There has been a not so subtle shift in perceptions among ordinary Australians about money and their own inherent wealth. We are now all feeling a bit poorer than we were before the Global Financial Crisis (GFC).
For the past 20 years or so people have been led to believe that the way to a wealthy life was through investments in shares and property, which only seemed to move in one direction. Boy didn’t the GFC put a rocket through that theory and it may not be all over yet. The wealth creation gurus have stopped suggesting that almost everyone should gear into shares and there is a greater consciousness of debt with property as well.
All of a sudden, debt changed from being the investor’s friend to wary cautions from financial advisers regarding your ability to manage and repay. No longer are homes being treated like ATMs. If you wanted some money over the last few years, (often to get yourself into more unproductive debt for a larger television or a holiday), you just got your house revalued and borrowed a bit more. Easy until the music stopped and you found repayments difficult. The silence was resounding when jobs were lost or threatened and confidence shaken through rising unemployment.
And what about the solution mooted by some for older Australians: just mortgage your home and retire on the released funds. This may be an immediate solution for some, but will probably not be a solution for future generations as they may be entering retirement already carrying a significant mortgage. Suddenly, people are becoming more cautious on consumption. They want to spend less and save more, but unfortunately many people don’t know how to go about this as saving practices are foreign to many. They are worried, but at a standstill.
It comes as no surprise that the Investment and Financial Services Association’s research findings indicate that Australians have a retirement savings gap which is widening. Government is cleverly suggesting that we must encourage Australians to stay in the workforce longer. By encouraging senior citizens to choose work over retirement, if they have such a luxury at that age, the Government is hoping that there will be less reliance on social security support.
This is true and the tax extracted from their extended working life will help balance the books as well. But the employment incentives have not been spelt out for both the worker and the employer supporting aged workers, who are seen by many in society as past their use by date. Will the incentives be lower tax rates in the form of increased Government age worker rebates? The Government has increased the Centrelink pension qualification age for many Australians so this will be both a carrot and a stick for people to stay in the workforce: a carrot for those healthy and skilled enough to have jobs they can stay employed in rather than use their own funds to support their lifestyle, but a stick for those who don’t have such a luxury.
One strategy mooted and with some merit as a solution to the problems of the ageing society is to increase the number of younger workers. This may be by importing skilled migrants unless large families become fashionable again. These workers could be young and healthy, keen to work and not likely to be a drain on the Government coffers for at least another 40 years. But these migrant workers will age as well and eventually also be a burden on the support system unless they too are encouraged to aim for self-sufficiency in retirement.
The point that seems to be glaringly obvious is that Australia as a society is spending too much and saving too little and the problem will be exacerbated as time goes on. Cutbacks will be needed and unfortunately this will mean more thoughtful expenditure on health. As health care becomes more expensive, hard decisions will be needed about how to spend our limited resources. For example, will expenditure on health problems caused by poor lifestyle choices be limited in future?
Superannuation is the compulsory tax-effective savings vehicle where, through preservation rules, long-term savings are quarantined from spending on other things that no doubt seem very valid at the time.
Unfortunately age is a fast mover and although we feel inside that we are young forever, time is marching on. Some retirees tell me it is very rewarding to have saved extra super through their working lives, for they now have lifestyle choices denied to many. But is the Government encouraging saving through the superannuation vehicle when they are capping the amounts of money people can save towards self sufficiency in old age? Is a valid solution to raise the compulsory super employer contributions which in the short term puts added burden on employers, but is eventually a wage increase trade-off for the worker? After all somebody always has to pay the bill.
I think this is part of the solution, but there must, in addition, be extra encouragement for people to make more voluntary contributions to their super. This will not happen whilst the Government creates fear and uncertainty by tinkering with the super legislation and using superannuation as a solution to revenue shortfalls.
Disclaimer: This superannuation article is for general information only. It does not take into account your personal objectives, financial situation or needs. As a result, you should consider its appropriateness to your own situation and obtain independent financial advice before making any decisions about your superannuation.
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