Research in recent years conducted by the CSIRO has uncovered that many Australians are dying richer than the day they retired. The trend is believed to be due to retirees spending more frugally throughout their retirement with the hope to bequeath as much as possible to their children. Another reason as cited by behavioral economist Dr Andrew Reeson, who conducted the research, is the ‘psychological challenge’ of switching from saving throughout people’s working lives, to spending in retirement.
The research outlines that a large portion of retirees are being very conservative with their savings, only withdrawing the government-mandated minimum amount from their super. Dr Reeson, says “the vast majority of people don’t spend their superannuation recklessly, and if anything perhaps a little bit the opposite.” It is estimated that almost $8.5 billion was passed on to relatives of those who had passed away before spending their superannuation last year.
The findings have sparked debate, as many believe that substantial tax concessions for retirees should be a key target of the Government’s tax package this year. Experts suggest there should be a focus on developing new financial products to insure people against outliving their savings, saying, “people are terrified of coming to the end of their lives and having no money for health and aged care.” Dr Reeson believes investment products such as annuities need to be developed, which could guarantee income for a lifetime.
With compulsory superannuation having been in effect for more than 20 years, we’re now faced with the first wave of retirees who will die with more wealth than previous generations. As we prepare for the next 20 years, the Government will need to educate retirees on their plan to spend, or other ways to bequeath wealth to non-dependents. For example, while in Australia there is no formal inheritance tax, assets such as property can be passed on without tax implications. Unfortunately, the same rules do not apply to superannuation.
Scott Morrison has previously raised concerns when in the position of treasurer, about retirees passing their superannuation to their children, stating “the purpose of providing tax incentives to encourage people to build up their super is so they can draw down on it in their retirement, not maintain it as a capital pool to be passed on as an inheritance.” The Government has since committed to clearing regulatory hurdles of the development of annuities and other post-retirement products.
Do you have a large superannuation balance? If you would like to find out more about your options, please contact the offices of Owen Hodge Lawyers. At Owen Hodge Lawyers, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs.
Please feel free to call us at your earliest convenience to schedule a consultation at 1800 770 780.