Government mulling superannuation as part of aged care solution

The federal government is considering using the $3.5 trillion superannuation system as a way out of Australia’s aged care funding crisis.

Assistant Treasurer Stephen Jones called on Thursday for a national conversation about drawing on superannuation balances – one-third of which are projected to be passed on as inheritances by the middle of the century – to support people in aged care.

Assistant Treasurer Stephen Jones says it’s not the purpose of superannuation to have a tax-preferred estate-planning mechanism.Credit: Natalie Boog

Sources close to the government, who asked to remain anonymous so they could speak freely, said it was a “no-brainer” for super to be part of the solution, as the $30 billion aged care system becomes one of the fastest-growing areas of federal expenditure and the Baby Boomer generation retires with higher expectations.

Over the next decade alone, the independent Parliamentary Budget Office estimates the cost of aged care will climb by more than 82 per cent – or almost $29 billion – to $63.6 billion in 2033-34. Only spending on the age pension, the NDIS and defence will be a larger impost on the budget.

A discussion paper published this week by the Aged and Community Care Providers Association said older Australians had been reluctant to spend their own funds on their retirement needs because they feared running out of money, wanted to preserve the family home or treated superannuation as a way to increase capital.

“Since retirees are not drawing down on their capital, large chunks of super tax concessions are inflating the size of inheritances,” it said.

The former Morrison government’s retirement income review found one in every $5 of retirement savings was passed on as a bequest in 2019, but this would grow to one in every $3 by 2059 without any changes to behaviour.

Jones, who is responsible for super, described it as an “odd” outcome in a system about retirement income.

“There will always be bequests in the system. No doubt about that. [But] it’s not the purpose of superannuation to have a tax-preferred estate-planning mechanism. It’s for providing for people in their retirement,” he said on the ABC on Thursday.

“We’ve got a crisis of funding in aged care. At the same time we have one-third of the value of funds being written out in bequests. That doesn’t square ... It’s a conversation that we need to have ... I don’t think we can carve superannuation out of it.”

The Aged and Community Care Providers Association’s paper said government spending on aged care could be boosted through redirecting tax, introducing an aged care levy like that for Medicare, or starting a new social insurance scheme.

Alternatively, aged care consumers could pay more by lifting the means-testing threshold, which currently limits their lifetime contributions to $76,100 and takes into consideration only $193,219 of the family home.

A taskforce headed by Aged Care Minister Anika Wells is probing those options.

ACCPA chief executive Tom Symondson, who is on the taskforce, said most people did not realise how much super was being passed on as inheritance.

He said one way of leveraging superannuation would be to set aside a portion to pay for aged care, known as “ring-fencing”.

Another would be encouraging people to make voluntary super contributions, retaining tax benefits and investment returns, and using the extra accumulated funds for aged care.

A third concept would be increasing the rate of compulsory employer contributions to super specifically for aged care, while another would be making it easier for people to withdraw their super for aged care deposits by removing tax disincentives.

Symondson said each of those ideas had significant downsides and did not help people with low super balances. But he said he hoped there could be a “grown-up” conversation about the issue that did not dismiss them altogether.

‘It’s a conversation that we need to have ... I don’t think we can carve superannuation out of it.’

Assistant Treasurer Stephen Jones

“This is the first generation that is retiring with everybody having had the benefit of at least being in super for a while. This is the first generation where everybody has at least had the opportunity to be in a compulsory super system. I think it warrants a reset,” he said.

The Greens lashed the idea of increasing user contributions, with aged care spokesperson Janet Rice saying it would increase inequality and the government should spend more from its existing budget.

The Coalition’s aged care spokesperson Anne Ruston said the opposition wanted to work constructively with the government to make aged care more sustainable and would consider the taskforce’s advice in good faith.

National Seniors Australia chief advocate Ian Henschke said he did not think superannuation would provide the funding required.

“There’s no river of gold out there to fix aged care, sitting in super accounts. Average accounts are high because you have people with very high and very low amounts of money,” he said.

“It’s a misguided apprehension that there’s a trillion dollars of super out there to fix aged care ... People with very large super balances are already probably paying for their own care anyway.”

He said people who could afford it were generally happy to pay more but that older Australians his organisation had surveyed would prefer a levy or insurance scheme.

Industry Super Australia chief executive Bernie Dean said there was an important conversation to be had about caring for older Australians, but ring-fencing a portion of super was not the answer.

“Commandeering a portion of super guarantee for aged care is unfair to those who won’t need it and diminishes the ability for many Australians to save for other things they need in retirement,” he said.

With Shane Wright

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