The increasing national burden of the old age pension will ease if people are allowed to save more for their retirement, says UNSW Business School Professor Fiona Martin.
Significant change is required in the area of superannuation in the upcoming federal budget, says a UNSW Business School academic.
“There is an issue with our ageing population,” says Professor Fiona Martin.
About 70% of older Australians have retired on an old age pension or part old age pension, Professor Martin says, becoming an increasing cost for the federal government.
Government has pushed Australians to adopt superannuation as an alternative to the original pension system via the compulsory superannuation levy. However, says Professor Martin, many people, especially women, will not have accumulated substantial super funds going into their 40s and 50s.
The old age pension just doesn’t cut it
“Most taxpayers tend not to prioritise paying into their super because they’ve got mortgages, they’ve got children, they’ve got other priorities for their money,” Professor Martin says.
Under the current system, people over the age of 55 can place a total of $25,000 of concessional contributions into a super fund a year. This includes employer contributions. Previously, the total yearly concessional amount was $35,000, so the current limit is a reduction of $10,000.
“In their 50s and 60s, it’s the time they want to put away a lot of money towards superannuation,” Professor Martin says.
The School of Taxation & Business Law Professor says further consideration needs to be given to how taxpayers spend their money and save later in life.
“They have that money because their children are grown up and the mortgage is paid off. They should be encouraged to contribute to their superannuation so that they can be more self-sufficient and not reliant on the old age pension – so that cap needs to increase.
“This is really detrimental to the working population, that the government says it’s positive about. You don’t want to have the cost of the old age pension adding to the budget deficit – that’s a big cost. So, they [government] need to ask themselves why the cap was lowered, and start to increase it.”
The 2019 budget will be released at 7.30pm (AEDT) on Tuesday 2 April.