Australia will axe super tax breaks of wealthy retirees; announce more benefits for women retirees

Australia’s much awaited reforms on the pension schemes were flagged on Friday with Treasurer Scott Morrison hinting a drastic overhaul of mandatory retirement savings system. Created under Prime Minister Paul Keating in 1992, the superannuation system was meant to to be an economic tool for ensuring adequate retirement income.

Morrison said time has come to make it more efficient before it degenerates into an investment vehicle for wealth transfer to succeeding generations. The reforms on the $2-trillion superannuation or retirement savings system may see the scrapping of super tax benefits enjoyed by many wealthy retirees, reports Reuters.

“While superannuation should ensure adequate retirement incomes, it should not be seen as an open-ended savings vehicle for wealthy Australians to accumulate large balances in a tax-preferred environment,” Morrison said.

Tax reforms are part of Prime Minister Malcolm Turnbull’s road map for healthy economic growth. They also include upward revision of Goods and Services Tax (GST) and reduction of personal income tax. Turnbull is aiming to make successful tax reforms as the major election plank of his party in the Federal election that will be held in the second half of 2016.

The paradox is that despite superannuation savings system, four out of five retirees are also drawing state pensions. Australia’s $40 billion annual pension bill accounts for 10 percent of the government spending, reports Bloomberg.

Lavish tax breaks

For the superannuation fund, employers pay 9.5 percent of a worker’s wage that is not tapped until retirement. People below the age of 50 must pay $30,000 a year into the fund. The employer contributions are an average $35,000 for those aged above 50. It is taxed at the rate of 15 percent in contrast to the general income tax that is as high as 45 percent. Also there is no tax when fund is drawn during retirement.

“When Australians see the government supporting the accumulation of enormous superannuation fund balances in a tax-preferred, and in retirement, a tax-free environment, the confidence in the system is significantly undermined,” Morrison said.

Women empowerment

The pension overhaul will also address the gender gap and try to mitigate the disadvantages faced by women when they retire, reports The Guardian.

The report said it would help in closing the gender pay gap in super savings that is a whopping 44 percent. The reforms will seek to boost the retirement income of women by 35 percent or more than $75,000 a year.

Women face many obstacles in accumulating enough super savings to live comfortably during old age. Some of the hurdles include lower wages, maternity leave, recurring periods of part-time work and caring leave. A study said 38 percent of single women live in poverty after retirement and are worse off as home ownership is declining.

Among the correctives planned in the pension fund reform will be “seed” payments for low-income earners that will spurt the earnings over the decades and make retirement more comfortable. A Senate panel is already studying the issues related to economic insecurity of women after retirement.

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