxation of rules requiring retirees to actually withdraw a minimum amount from their super each year, which was introduced in March 2020 when financial markets were in free-fall. Were.
All retirees are required to withdraw a minimum amount from Super each year to ensure that it is used only as a vehicle for accumulating tax-free savings that are not used.
Retirees have to make minimum withdrawals per year
The regulated minimum is 5% per annum for retirees aged 65-74, 6% per annum for 75-79 age group and similarly, for retirees aged 95 years and above, who have to It is necessary to withdraw at least 14%.
Nothing prevents retirees from withdrawing more than the regulated minimum, but the review found that in practice the normal withdrawal rate is well above the minimum, as people use it as an “anchor” or guide as to what to do.
It identifies the most common misconception about being super
“The minimum drawdown rate is what the government recommends”
There is another that says: “I should only reduce the income earned on my assets, not capital”. Both set retirees at a standard of living far below what they could get.
The review found that if a middle-income earner reduced his or her super income to an optimum amount instead of the minimum required, his/her super income would be 20% higher.
Instead, most retirees “die with a large portion of their assets”. One fund told the review that members who died had 90% of the balance left at the time of retirement.
most die most intact
This is contrary to the objective of the super defined by the government to provide “income in retirement”. In February the government enacted legislation to help ensure that this is what the fund did. From July they will be required to present their members with an income strategy for which the will “should not be an objective”.
Things changed, with the Australian stock market down 30% between mid-February and mid-March 2020 as the coronavirus took hold.
As a “temporary” measure, Treasurer Josh Frydenberg halved drawdown requirements, to enable retirees to better balance their balances after the storm has passed. A similar measure was introduced during the global financial crisis.
The storm quickly passed. On the day the Treasurer made the announcement, the market began to climb back and continue to climb again. According to SuperRatings, Median Balanced Super Fund has grown by 13.4 per cent in the last one year.
Yet oddly enough, the government extended the measure in May last year, when the market was hitting new highs to “make life easier for our retirees” and then raised it again on Budget night so that “Recognizing the invaluable contribution self-funded retirees make to the Australian economy”.
It is as if the government has quashed the idea that super should actually be used to provide income to those who hoard it.
As it happens, there is nothing in the drawdown requirements that compels retirees to spend on themselves (and cannot be). All they do is force retirees to withdraw a minimum amount from a typically tax-free environment, which is retiree super, and have it treated like other people’s investments and savings.
Income in Retired Super Untaxed
If the treasurer is not forced to withdraw the minimum amount to retirees, in the words of the Retirement Income Report, large amounts will be “primarily as a tax minimization strategy, separate to any retirement income goals” in super. will be held.
The only justification given in the budget papers (a weak one) refers to “ongoing volatility” and the need to “allow retirees to avoid selling assets”.
But markets are generally volatile, and it is usually super funds that sell assets, not retirees. The measure seems to be directed at self-managed super funds, some of which are rich beyond our wildest dreams, certainly rich enough that they do not require their members to pay a small percentage of their stake. .
Read more: Super changes, no longer temporary, will help tax doers the most
A Freedom of Information request by the Australian Financial Review revealed that 27 such funds each held more than A$100 million. The best guess is that they are owned by the wealthiest families in Australia.
Of course, most retirees have very small balances, and are reluctant to withdraw funds for any other reason. Perhaps unsurprisingly, the studies examined by the review show that the main reason is not to inherit it from their children.
Overwhelmingly, retirees are concerned about “depleting their savings.”
Afraid of leftover savings
The prospect of substandard aged care or a late health emergency forces most retirees to save more than they need, just in case.
Many people are unaware of how low the cost of aging and health care can be (“especially given the complexity of aged care – the testing regime”) and buying their way out of standard care because of many more terrifying things. want. Heard, some of this aged care is in royal commission.
Read more: Labor’s budget answer on aged care is big, likewise much
It makes Labor’s budget answer promising more money for aged care and a nurse on each site 24/7 is doubly attractive. It can keep us from hanging on to the absurd amount of our super out of fear.
It can allow us to relax and enjoy what could be the best decade of our life.