The Coalition moved to protect the superannuation of Australia’s wealthiest retirees at the same time it was encouraging the nation’s poorest to raid their retirement accounts. And they continue to protect the wealthiest even though the Australian share market is back at record highs. Elizabeth Minter reports.
Is there no end to the largesse the Coalition government will bestow on older, wealthier Australians under the cover of the pandemic?
The Coalition encouraged the poorest Australians to withdraw up to $20,000 from their superannuation accounts to cope with the financial disaster brought on by Covid lockdowns even though the stock market had dropped alarmingly. At the same time, however, it was busy protecting the superannuation balances of older, wealthy Australians – those with up to $1.6 million in their tax-free accounts.
And even now, with share markets booming, the government continues to bestow unjustified policy gifts on older wealthy retirees at the expense of young Australian taxpayers.
Up until March last year, retirees were required to take out of their superannuation pension account a minimum of 4 per cent of the balance, increasing to up to 14% based on age. This equated to $128,000 (tax free) “drawn down” for a 60-year-old couple with $3.2 million (the maximum allowed) in their superannuation accounts.
This measure was put in place when the government made super pensions tax-free after the age of 60, as it recognised the risk of super being used by wealthy superannuants to build their wealth even further in a no-tax environment.
Keeping money in the family
It was also aimed at preventing large super balances from being accumulated to pass on to family members rather than being used to support older people during their retirement.
It was also designed to encourage retirement savings to be spent in the economy. If the wealthy didn’t need to spend all the mandatory amount drawn down then at least they would face having to pay tax on the earnings of that money once paid out of super.
In March 2020, when the Covid pandemic shut borders and brought the economy to a halt, the stock market also took a huge tumble. On March 16, it posted its largest one-day fall since the 1987 stock market crash, losing $165 billion. The ASX 200 posted its biggest fall on record, falling 30 per cent from its peak, which it had reached just weeks earlier in February 20.
In light of the tumbling market, the Coalition government quickly jumped to protect those who did not want to have to sell down shares to meet that mandatory minimum (i.e., those wealthy enough not to need the full amount to live on).
The government changed the regulations by halving the minimum draw-down requirements for those with account balances up to the maximum $1.6 million (for a single person) or $3.2 million (for a couple).
The rationale was that superannuants ought not be forced to sell and risk incurring losses on their shares.
Less well-off encouraged to raid super
Of course, there was no such consideration for some of the poorest Australians, who were at the very same time being encouraged to raid their meagre superannuation balances to help meet urgent living expenses. They were not warned they were selling at the worst possible time, or warned about permanent investment losses.
Tragically, some 3 million people have withdrawn a total of $38 billion from their super. An estimated 1 million workers under the age of 35 have now either closed their super accounts or have less than $1,000 left in their accounts.
Modelling by Super Consumers Australia showed that a 30-year-old taking out the full $20,000 means they will have $50,000 less in their retirement balance by age 67.
Even more tragically for them, the share market quickly jumped back – and as of this month the Australian market is booming, with the AU200 reaching an all-time high of 7411.47. This boom has massively benefited those who were able to keep more money than usual in their tax-free super accounts.
Despite this, the Coalition recently inexplicably extended the 50% reduction on minimum drawdowns from superannuation for another full financial year from 1 July.
The government’s memorandum states that the measure is to avoid retirees “being forced to sell assets in a loss position to fund income stream payments”.
However, with the stock market at an all-time high there is zero risk that retirees will take a loss when selling. Retirees with money in tax-free pensions have had a wonderful 2020-21 financial year. No “relief” is necessary!
Scott Morrison added that:
“For many retirees, the significant losses in financial markets as a result of the COVID-19 crisis are still having a negative effect on the account balance of their superannuation pension.”
Again, this is simply not true.
Another freebie to wealthy, older Australians
Instead, the extension of the new regulations, starting 1 July, are just another freebie to wealthy, older Australians and a further undermining of the policy principles behind super.
Given there is no justification for the extension – why did the government do this? Who lobbied for it?
The government states in its explanatory memorandum that it consulted with the ATO.
Did anyone in the Tax Office point out the unfairness of this to ordinary taxpayers and future generations?
It is interesting that no one is taking “credit” for this extension? Are they embarrassed?
Michael West Media put questions to Superannuation Minister Jane Hume, Industry Super Funds and the Association of Superannuation Funds of Australia.
A spokeswoman stated that: “ASFA didn’t make representations on the recent change to the drawdown rules.”
Similarly, Industry Super Australia deputy chief executive Matthew Linden did not request that the government decrease minimum drawdown rules.
On the contrary, “ISA has publicly advocated for an increase in minimum drawdown rates.”
“This extension is at odds with the equity market rebound and contradicts the Government’s claims that workers and retirees have surplus savings and should be more ‘efficiently’ using their savings.”
Federal Superannuation Minister Jane Hume didn’t respond.
A 30-year veteran of the mainstream media, Liz was the editor of Michael West Media until June 2021. Liz began her career in journalism in 1990 and worked at The Age newspaper for two 10-year stints. She also worked at The Guardian newspaper in London for more than seven years. A former professional tennis player who represented Australia in the 1984 Los Angeles Olympics, Liz has a Bachelor of Arts and a Bachelor of Letters (Hons).