FPA calls for retirement reform

The Financial Planning Association of Australia (FPA) yesterday called on the Federal Government to establish an inquiry into retirement incomes policy as part of a drive to develop a savings culture in Australia.

The Financial Planning Association of Australia (FPA) yesterday called on the Federal Government to establish an inquiry into retirement incomes policy as part of a drive to develop a savings culture in Australia.

Speaking at the start of its national convention in Sydney, FPA chairman Ray Griffin said: "Over the past five years, share ownership has increased eight-fold, while property ownership and a range of other investment opportunities have also multiplied.

“However, this investment growth is counter balanced by extremely low household sav-ings in Australia. In the March 1999 quarter, each Australian owed $20,556 in personal debt, which is an increase of more than $5000 per person from three years ago. These statistics leave little doubt that Australia needs to develop a savings culture.”

The FPA also noted that the household savings ration has fallen from around l5 per cent in the 1970's to 4.7 per cent in 1996/97 and was expected to be less than 3 per cent in the current financial year.

Griffin said an inquiry was needed to assess whether the tax basis of the superannuation system should be reformed and to ensure its success as the primary savings vehicle for all Australians.

“While the introduction of the Superannuation Guarantee Contribution (SGC) has put Australians in a better financial position upon retirement, the current quantum of SGC appears insufficient to meet future needs,” he said.

“To maintain lifestyle in retirement it is generally accepted that people will require an income of 60-70 per cent of pre-retirement net salary. To fund this, super contributions of 15-18 per cent is needed over a person's whole working life (approx 35 years),” he said.

Griffin said superannuation was just one part of the total equation. The “big picture” had to be addressed, including areas like pensions and related social security issues, financial planning, health and aged care.

“These factors will help determine the impact that an aging population will have on fu-ture government revenues and expenditures,” he said.

The FPA recommended that superannuation should be limited to the provision of an in-come stream or a minimum indexed pension at aged pension level before a lump sum could be taken.

It said it supported the current tax regime but believed that taxing contributions, earnings and benefits at concessional rates was a major impediment to growing savings.

An alternative would be to make contributions and earnings tax exempt at the present time and tax benefits at the full marginal rate when they are received at a future date.

Griffin noted that bodies like the Australian Chamber of Commerce and Industry, Insti-tute of Chartered Accountants, Medical Savings Account Association of Australia, Aus-tralian Taxpayers Association Australian Stock Exchange, Investment and Financial Services Association, Association of Superannuation Funds of Australia and Australian Retirement Income Streams Association had also called for an inquiry.

“I would welcome the opportunity to address the issue in co-operation with these other bodies,” he said.