Saturday, April 07, 2007

Australia’s superannuation great divide

No, it’s not a political divide – this great divide is bipartisan, to a quite obscene degree, as Fred Argy notes in a letter to the ed in today’s Oz.

The divide is, of course an age one – those born before 1962 are being subsidised billions of dollars by those born after 1962. (Current house prices are also a multi-billion dollar de facto tax on those born after 1962, but that’s another topic.) The only shock is why my generation are lying back and accepting this theft.

It thus has lately fallen upon boomer journalists to observe the generational divide in superannuation:

“Members of funds won’t get any benefits from the reform unless they have more than $280,000 in their account – and the latest Roy Morgan survey figures show that 86% of people under 50, and 58 per cent of people over 50 have less than $100,000 in their accounts.”*

Tweak these figures to include late boomers with their equally rich elders and it would be 90%+ of under-45s having less than $100,000 in their account/s, and about 50% of over-45s having more than $100,000 in their account/s. Yep, the generation that justifies negative gearing over multiple investment properties (typically tenanted by impoverished Xers) on the basis that compulsory super, introduced in the early 90s, came too late to adequately fund their own retirements, turns out to have a tidy stash in superannuation as well – much larger than a typical Xer’s stash, despite both having generally started with a zero balance at the same time, 15 years ago.

Mike Steketee sums up the forthcoming irony: within two decades, no Australian boomer will be paying tax, but the part- (at least) pensions received by most of them will be paid for by taxpayers often worse off than the retiree generation.

What awaits Xers in retirement, meanwhile, has been made recently explicit by Treasurer Peter Costello:

"So I've got this idea of people doing hybrids in the future – partly relying on superannuation, partly working part-time."

Translation: 55-70 y.o. boomers can, if they wish, keep working as they approach full retirement. If they already have substantial superannuation, it is highly tax-effective for them to work a while longer, laundering their money as follows – salary-sacrifice 100% of their employment income into “new” super, while withdrawing from their “old” super to live on, meaning that they legally pay zero tax while growing quickly rich, to boot.

Xers OTOH, with their tawdry, low superannuation balances will be doing a very different pre-retirement shuffle. Firstly, they won’t ever actually retire – meaning live on their investment earnings or the age pension – because the former usually won’t be enough, and the latter won’t exist, except perhaps in a “mutual obligation” way. Hence, Costello’s “hybrids”. Even a $100k super balance, at age 65 (note that Xers born after June 1964 can’t access their super till age 60, while boomers born pre-July 1960 can take it, and so start the tax-free laundering described above, at age 55) can be stretched out for a couple of decades, provided one both keeps working part-time and lives in utter poverty. Then around age 85, when the super has finally run out, why should the Xers stop working? Some form of suitably demeaning voluntary work will let them see their final days out – a firm condition of age pension eligibility for those born after 1962, as well as a foolproof way of ensuring that recipients of it don’t live very long under its bountiful yoke.

* Barrie Dunstan “Average bloke set to be super slugged” AFR 2 April 2007

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