Ever since the Abbott government announced in the May budget that the pension age will rise to 70 by 2035, from 65 now, pressure has been building to also increase the preservation age, the age at which super can be accessed.
The preservation age is on its way to 60, depending on your birth date. The argument is that the five-year gap between the pension age and the preservation age should be maintained.
Those on really good incomes would almost certainly save for their retirement without tax concessions. It is a waste of public money to give away so much in tax concessions to the well-off.John Collett
However, a preservation age of 65 will seriously disadvantage those in physically demanding jobs. Not only do blue-collar workers find it harder to keep going than those in office jobs, but often they are working in industries where employment is less secure.
And there is this: Workers in physically demanding jobs will, generally, not be living as long as their white-collar counterparts. They will have lower superannuation account balances and fewer years after age 65, if that becomes the preservation age, to access their super savings.
The rationale for the superannuation tax concessions, which cost the budget about $35 billion a year and rising, is to encourage people to save for their own retirement and take pressure off the age pension. However, about 30 per cent of the benefit of those tax concessions goes to the top five per cent of income earners. It is higher earners who can afford to sacrifice their salary into super up to the annual limits or caps. Lower earners cannot afford to sacrifice salary. They are receiving tax concessions, but on their compulsory super only.
However, even those concessions are about to be reduced as the government is committed to repealing the low income superannuation contribution, effective from this financial year. The contribution adds up to $500 a year directly in the superannuation accounts of those on low incomes. Those on low incomes pay income tax that is, on average, less than 15 per cent. However, on their super contributions they pay the 15 per cent contributions tax, more than they do on their income.
Axing the low income superannuation contribution hurts those working part-time, the ranks of whom are over-represented by women. The banks were among the main supporters of the increase in the retirement age to 70. Just as they - and the broader financial services industry - have a lot to gain from a pension age of 70, they have much to gain from having the preservation age increased to 65. They will make more money from having super savings retained for longer.
Do not expect the financial services industry to call for the tax concessions to be reined in. A large portion of the inflows of super money, particularly into bank-owned superannuation funds, comes from higher-income earners maximising their salary sacrifice contributions to super. Those on really good incomes would almost certainly save for their retirement without tax concessions. It is a waste of public money to give away so much in tax concessions to the well-off. And it would be grossly unfair to force lower income earners who hardly benefit from the tax concessions, and do not have any other savings, to wait longer to access their own super funds.