Push to make workers wait longer to access funds

AUSTRALIA'S 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 60 years of age.

By InvestSMART · 3 Aug 2012

By InvestSMART ·
3 Aug 2012

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

Speaking at the Financial Services Council annual conference on the Gold Coast yesterday, Mr Brogden said older workers needed to stay in the workforce longer to drive economic growth and relieve pressure on government finances.

He noted the average life expectancy for men and women had increased in the past two decades, meaning more people drew the aged pension for longer.

"The time has come to consider whether the superannuation preservation age of 60 is still appropriate," he said. "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," he said. The increase in the pension eligibility age will be phased in between 2017 and 2023.

Yesterday, a spokesman for Superannuation Minister Bill Shorten said the government had no plans to alter the preservation age.

In April, the International Monetary Fund warned 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 change is being proposed to the superannuation preservation age in Australia?

The Financial Services Council has proposed that workers should wait a further two years to access their superannuation, suggesting the current preservation age of 60 should be lifted and moved closer to the age pension eligibility age (which is being raised to 67).

Why does the Financial Services Council want to lift the preservation age?

FSC chief executive John Brogden says lifting the preservation age would help keep older workers in the workforce longer, support economic growth, and relieve pressure on government finances because people are living longer and drawing pensions for a greater period.

How does the rising age pension eligibility age relate to access to superannuation?

The age pension eligibility age is being progressively lifted to 67, creating a gap between current access to super (preservation age 60) and pension eligibility. The FSC argues that this gap may speed the consumption of super before retirees become eligible for the age pension and could harm retirement savings.

Would raising the preservation age help lower-income workers?

According to John Brogden, lower-income workers would benefit most from lifting the preservation age; he said raising it by two years would reduce their personal savings gap by about 30 percent.

Has the Australian government agreed to change the preservation age?

No. A spokesman for Superannuation Minister Bill Shorten said the government had no plans to alter the preservation age at the time of the report.

What did the IMF warn about pensions and rising life expectancy?

The International Monetary Fund warned that the sustainability of retirement funds and pension schemes could be severely tested if governments do not move to lift pension ages in line with rising life expectancy, and that unexpected longevity is a financial risk for both governments and individuals who might run out of retirement resources.

How might raising the preservation age affect everyday investors and retirees?

If the preservation age is raised, some people would have to wait longer to access superannuation benefits, which could change cashflow timing in retirement. The FSC argues this could reduce pressure on public finances and retirement systems, while the IMF cautions individuals to be mindful of longevity risk because longer lifespans increase the chance of exhausting retirement resources.

What should investors watch for regarding future changes to superannuation access and pension ages?

Everyday investors should follow government announcements and industry debate about the preservation age and the phased increase in the age pension eligibility to 67 (scheduled to be phased in between 2017 and 2023), because policy shifts can affect when you can access super and how long retirement savings may need to last.