Call to raise age for access to super

THE superannuation industry has declared that workers should have to wait a further two years to access their super, believing it is bad policy to allow people to draw on their savings from age 60.

By InvestSMART · 3 Aug 2012

By InvestSMART ·
3 Aug 2012

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THE superannuation industry has declared that workers should have to wait a further two years to access their super, believing it is bad policy to allow people to draw on their savings from age 60.

John Brogden, the chief executive of the Financial Services Council, says the age at which people can begin drawing on their super - the super preservation age - should be moved much closer towards the pension eligibility age.

The pension eligibility age is 65 but will be progressively lifted to 67 over the next decade.

Mr Brogden said older workers needed to stay in the workforce longer to drive economic growth, and to relieve pressure on government finances. Average life expectancy for men and women had increased in the past two decades, which meant more people drawing on the aged pension for longer.

"The time has come to consider whether the superannuation preservation age of 60 is still appropriate," he told the Financial Services Council annual conference yesterday.

"The increase in the age pension eligibility age to 67 opened the gap between access to superannuation and eligibility for the age pension to seven years.

"[This] has a negative impact on retirement savings as it will accelerate consumption of superannuation before retirees become eligible for the age pension." The increase in the pension eligibility age will be phased in between 2017 and 2023.

A spokesman for the Minister for Superannuation, Bill Shorten, said there were no plans to alter the superannuation preservation age.

The International Monetary Fund warned in April that the sustainability of retirement funds and pension schemes would be severely tested if governments did not move quickly to lift the pension age in line with rising average life expectancy.

"Unexpected longevity, while clearly beneficial for individuals and society as a whole, is a financial risk for governments and defined-benefit pension providers, who will have to pay out more in social security benefits and pensions than expected," the IMF said in its half-yearly global financial stability report

"It may also be a financial risk to individuals, who could run out of retirement resources themselves."

Yesterday Mr Brogden said lower-income workers would benefit most from lifting the super preservation age. Raising the age by two years would reduce their personal savings gap by 30 per cent.

The Financial Services Council is the peak body for Australia's retail superannuation providers.

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Frequently Asked Questions about this Article…

What is the superannuation preservation age and how does it differ from the age pension eligibility age?

The superannuation preservation age is the minimum age at which people can begin drawing on their superannuation savings (the article references age 60). The age pension eligibility age is the government pension age, which is 65 now but will be progressively lifted to 67 over the next decade. That widening gap between access to super and eligibility for the age pension is a key issue in the debate.

Who is calling to raise the age for access to superannuation and why?

John Brogden, chief executive of the Financial Services Council, has argued the super preservation age should be moved closer to the age pension eligibility age. His reasons include encouraging older workers to stay in the workforce longer, supporting economic growth, and reducing pressure on government finances as people live longer.

How much has been proposed to raise the super preservation age?

The article reports a proposal that workers should wait a further two years before accessing their superannuation — effectively raising the preservation age by two years from the level referenced in the piece.

How could raising the age for access to super affect retirement savings and consumption?

According to the Financial Services Council, having a large gap between access to super and age pension eligibility can accelerate consumption of superannuation before retirees become eligible for the age pension, which has a negative impact on retirement savings. The proposal to raise the preservation age aims to reduce that pressure on savings.

Who stands to benefit most if the super preservation age is lifted?

The article says lower-income workers would benefit most from lifting the super preservation age. It cites an estimate that raising the age by two years would reduce their personal savings gap by about 30%.

Is the government planning to change the superannuation preservation age right now?

No. A spokesman for the Minister for Superannuation, Bill Shorten, is quoted in the article saying there are no plans to alter the superannuation preservation age at this time.

What has the International Monetary Fund said about pension ages and longer lifespans?

The IMF warned that rising average life expectancy could severely test the sustainability of retirement funds and pension schemes if governments do not move to lift pension ages. It said unexpected longevity is a financial risk for governments, pension providers and individuals who might run out of retirement resources.

What practical things should everyday investors know about this debate on raising the age for access to super?

Everyday investors should be aware that policymakers and industry groups are debating aligning access to super with rising age pension eligibility, and that changes could affect when people can draw their savings and how long their retirement income must last. The article notes the age pension eligibility increase to 67 is being phased in between 2017 and 2023, and industry groups argue this gap matters for retirement planning and government finances.