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Superannuation to get a shake up

There could be more changes to super coming, with Superannuation minister Bill Shorten suggesting that compulsory super is failing to provide enough support to retirees.

There is also speculation that the Federal government will target superannuation tax breaks as a means to meet its forecast for a budget surplus.

An estimated $30 billion in tax breaks have failed to take the pressure off the aged pension, according to CPA Australia. The Association has called for the government to look at placing limits on lump-sum withdrawals from super, as retirees use it to pay off their mortgages and go on overseas holidays, before drawing down the age pension.

The report suggests that people nearing retirement are sharply increasing their debts, with mortgage and property debt levels more than doubling since 2002, while those in the 50 to 54 age bracket were following the same path. Then as they retire, lump sums are being drawn down from super to pay off those debts.

The Association has suggested all the government is doing is effectively funding a $30 billion per year tax concession that will do little to support retirees, and place pressure on the cost of providing the age pension. CPA Australia has proposed that the government consider the use of compulsory income streams in retirement, and restrict the use of lump sums.

The report also notes that when the Superannuation Guarantee was introduced 20 years ago, it was thought that retirees could live on 40% of the husband’s pre-retirement income. The consensus view now is that households need 60 to 65% of the pre-retirement income to live on.

With the Australian equity market still below the highs reached five years ago, many soon-to-be retirees may well struggle to fund their retirement. High management fees in some super funds have exacerbated the issue, and is one of the reasons why so much superannuation money is finding its way into self managed super funds. The fact that most retail super funds fail to beat the market, even before fees, is another concern.

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Motley Fool writer/analyst Mike King doesn’t own shares in any company mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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