By Peter Kelly on 8 September 2023
The Australian retirement income system consists of three pillars:
- The government funded means-tested age pension,
- Compulsory superannuation, and
- Private savings, including voluntary superannuation savings.
For individuals, their retirement income may be derived from one or more of the three pillars, depending on their circumstances.
From time to time, events occur that result in people questioning the purpose or objective of superannuation.
While it is generally accepted that superannuation is designed to assist people in making provision for their income needs in retirement, this notion has been challenged on occasion.
For some years now, there has been a conversation about enshrining the objective of superannuation into law.
In the past week, the government has initiated further consultation into the objective of super.
The most recent draft legislation suggests the objective of superannuation is:
“To preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”
At the end of the day, it is apparent the purpose of superannuation, which enjoys significant tax advantages, should be to provide income for individuals in their retirement rather than being accessible prior to retirement for other purposes (except in exceptional circumstances) or being retained in the superannuation system following a member's death, except in certain limited circumstances.
Preserving money in superannuation as a tax-effective means of passing wealth to the next generation is clearly not part of the government’s agenda.
It will be interesting to see the form the final legislation takes when it progresses through the parliament.
Should super be used to pay for aged care?
In recent months, another question regarding the use of superannuation has emerged.
That is, should a person’s super be used to contribute towards the costs of their aged care.
The Aged Care and Community Care Providers Association recently suggested, amongst other things, that superannuation savings should be used to fund the aged care needs of individuals.
This seems like a reasonable proposition.
As we age, our spending needs change. We may no longer be spending on extended travel and similar lifestyle pursuits, but paying for quality health care may become a priority for many people. Put simply, our retirement income is re-prioritised from one purpose to another.
However, the proposal to use superannuation to fund aged care costs has not been without criticism.
A leading superannuation industry association opposes the proposal on the basis that people should have the flexibility to choose how they spend their retirement savings and not be required to spend it on things like aged care.
However, if superannuation is designed to cover our needs in retirement, and increased health costs are a product of that retirement, then surely these costs of care should fall within the ambit of superannuation.
With an ageing population, the costs of providing the level of services required is going to increase exponentially, if the level of care is to be maintained and improved.
In terms of current aged care funding, the recent Royal Commission into Aged Care Quality and Safety identified that, in 2018-19, 75% of the annual cost of aged care was funded by the Australian government while approximately 20% was provided by residents and the remaining 5% from other sources including state and territory governments.
Funding for aged care is becoming an increasing challenge for the government.
The relationship between personal funding and government funding of aged care will continue to be a debate that will continue for some time to come.