Retirees joining Age Pension list
 

The Government has two major problems after the recent financial crises.
1)       How to fight off the impending recession and
2)       How to ensure that taxpayers continue to save for future retirement.
 
With stock market losing about half, most super members would be receiving their December superannuation statements with further drop in their fund balance. It is estimated that about 2,000 retirees, every week, would be applying for some age pension.
 
These new applicants were earlier not eligible or were eligible only for a smaller amount. Age pension is based on income and assets, when assets drop in value, pensioners can use December superannuation reports in claiming higher pension amount in Centrelink's six monthly claim forms.
 
The Rudd government is conducting a pension & superannuation system review by Dr Henry on how pensions should be paid and how Australians should boost contributions. Enticing taxpayers to contribute voluntary after tax money to super or encouraging them to pump new money to super as a salary sacrifice only to see it disappear to global financial crisis can be challenging.
 
Henry review may come up with some answers, such as:
1)       Increase the 9% compulsory superannuation guarantee levy
2)       Give incentive to taxpayers who salary sacrifice (for example no contribution tax).
3)       Reduce tax on contributions and income of the fund
4)       Cap the fee an administrator can charge (currently

Co-contributions do not work

If Jack is on average weekly wage $1147 or $59,644 per year (Aug 08 - ABS report click here to read), his employer will contribute $5,397 as compulsory 9% superannuation on which 15% would have to be paid as contribution tax or $809 by the super fund.

Jack will not be eligible for any co-contribution as the wage is above the higher income threshold. One point to note is that, Jack will have disposal income of only $901 per week after tax (Annual $46,871 after personal income tax). If Jack is married with non working spouse and kids that is, he is single earning member of the family, Jack will have a very low capacity to contribute after tax money to super after rent/mortgage and other expenses. Further, since his spouse is not working, she would not be eligible for any co-contribution.

Only 37% of taxpayers earn average weekly wage, which means that those who are earning less are doing it tougher and are less likely to make a personal contribution. However, the commissioner of taxation has announced that it has paid co-contributions to 1,417,126 (1.27 Million for 2007 year) taxpayers or $1,287,987,000 in co-contributions and about half the contributions were for spouses. About 80% of personal contributions were by taxpayers who were above the lower income threshold, which means less than $ 1500 was paid in fact average payment was only $908 to each eligible taxpayer. The report is interesting reading, click here to read, unfortunately no age based statistics is available.

Conclusion

If low income earners are not making any personal contributions and receiving any super co-contribution, who is? 

In the writers opinion co-contribution recipients are two groups of taxpayers from two end age groups, namely:

1)       Those taxpayers who are over 15 years and three months who have low income and are children of high income earners with high disposable income.

2)       Semi- retired wealthy taxpayers who can afford to make personal contributions who are working part time.

The writer knows no-one who earns below the low income threshold, who has (can) made a personal contribution to super.

Low income earners have a problem today - not enough money to meet today expenses. Tomorrow is not even considered, WHY?

You see, Mr Treasurer, today is more important than tomorrow. Try living on average salary!