A CEDA report released today is calling for an overhaul of retirement policy, including options such as pre-tax mortgage repayments and superannuation being available for owner-occupied home purchases, to be considered. We think, like the curate’s egg, it is good in parts!
Whilst we agree that a root and branch review of retirement income provisions should be undertaken (superannuation, SMSF, and government pensions holistically), we do not agree with the option of allowing savers to access superannuation for house purchase, nor a tax offset against mortgage interest payments. Both of these extend the ability of people to pay more for property, and will simply lift prices further above their long term norms. It also reinforces the view that property is about savings, not somewhere to live, as we discussed recently. We need a focus on the supply side of property, to meet demand, and reduce the price to income disparity. Extending yet more ability to purchase simply moves the problem on another generation and make ever larger mortgages worse, creating yet more risk in the banking sector. At some point the music has to stop.
“Two key trends, our ageing population and decreasing housing affordability, mean Australia’s retirement system structure needs a significant rethink,” CEDA Chief Executive Professor the Hon. Stephen Martin said when releasing The super challenge of retirement income policy.
“Talk about our ageing population and the impact on retirement policy has been part of national debate for many years but the impact of sustained housing affordability issues is only just beginning to be recognised as a significant issue for retirement policy.
“However, if it is not addressed the long term consequences could be significant with an increasing number of people living in poverty in retirement and unsustainable fiscal pressure on the Federal Budget.
“We already know from CEDA’s report Addressing entrenched disadvantage in Australia, released in April this year, that between 1 and 1.5 million Australians live in poverty and the elderly, particularly those who do not own their home, are an at-risk group. In fact, the overall poverty rate of older people in Australia is three times the OECD average, and one of the highest.
“Without a significant policy overhaul, that number is likely to significantly rise over the next 40 years.
“There has been a lot of talk and tweaking of retirement policy aimed at reducing the burden on government, but what Australia needs is a robust discussion on all the options to ensure long term Australians can retire comfortably.
“We strongly agree with the sentiments at last week’s National Reform Summit that tinkering at the edges is no longer an option and that discussion needs to broaden on this important issue.
“The system needs to be reviewed in its entirety. Ensuring retirement policies are not too onerous on the Federal Budget should be an outcome, but the focus must be on ensuring a sustainable system that delivers an adequate living standard for retirees.”
Professor Martin said the other priority must be a national conversation to confirm the objectives of the system, which would go a long way to alleviating confusion among the public, industry and government.
“Our retirement system should ensure Australians can retire with dignity and an adequate living standard, while providing a social safety net for those cannot afford to save enough for retirement,” he said.
Professor Martin said CEDA’s position is that there are a number of options that could help radically reshape retirement policy in Australia to improve its effectiveness in the long term and they need to all be put on the table and reviewed for their merits given the current environment.
“Obviously taxation arrangements need review because currently concessions are benefiting the rich and are being used as tax mitigation measures rather than to encourage retirement savings. However, the other area that needs review is the treatment of the family home,” he said.
“One option would be make the family home part of the assets test for the Age Pension and change superannuation payments to an after income tax payment, with all other super tax concessions removed.
“Alternatively, mortgage payments on the family home could be allowed to be made pre-tax.
“Implementing one of these options would allow for two important components of retirement savings – superannuation and the family home – to be treated the same.”
In addition Professor Martin said to further recognise the role of housing in alleviating poverty in retirement, first home buyers could be allowed to access superannuation funds to purchase owner-occupied housing.
“How policy impacts women should also be part of any review with women currently the most disadvantaged by the current system,” he said.
“We recognise that each of these policy recommendations come with their own issues, for example making mortgage repayments pre-tax could contribute to pushing house prices up. However, with the right combination of policy levers and checks and balances they are genuine options that should be explored given the trends we are now facing.”
The CEDA research report The super challenge of retirement income policy can be downloaded here.