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Federal Budget
Social Security benefits

Super and social security: The end of entitlement

John Hewison
Founder and Director
23 May 2014

Many items contained in the Federal Budget delivered on 13 May have attracted a crescendo of outrage and revolt from the media as well as associations, unions and industry groups. In particular, the Age Pension eligibility which will increase to 70 years old by 2035.

In my opinion, this criticism is not based on relevant facts or an appreciation of what is part of an intended gradual transfer of responsibility for the financial care of retiring Australians. I argue the sensationalist misreporting by the media, politicians and other stakeholders have been unhelpful and have caused unnecessary angst to many sections of the population who have been diverted from the facts.

The reality is, from 2035 or thereabouts, one in three Australians will be retired. Australia cannot afford to fund social security benefits to the broad population, as the tax revenue input cannot fund the potential takeout.

Governments have been aware of this forthcoming financial disaster since Federation, but it wasn’t until 1992 when the Hawke/Keating Government introduced compulsory employer-sponsored superannuation; the Super Guarantee Charge (SGC), that real steps were taken to assist individuals save for retirement. Starting at the annual rate of 3 per cent of salary, the SGC has since increased to 9.25 per cent per annum and under the recent budget announcement will progressively increase to 12.5 per cent by 2022.
This represents a shifting responsibility from Government to Corporate Australia to fund the retired working population, enabling the Government to focus on social security funding to the underprivileged and incapacitated.

The realities of the matter include:
• The increase to the Age Pension eligibility to age 70 does not take effect until 2035
• A 70 year old in 2035 is currently 48 years of age
• A 48 year old today was 26 years of age when the SGC was introduced in 1992

By the time the Age Pension eligibility age increases to 70 years in 2035, individuals aged 70 will have had most of their employment years sponsored by SGC contributions. Therefore, they should have substantial savings to support themselves in retirement. Of course, this position will continue to improve as younger individuals that have had their entire working lives supported by SGC contributions move towards retirement.

I applaud the Hawke / Keating Labor Government reforms in the 1980s and 1990s, as well as moves made by subsequent governments on both sides of politics for supporting and encouraging the compulsory superannuation system.

It could be argued that compulsory employee superannuation contributions should be mandated so we all take some responsibility for our individual retirement funding – but that’s another subject altogether.

More recently, Federal Treasurer Hockey said he may consider amending access to superannuation savings. This is likely to be met with a high level of opposition from stakeholders, as it is tantamount to meddling with personal savings – not government benefits.

The “age of entitlement” is over, not just in Australia but all countries around the world as we work to manage the reality of an ageing population.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.