Boomers blowing their super to pay down large debts
BABY boomers are taking on growing debts as they approach retirement, in a trend that threatens to undermine their future savings and leave taxpayers with a hefty bill, a new report says.
BABY boomers are taking on growing debts as they approach retirement, in a trend that threatens to undermine their future savings and leave taxpayers with a hefty bill, a new report says.The report, to be published today by CPA Australia, says housing debt among people aged 50 to 64 jumped by 123 per cent between 2002 and 2010, while other debts rose by 43 per cent.This growth has easily outpaced the growth in many people's biggest asset their homes with property assets rising by 58 per cent over the same period.To pay down their debts once they have retired, a growing number of people are taking large lump-sum payments from their superannuation, and opting to receive the pension, the report says.To prevent a blow-out in future pension costs, it calls for a debate on whether people should be able to access their super savings in one hit."Lump sum superannuation benefits are being treated as a windfall and being used to pay for the lifestyle that's been lived now instead of being put aside to provide income in retirement," the chief executive of CPA, Alex Malley, said.The trend comes after a decade in which more and more Australians have used the value in their homes to fund current spending and borrowing.While "equity" loans that allow people to borrow against the value of their homes have become less popular since the global financial crisis, the report said people approaching retirement continued to use their home equity to pay for overseas trips, retire early, or assist children in entering the property market. Amid reports the government may cut tax breaks on superannuation to make up for its weakening budget position, Mr Malley said the system risked leaving the taxpayer with a "massive" bill."The government is effectively funding a $30 billion per year tax concession that will do little if anything to relieve pressure on the cost of providing the age pension to retirees and the impact on the public purse," he said.The public expense of superannuation was also highlighted in an August report published by the Australia Institute, which said the cost of super tax breaks would equal the cost of the aged pension by 2015-16.The CPA report, which is based on figures from Melbourne University's Household, Income and Labour Dynamics in Australia survey, calls for a debate on annuity products which allow retirees to "buy" a fixed rate pension.The former Treasury secretary, Ken Henry, said in a 2010 review that the current tax system made annuity products unattractive to many retirees, and raised the possibility of the government providing annuities.