Summary: We are going through a cultural change similar to the increase in female participation in the workforce. Retirement at age 65 used to be seen as a natural event, but this is changing as we are not generating enough wealth to fund retirement. The government is also facing pressure to increase taxes on superannuation.
Key take-out: The cultural pressure to continue to work beyond age 65 will intensify. Treasury is also likely to win a fight to tax all superannuation income at 15 per cent, whether in accumulation or pension mode.
Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.
All those Eureka Report readers who are aged over 50 should be aware that we are in the midst of a fundamental cultural change. And that cultural change will affect an enormous proportion of those over 50.
Even those under 50 will need to be aware that their parents are in or headed to this cultural change. For many it will not be pleasant. I make these broad all-encompassing statements because my wife and I experienced a similar cultural change 20 or 30 years ago so I can recognise the duplication of the patterns, including the unpleasant side effects.
Historically, a vast bulk of Australians have aimed to retire at between 55 and 65 and the work force patterns and rules encouraged this. But this is now changing. For me what underlined this change was an item in the popular Herald Sun newspaper in Melbourne listing six jokes about retirees. I list the jokes below. Their accuracy is not important – they are simply a surface manifestation of cultural change.
To understand why this was the red alert to me about cultural change I need to take you back into my own personal experience. When I was married in 1967 the culture of the day was the male provided the income and the wife looked after children. That cultural dictate was translated into the work place. And so, on marriage my wife as a teacher was expected to resign and while she wasn’t sacked all the rules were based on the expectation that she would resign on marriage and she did.
But in the decades that followed there was a significant cultural change because the community needed the productivity benefits of greater involvement of the female population in the workforce. And of course a greater level of education of females increased their desire to continue work after marriage.
While that was the nuts and bolts, there was a deep undercurrent which meant that if you were a mother looking after your children and not working you were the subject of ridicule. It was unfair but that was how the cultural change unfolded. Accordingly stay-at-home mums were the subject of jokes to the point where many were reluctant to admit that they were not working and looking after children.
I hasten to add in most areas of society we have now moved on from that point and it is perfectly acceptable to work and have children or not to work and stay home and look after children – although in some circles stay-at-home mums still have a cultural problem.
In any period of cultural change humour and ridicule is very much an accelerant to change. Ten years ago and perhaps even five years ago a state of retirement between 55 and 65 was regarded as a natural event. Now it’s different and when you see jokes about retirement you know we are in a cultural change not that different to what happened to stay-at-home mums.
In simple economics we are not generating enough wealth to fund the pensions we have promised to retirees. And for the most part they have not generated enough superannuation to fund their retirement without use of the government pension.
This is remarkably similar to the economic arguments that came with stay-at-home mums. Many people of course have saved enough money to afford retirement but they are destined to find themselves in a situation where their anticipated lifestyle is under pressure via higher taxes and low interest rates.
Again I hasten to add, particularly among males like me, retirement is not necessarily a good thing. But as with stay-at-home mums whether it is good or bad becomes irrelevant in a time of cultural change. The first manifestation of the cultural change is the pressure that is now being put on the current government and that will be put on the next government to change the tax rules for superannuation.
The treasury want a 15 per cent tax rate on the superannuation funds that are in pension mode and are currently gaining tax-free returns. I have always feared this development. It means that those who have small amounts in superannuation will quickly cash them out and have an unfettered government pension. Those with large superannuation funds will not be seriously affected. But those in the middle with say around $500,000 to $750,000 in super will be the most affected because they are trying to self-fund their retirement but are struggling. They are, of course, the middle class. When in government Bill Shorten introduced legislation whereby tax on superannuation income only cut in when those incomes reached a specified point. This is absolutely no problem for self-managed funds to administer but banks and big superannuation funds did not have the systems to implement the Shorten plan. They got into the ear of the Coalition’s former assistant treasurer Arthur Sinodinos who simply reverted to a no tax situation.
All those that had larger amounts in superannuation, including myself, benefited from the Sinodinos capitulation to the banks and big superannuation funds. But the trouble was that the issue was not resolved and treasury would inevitably apply pressure for a much harder solution and that is what they are now doing, as they press for a 15 per cent tax on all superannuation income regardless of whether funds are in pension mode or savings mode. Unless there is a game changer, treasury will win given the budgetary problems. The combination of what treasury want and the cultural change will be far too powerful.
If the superannuation funds want to prevent this they will need to be much more active financiers of infrastructure projects that involve an income via fares, tolls, hospital rents or some other mechanism. That can cause community problems although funding infrastructure this way is a lot better than government borrowing vast sums and affecting our credit rating (see Retail-funded infrastructure gets a break, February 11, 2015).
I fear the retirement/superannuation movement will not fight and will take future blows lying down. Few will link those blows to the change in the culture that is taking place. The cultural pressure to continue to work beyond age 60 and 65 will intensify. And for the community just as female labour was much more flexible than male labour, so post-65 employees are usually much more flexible than their younger rivals. That is why it is so important for the community bottom line that they work.
Here are the six jokes:
Q: How many days in a retiree’s week?
A: Six Saturdays and one Sunday.
Q: How many retirees does it take to change a light globe?
A: Only one – but it might take all day.
Q: What is the biggest gripe of retirees?
A: There is not enough time to get everything done.
Q: Why are retirees so slow to clean out the spare room?
A: Because they worry that one of their kids might move in.
Q: What is the biggest advantage of going back to school as a retiree?
A: If you wag classes no one calls your parents.
Q: And this one is the killer. What do retirees do all week?
A: Monday to Friday – nothing. Saturday and Sunday – rest.