It's a part of appreciating the entire super guarantee system and how it works somewhat hand in hand currently. We have a hybrid pension system which enables private wealth mobilisation so as to increase pension efficiency.
We have a 3 pillar system - 1. Aged Pension 2. Compulsory employer contributions to super and 3. voluntary savings and investment/cash/wealth savings.
Tax incentives that plenty criticise, like negative gearing, CGT discounts, SMSF and super tax incentives are critical in relieving pressure and stimulating investment = aggregate demand increasing.
Australia's pension liability is due to drop to 2% of GDP, despite the number of Australians over the age of 65 doubling by 2063. Not all of this is employer contributions. It's incentives like voluntary contributions, it's savings and wealth generation, there's self managed super funds etc.
The OECD for advanced economies spend as a percentage of GDP for their pension systems is 9-10.4%.
To put that in perspective, in Australian terms, that efficiency of the 3 pillar system is worth $210B AUD per year in savings that we are able to spend elsewhere compared to somewhere like France. France spends as much as 16% of GDP on their pension.
To put this in real terms - In the coming years if they do not pair back their liability, they could spend as much as $790B AUD on pension liabiliies, vs Australia spending $70-100B AUD total per year.
Italy, Spain, Germany, Japan are all in a similar boat.....
They have government expenditure that high and and still rank well below Australia on the major global pension index's
Top countries for Public Pension Spending
Greece jumped by 1.2points of Public Pension Spending in 2019, compared to a year earlier.
www.nationmaster.com
We rank extremely highly in global metrics regarding support for retiree's relative to the rest of the world.
Australia: Retirement income system falls one place on Global Pension Index
Australia's retirement income system has slid to the sixth place among 48 pension systems worldwide in 2024 from the fifth best among the 47 markets in 2023, according to the Mercer CFA Institute Global Pension Index 2024.
www.asiainsurancereview.com
Global Retirement Index - Wikipedia
en.wikipedia.org
We are 6th on the Mercer Index and 7th on the Natixis Global Retirement Index.
Mobilising personal wealth is not a bad thing compared to global alternatives in terms of pensions. There are obviously other impacts to this like housing affordability to consider.
But you really need to understand the global impact of other systems and how Australia is the envy of most countries in this regard.
People complaining about the aged pension and lack of support is fairly wild. There certainly might need to be support at the very bottom income levels to support people without the required super, cash savings etc and to offset other economic impacts. However, the general data shows that our system is an extremely extremely efficient in it's current arrangement with a really high standard of living for retirees.
Now it's important to consider our income poverty rates (a % of income of pensions vs cost of living is high). This illustrates our relatively low state and government pensions liabilities vs cost of living.
The idea behind this is that you are drawing down savings and mandatory super withdrawals during the pension period of your life vs receiving set income.
It however gets back to my earlier point regarding the importance of supporting those still whom don't have that capability. Particularly in this coming generation who may not have had the super guarentee for a big portion of their working life and haven't amassed the assets to reitre.
That's part of my point. Our system is design to empower the middle class etc to invest, removing added burden on things like pension liability. They aren't meant to get the pension.
Most of these people aren't design to ever be on the pension as our current system enables them to amass wealth so we don't have to spend hundreds of billions in pension liabilities in the future. Hence our liabilities shrinking in the coming years, despite retiree's exploding.
70% of negative gearing is utilised by people with a taxable income of less than $80,000 per year.
It is not just a vehicle for the rich. It's functioning right through all income levels - high/middle/low as a function of our savings and wealth creation mechanisms for retirement.
Negative gearing | Treasury.gov.au
What is negative gearing? You won’t find the phrase ‘negative gearing’ in tax legislation. It is a commonly used term used to describe a situation where expenses associated with an asset (including interest expenses) are greater than the income earned from the asset. Negative gearing can apply...
treasury.gov.au
Average workers the major beneficiaries of negative gearing - Property Council Australia
Average workers the major beneficiaries of negative gearing Of the almost 1.26 million Australians who declare a net rental loss, 883,325 people earn around $80,000 per annum or less and […]
www.propertycouncil.com.au
Nearly 30% of all of those negative gearing are 39 or under also. The lowest age demographic % is actually those 60 and over. It debunks the boomer bashing in terms of hoarding and land banking investment properties.
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