Why having a big super balance has lost its lustre

Recent Australian Services Union-sponsored research to address gender inequalities in the distribution of super account balances, especially of lower income women, does little if anything to improve the current or future financial situation for this group.

The proposal, including increasing compulsory super contributions to 12 per cent of salary and other government and employer top-ups, ignores the basic fact that many lower income taxpayers have an urgent need for more current income to pay their rent or service a mortgage and to fund living expenses.

Forcing them or their employers to pay more into super only increases their financial pressures, especially now that superannuation balances are tied up until at least age 60.

Having money in super provides cold comfort when there are pressing bills to pay or in the all too common event of redundancy or marriage breakdown.

The crucial importance of having money and assets outside super is highlighted in divorce settlements. Intact couples don't have the option to split super balances between them but in divorce settlements this is an option. This allows women to negotiate a settlement where they receive half the combined super balances. But in practice, women sensibly trade off super entitlements to obtain equity in the family home, especially when there are children.

For an affordable or comfortable retirement, owning a house places retirees in a much more favourable situation than having a large super balance.

The home has no impact on the age pension or other income support entitlement while non-home owners are provided with only a $200,000 special exemption by the assets test, levied at 7.8 per cent.

To the extent that compulsory super reduces the ability to achieve home ownership in working life, the incentive in retirement will be to use all available super to acquire a property or to pay off a mortgage.

The Australian age pension system is unique in providing free to those with little super a generous indexed income stream with an actuarial value of at least $500,000 for single people and $800,000 for couples.

The more favourable asset test treatment for home owners is of vital significance as explained above. Against this overall background, the benefits of superannuation for both younger and lower income people are greatly overstated at least until home ownership is achieved.

At a personal level, the crucial point to realise is that all super contributions are inaccessible for an extended time.

Past government decisions suggest that further rule changes are likely in this area, making the availability of super balances even more distant in time.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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