Retirement riches: are seniors who hoard wealth gaming the system?

Generous super rules and tax breaks have helped some seniors hoard many millions of dollars, but things may change soon.

The wealth of some senior Australians is coming under increased attention, and the spotlight could shine brighter in the coming months.

Decades of generous tax and superannuation incentives have given many rich retirees a free ride, and even some of their own ranks are standing up for younger generations.

I am seeing reader comments and letters from seniors who say the wealth imbalance is unfair to their children and grandchildren struggling to afford houses and living expenses.

They note that some retiree couples can live in $3 million-plus homes tax-free, with another $3.4 million sitting in a superannuation pension where there’s no tax payable on income or capital gains.

Of course, this is a minority of seniors. Plenty of retirees are struggling financially on just an age pension paying $25,000 a year, or with perhaps a small amount of super to supplement it. Many retired years ago before compulsory super could have a big impact on their nest eggs.

Plenty of older Australians don’t own their homes, so they have missed out on multiple property price booms, and now they face rising rents.

However, the ranks of rich retirees are growing. Statistics show the proportion of people aged over 65 in the population rose from 12 per cent in 2000 to 16 per cent in 2020, and the average net worth of Baby Boomers – aged between 58 and 76 – is well above $1 million.

Kick back and smell the cash: generous tax breaks for rich retirees may be wound back.

Seniors’ wealth has multiplied many times faster than younger generations, largely because they have owned big assets – such as houses and share portfolios – for many more years.

Nobody should begrudge people for being wealthier because they worked hard their entire lives and invested wisely, but a line may be drawn soon.

Former Treasurer Peter Costello introduced tax-free retirements for millions of people through massive superannuation system rule changes in the mid-2000s.

This included zero tax on income and capital gains in superannuation pensions after age 60. In 2017 the previous Coalition government put caps on these pensions – now $1.7 million per person – to stop super being hoarded by the wealthiest Australians in a tax-free structure.

Today’s rich retirees can choose to move their excess above $1.7 million (lucky them!) back into the regular superannuation environment, which itself has just a 15 per cent tax rate rather than the 49 per cent tax that high-income workers pay.

This is an area that could come into focus in the new Labor Government’s federal budget in October.

Superannuation industry groups ASFA and AIST have both argued for $5 million cap on money held in superannuation.

Others say caps should be lower, or that the entire superannuation system needs an overhaul to save the federal budget many billions of bucks.

When some retirees themselves are saying they are being given too many tax breaks, maybe it signals a mood for change.

Labor may seize on this, and the need to start reducing the budget’s huge debt pile, or it may simply follow the lead of past federal governments and simply tinker with the superannuation rules – creating more confusion.

As to the big question of whether retirees are too wealthy?

The answer is no. Many worked hard and smart for it. But giving them massive tax benefits, paid for by millions of younger workers, does seem a bit rich.

Originally published as Retirement riches: are seniors who hoard wealth gaming the system?