Super in the time of pandemic

Is our retirement system good enough? Superannuation should enable all people to have an adequate standard of living when retired, according to the Retirement Income Review into the Australian retirement system. The system should not just provide a means for wealthy people to become wealthier, with the help of generous tax concessions.

The Review found that two groups have high levels of financial stress compared to people below age 65: those renting in retirement and those who are involuntarily retired before age pension eligibility age. Retirees who rent in the private rental market are likely to live in poverty and those early retirees living on JobSeeker payments are the worst affected. Even with the age pension and additional rental assistance, these retirees experienced higher levels of financial stress and poverty than the rest of the population.

Following 426 submissions and meetings with 100 stakeholders, Treasury has released the Review’s Final Report which makes findings on how the superannuation system interacts with the age pension, the aged care system and the tax concessions that benefit high wealth individuals.

The COVID-19 pandemic has been incredibly disruptive to the livelihoods of individuals and to businesses on a global scale. Less obviously, most people’s retirement savings also have decreased significantly over the past year. Retirees who rely on their super to top up age pension payments remain concerned that their super investments have been affected by market volatility, leading them to worry that their loss in savings will have long-term effects.

Retirement savings and owning your own home are the most important ways to ensure that people have a buffer in retirement. High rates of home ownership in Australia reduces housing costs in retirement and boosts living standards. Additionally, their home is an asset that they can sell to provide a deposit for aged care or for additional funds if necessary.

While the age pension helps to offset inequities in retirement, its “bare bones” level of income does not provide enough to provide for those without other income. In particular, it does little to improve the situation of disadvantaged groups such as women, Aboriginal and Torres Strait Islander people and those with disabilities who have not been able to accumulate sufficient retirement savings in their working life.

One of Treasury’s first observations was that the current retirement system is complex and poorly understood by many people, both before and during retirement. Then more complications arise when it interacts with the aged care and tax system.

The Report suggested some changes to the retirement system to improve its fairness such as:
• removing the $450 per month income threshold before the superannuation guarantee can be paid;
• paying superannuation while on employer paid parental leave, and
• ensuring that all employees are paid the benefits to which they are entitled.

Australian superannuation funds hold $2.9 trillion of assets invested in local and overseas financial markets. As a result of the Covid-19 pandemic shutdowns of businesses and associated job losses, superannuation proved a welcome financial resource for many who had lost their employment. Over 4 million applicants were able to access their super under the Early Release scheme to supplement their wages or JobSeeker allowances. In total $37.4 billion was paid out in the June 2020 quarter to applicants, a 77.7% increase from the March 2020 quarter.

Many commentators were concerned that low to middle income earners who accessed their super early would be severely disadvantaged in being able to accumulate sufficient funds for their retirement as well as making them more likely to be reliant on the age pension. The debate about allowing people to access their super to fund a deposit for a house has not been resolved with arguments on both sides. In my opinion, too many people have drawn on their super in ways that provided only a temporary benefit now, while suffering a substantial long-term loss to their level of super when they retire.

I look forward to the government’s response – will they improve the system for the most disadvantaged people in the retirement system? Much more needs to be done.

Treasury, 20/11/20, Retirement Income Review – Final Report, https://treasury.gov.au/publication/p2020-100554

Six minutes interview

This story appeared in the March 2020 issue of the NSW Law Society Journal:

BY AMY DALE – FEB 27, 2020

Alice Mantel is an experienced lawyer and adviser on the challenges that many women encounter during retirement. She talks about family law, homelessness, and why just planning one big overseas trip won’t cut it for the final third of your life.

What experiences as a lawyer shaped your decision to advise on planning for retirement?
I spent around 10 years practising family and then elder law. In family law particularly, I was surprised and then concerned about how little many of my clients knew about their own personal financial circumstances. Often, they did not know if their name was on the title of the property, or how much was owed on the mortgage or credit cards. Again, when acting for older clients, often they left making their wills or power of attorney until very late, when there was pressure from their children, which, as you can appreciate, is a very difficult situation for any lawyer. It brought home to me that women need to be prepared much sooner for the unexpected.

What inspired you to write your book, Every Woman’s Guide to Retirement?
I started writing this book before I retired. I was initially doing research to answer my own questions. Years ago, when placing my mother into a nursing home, I realised how difficult it was to find any sensible information to assist me. More recently, I wanted some guidance when I was thinking about closing my practice. After a while, I decided that most books or articles did not seem very relevant to me. They were often very friendly but aimed at chaps who were fairly well off or aimed at women who presumably intended to spend the last third of their life on continual holidays. My research gradually grew into a book that is far more extensive than I had ever contemplated and includes mundane topics like accessing your pension as well as more interesting options such as lifelong learning or starting a new relationship.

What issues specifically apply to women? Bulk of carer responsibilities, less superannuation, longer life span?
I see retirement as very different for women than men. Generally, women are the main carers for their parents, children, partners and grandchildren. At the same time, they come into retirement with significantly less financial resources but live on average five years longer. If they do not have enough resources, those last years are going to be close to living in poverty. It can be a very grim prospect if a woman’s health begins to suffer and there is not always the certainty that your children will be there to look after you.

Women aged 55 and above are the fastest-growing cohort at risk of homelessness. How can we do more to ensure financial security?
It is no surprise to me that older women are at risk of homelessness. It can begin if they lose their home in a divorce settlement and cannot recover financially, but also if they are unable to find work and remain unemployed, either as a result of their own or their children’s health issues. When super funds talk about having a modest retirement, or a comfortable retirement, there is always an unspoken assumption that the retiree owns their own home. That’s ridiculous and increasingly unlikely as recent figures have demonstrated. We need to make a secure home a realistic possibility for everyone.

What about social planning for retirement? How can people prepare themselves to leave the workforce and feel at ease that a happy and fulfilling future is still ahead of them?
Most women retiring today can expect to have another 20 years of relatively good health, so it simply isn’t enough to plan your one big overseas trip and think that’s all there is to it. For working women, one of the major issues around retirement is the loss of their work identity, the loss of income and the social connectedness that professional life brings. We need to plan at least a year ahead of retirement about how we can use our skills and experience in the non-employment sphere – and let me assure you, that is a very large sphere. There are so many not-for-profit agencies looking for directors on their boards or volunteers for their operations. Not having to follow a work routine means you can finally pursue your real passion – whether it is art, woodwork, or caring for your grandkids and even if it might take a little time to find what that is, it will give real meaning to the legacy you leave.