FSC calls on Commission of Audit to recommend raising the preservation age

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Australia needs an increase to the preservation age to boost retirement savings: FSC.

Australia needs an increase to the preservation age to boost retirement savings: FSC.

The Financial Services Council will be calling on the Commission of Audit to recommend raising the preservation age for superannuation to relieve the increasing strain on the economy as the Australian population ages.

“The Commission of Audit is the right vehicle for considering changes to the preservation age and the Productivity Commission’s recommendations on dealing with the pressures of an ageing population,” Martin Codina, FSC Director of Policy and International Markets said.

“It would be appropriate for the new Government to commission and publish a new Intergenerational Report as a priority to inform policy decisions in relation to Australia’s ageing population.” Mr Codina said.

“The superannuation system’s ability to generate adequate retirement incomes for Australians can be significantly bolstered by increasing the preservation age.”

Research conducted by Rice Warner Actuaries for the FSC shows that increasing the time spent in the workforce for every Australian by just one year reduces the superannuation savings gap by $200 billion.

“Australia currently has a superannuation savings gap of $1,063 billion. That is, the difference between what is actually being saved through superannuation and what is needed to sustain a comfortable lifestyle after retirement,” Mr Codina said.

“This significant retirement savings gap makes increasing the labour force participation of older workers in Australia a policy imperative.”

Australia has a lower proportion of 55 to 64-year-olds in the workplace than the United States, the United Kingdom, Canada and New Zealand. In fact, New Zealand is 15 percentage points higher than Australia for the employment of this age group.

The FSC has advocated for a phased increase to the preservation age from 60 to 62 years of age to boost retirement savings and reduce pension outlays. In 2009, the age pension eligibility was increased to 67.

“It’s now time to start closing the seven year gap between the preservation age for superannuation and the age pension. The gap will accelerate consumption of superannuation before retirees become eligible for the age pension,” Mr Codina said.

“To achieve the dual aim of reducing longevity risk in superannuation and increasing labour force participation of older workers to drive economic growth Australia needs to debate the appropriate preservation age for superannuation,” he said.

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