Exchange traded fund (ETF) provider BetaShares is advocating for a universal pension fund, funded by superannuation contributions to help avoid the ‘retirement trap’.
Its proposal, submitted as part of the Retirement Income Review, proposed the Federal Government adopted a system that provided a pension to all Australians in retirement age partially funded by super contributions.
Roger Cohen, BetaShares’ senior investment specialist, said an anomaly in the current retirement system, the ‘retirement trap’, caught Australians of retirement age with savings of between $350,000 and $600,000 find that investing their saving resulted in lower levels of retirement income due to the progressive reduction of age pension entitlements.
That system encouraged these retirees to spend additional saving or redirect them towards exempt assets like their homes, instead of choosing to invest them to generate income and capital growth, the firm said.
The proposal to eliminate both the income and assets tests, making the age pension available to all Australian citizens, would encourage people to save more as there was no risk to lose pension entitlements.
“With a universal pension in place, an Australian retiree can choose to spend or save additional income or assets based on their personal circumstances, without that choice being distorted by the structure of the system,” Cohen said.
“The universal pension would be partially funded by streaming a portion of compulsory superannuation contributions into defined benefit schemes.”