Reading reports of the EU’s attempts to deal with the pension time-bomb with endless committees and sub-committees in bunkers in Brussels, deforesting half of Brazil with their reports, it struck me that there were few signs that there was any major re-thinking going on about future pension funding outside the rarefied zones of the EU. Then along comes the Australian opposition party to prove me wrong with their new approach to superannuation.
The Australian superannuation system has long been held up as an example to the rest of the world, but having led the way in getting a contribution based system in place for the working population, they seem to have stopped being innovative and rested on their laurels.
However, the relentless march of time is bringing increasing pressures on pension systems worldwide as ageing populations test them to breaking point and Australia’s system is no exception. This is why the Australian Liberal party has been looking at the problem and has decided that the current superannuation system needs updating.
The problem with the superannuation system as it’s currently constituted is that it’s too inflexible to deal with the needs of an ageing population. Up to now, total retirement from the labour force was a precondition of beginning the drawdown of ‘super’ funds. Now the Liberals propose to modify that pre-condition significantly.
Under the proposed Liberal policy, the over 55s would be able to keep working on a part-time basis or undertake casual labour while drawing down their ‘super’ funds. The Liberals propose to augment this by offering seniors lower marginal tax rates to further incentivise them to stay in their jobs. They reckon that a large number of current retirees would opt to keep working, albeit at a lesser rate than they did before, if they were allowed to start tapping into the savings they’ve built up over their working life and companies would benefit from the continuity of keeping staff that have experience and knowledge of their business systems and processes.
These combined policies are a comprehensive approach to easing the pressure on the state from the increase in those retiring. It is also likely to appeal to voters as it simultaneously paints the Liberals as being in favour of tackling the labour and skills shortage from within Australia and the Government, by contrast, as being in favour of solving the problem by increasing net immigration, never a popular policy in a downturn.
This is similar to the approach of other countries in allowing phased access to pension funds but goes further by bolstering the incentive through the taxation system. So if the Liberals get into power, we can expect to see radical changes in what retirement means for Australians. Now all they have to do is win the election.