ACTU Submission To Treasury - Transition to Retirement Consultation Paper

The ACTU welcomes the opportunity to make a submission to Treasury regarding the transition to retirement consultation paper.

Introduction

The ACTU regards broader issues are pertinent to transition to retirement arrangements and should be considered when determining policy options to deal with the ageing population.

The ACTU believes that retirement incomes policy needs to incorporate strategies to lift contributions rates (beyond the recent co-contribution scheme) in addition to regulating the dissipation of superannuation savings.

The ACTU reiterates its statements in previously submissions that:

The ACTU is committed to the principle of workers having some choice over the timing and the extent of their retirement, as well as being assured of a decent retirement income, in most cases from a combination of the age pension and superannuation.

Many Australian workers will find that they do not have sufficient retirement income, primarily because they will not have had the benefits of the SG for the whole of their working lives. This problem is exacerbated for women and others with a broken employment pattern.

The need to increase superannuation savings through measures including higher contributions and/or reducing tax is crucial in order to reach the generally accepted goal of a retirement income of approximately two thirds of gross pre-retirement income.”

Although the ACTU does not support the operation of a compulsory retirement age, this does not mean that workers should be required to work until they drop.

The ACTU is strongly opposed to any proposals which would make it harder for workers to retire at an age chosen by them. The reality is that many workers, particularly those in physical occupations, are unable to work much beyond 50. It is also clear that even where older workers wish for employment, they find it difficult to obtain a job, as reflected in the higher unemployment rate and longer duration of unemployment for workers over age 45.

It is reasonable to suppose that many workers approaching retirement will seek to reduce their hours of work. Economic needs may have reduced once children have left home and the house is paid off, and greater age may make a transition to fewer hours physically and mentally less demanding.

The ACTU supports an ability for older workers to gradually reduce their working hours as part of a transition towards retirement. Care must be taken, however, that this does not mean that compulsory retirement is replaced with compulsory reduction to part-time status at a certain age. Any move to part-time arrangements must be on a purely voluntary basis, and at the request of the worker.

The ACTU further submits that the SG should be payable by employers of any worker who meets the criteria, irrespective of age. It is inconsistent that the ability to make voluntary superannuation contributions has been extended to workers aged up to 75, but not eligibility for SG, which remains at 70.

It is important that workers contemplating retirement have access to competent and honest financial advice.

Income Stream Options

The ACTU believes that options should be available to employees to take either a complying income stream or allocated income stream during their transition to retirement.

The following amendments would make the provisions more equitable and encourage older employees to consider transition to retirement programs:

Limits on commutation while the employee is undertaking paid work excepting certain circumstances, for example death, family law split etc;

Commutation should be permitted once the recipient fully retires or reaches 65;

There be a capacity for the income stream to be varied and if necessary payments suspended to reflect different earnings levels over a period of time;

Upon permanent retirement the pension should be recalculated based on the age at retirement not the age upon which the employee commenced their transition to retirement; and

During the transition to retirement period there be equal taxation and social security treatment for both income stream products.

Limits On Accessing Super Benefits

The ACTU supports the introduction of a system whereby the income earned from employment combined with that from a pension scheme should not exceed the income levels previously held by the employee.

Limiting Access To People Working Part Time

The ACTU does not support the limitation of this policy to part time work. Many people may choose to continue employment in a full time capacity but with lesser responsibilities and a consequent lower income.

As noted the ACTU would support the introduction of a system to limit the total income of employees during the transition to retirement phases of their life, possibly administered by the ATO.

Such a system would demand flexibility to reflect: differing work patterns and therefore income levels throughout a particular financial year; the capacity to change income streams from an employee’s pension; and the need to administer an effective and fair compliance policy.

Should Funds Be Compelled To Offer Transition To Retirement To Their Members?

The ACTU believes accumulation and defined benefits schemes will face very different administrative and actuarial challenges when managing their transition to retirement arrangements. Members of these funds should not be disadvantaged based on the type of superannuation fund they are a member of.

In certain circumstances, public sector defined benefit schemes currently provide a facility where employees can continue to accumulate and draw down superannuation benefits at the same time.

The ACTU believes that: