Retirement Income

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The exact amount Aussies need to save for a comfortable retirement

<p dir="ltr">A confronting new financial survey has revealed how much money Australians need to save annually in order to have a comfortable retirement. </p> <p dir="ltr">The survey, conducted by financial planner Merit Planning, concluded that the average Aussie may need to save around $75,000 to $100,000 per year to have enough funds to retire. </p> <p dir="ltr">And while superannuation is a major asset on the path towards retirement, the fund you invest with may not be giving you the full picture of where your money is going.</p> <p dir="ltr">New analysis by Market Forces revealed several major super funds are potentially misleading consumers by “greenwashing”, with eight of the 11 super fund investment options labelled “sustainable” or “socially responsible”, choosing to invest in fossil fuel giants.</p> <p dir="ltr">Both issues have cast light on major problems the average Aussie will face going forward as inflation and cost of living prices continue to surge.</p> <p dir="ltr">Merit Planning’s survey took hundreds of responses from retirees about their retirement experience, showing how big their nest egg will need to be for the years ahead. </p> <p dir="ltr">Almost half of respondents, or 42 per cent, said between $75,000 and $100,000 is needed, while about 20 per cent said the average person needs over $100,000 a year.</p> <p dir="ltr">Only 6 per cent of respondents said the age pension level of around $40,000 per year was enough to retire with.</p> <p dir="ltr">Financial planner Darren Howard said the average couple in Sydney would need to earn about $85,000 per annum combined to retire comfortably given the ongoing cost of living crisis. </p> <p dir="ltr">Craig McDonald, owner of CBM Mortgages, said: “We speak to all our clients about their retirement and their superannuation position and how that will look when they enter into retirement. </p> <p dir="ltr">“We recommend they speak to a financial planner to ensure they are putting those steps in place early.”</p> <p dir="ltr"><em>Image credits: Getty Images</em></p>

Retirement Income

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Superannuation isn't a retirement income system

<p>Discussions about Australia’s retirement income system typically begin by reciting the political slogan that there are “three pillars” to the system — the age pension, compulsory super, and voluntary savings.</p> <p>It was the way the Abbott and Turnbull government’s <a href="https://slideplayer.com/slide/4872297/">tax inquiry</a> looked at retirement incomes, and a frame of reference used by this government’s <a href="https://treasury.gov.au/sites/default/files/2019-11/c2019-36292-v2.pdf">retirement income system review</a>.</p> <p>Missing is discussion of what makes something a “retirement pillar”.</p> <p>Requiring retailers to <a href="https://www.fresheconomicthinking.com/2020/01/the-easiest-retirement-system-retiree.html">provide the elderly free goods and services</a>, with the cost absorbed in the prices paid by others could be another.</p> <p>To be a pillar, something would have to allocate goods and services in retirement to people who are no longer earning wages.</p> <p>In my <a href="https://www.fresheconomicthinking.com/p/scrap-superannuation.html">recently released report</a> I argue that superannuation fails this test.</p> <h2>Super isn’t a retirement pillar</h2> <p>Among other things, super can be spent many years before retirement, beginning anywhere from age <a href="https://www.ato.gov.au/Super/Self-managed-super-funds/Paying-benefits/Preservation-of-super/">55 to 60</a>, even though the retirement age specified the pension legislation is <a href="https://www.humanservices.gov.au/individuals/services/centrelink/age-pension/who-can-get-it">66 to 67</a>.</p> <p>Many financial planners advise intending retirees to spend a lot of their super quickly in order to shelter it in income-test-exempt assets <a href="https://www.yourlifechoices.com.au/finance/property/how-upsizing-protects-your-pension">such as housing</a> and qualify for the pension.</p> <p>The super system also can’t guarantee retirement incomes for people who are self-employed, casually employed, homemakers, have chosen their super fund unwisely or lost the proceeds in things such as online romance scams.</p> <p>As a system, super comes with unnecessary financial risks, such as suddenly losing 21% of its funds, as happened between September 2007 and March 2009 during the global financial crisis.</p> <p>It is better thought of as a growth-sapping, resource-wasting, tax-advantaged asset purchase scheme aimed at the already wealthy, which is <a href="https://theconversation.com/myth-busted-boosting-super-would-cost-the-budget-more-than-it-saved-on-age-pensions-119002">unlikely to do much</a> to reduce reliance on the age pension.</p> <p>We would be better off abandoning it and letting workers spend or save their money as they see fit.</p> <h2>The super system is inefficient</h2> <p>The superannuation system employs <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/6291.0.55.003">55,000 people</a> at a cost of <a href="https://www.selectingsuper.com.au/superannuation-fees-fall-for-the-first-time-in-six-years">A$32 billion</a> per year to produce <a href="https://www.apra.gov.au/quarterly-superannuation-statistics">$40 billion</a> per year in retirement incomes. This is nearly as many people as the enlisted Australian Defence Force (58,000) with a similar total cost ($34 billion).</p> <p>The rest of Australia’s entire welfare system, including administering the age pension, disability, unemployment benefits and Medicare, costs just $6 billion per year and employs <a href="https://www.servicesaustralia.gov.au/sites/default/files/2018/10/8802-1810-annual-report-web-2017-2018.pdf">33,000 people</a>, while providing <a href="https://www.servicesaustralia.gov.au/sites/default/files/2018/10/8802-1810-annual-report-web-2017-2018.pdf">$45 billion</a> in pension benefits.</p> <h2>It directs money where it isn’t needed..</h2> <p>Each year the superannuation system takes in <a href="https://www.apra.gov.au/quarterly-superannuation-statistics">$117 billion</a> and spits out <a href="https://www.apra.gov.au/sites/default/files/Quarterly%20Superannuation%20Performance%20Statistics%20September%202019_0.pdf">$80 billion</a> in payments (including lump sum withdrawals), leaving $38 billion in asset markets, sapping spending and economic growth. That’s roughly as much as the <a href="https://www.smh.com.au/business/saving-the-nation-20090203-7wsb.html">$40 billion</a> stimulus package introduced during the 2009 financial crisis. Unlike it, the super system depresses rather than stimulates the economy.</p> <p>Unlike the super system, the age pension system is likely to stimulate the economy because it takes purchasing power away from high-income taxpayers with a relatively low likelihood of spending extra dollars to to lower-income pensioners with a high likelihood of spending them.</p> <h2>…and away from those who do need it</h2> <p>Unlike the age pension system, the super system can’t provide poverty relief, or broadly adequate retirement incomes.</p> <p>For the bottom 40% of earners it does the opposite of smoothing income, making them poorer than they would have been while working, and somewhat <a href="https://theconversation.com/super-shock-more-compulsory-super-would-make-middle-australia-poorer-not-richer-120002">richer</a> than they would have been while on the pension and retired.</p> <p>The <a href="https://treasury.gov.au/publication/p2020-51153">$18 billion</a> of tax breaks on super fund contributions and <a href="https://treasury.gov.au/publication/p2020-51153">$20 billion</a> of tax breaks on super fund earnings are predominately directed to <a href="https://treasury.gov.au/programs-and-initiatives-superannuation/distributional-analysis-of-superannuation-taxation-concessions">high income earners</a>.</p> <p>In a comprehensive study released this week the Grattan Institute has demolished the claim that super contributions come out of employers pockets. Instead it finds that, on average, <a href="https://grattan.edu.au/report/no-free-lunch/">80%</a> of each super contribution comes out of what would have been wages.</p> <h2>Here’s how to escape it</h2> <p>Scrapping the system altogether would massively improve Australia’s economic performance, including the performance of our only true retirement income system, which is the age pension.</p> <p>It can be done by forcing employers to pay what are now super contributions directly into wage accounts and allowing super fund holders to withdraw up to a maximum amount each year during a transition period, after which all super balances would receive no special tax treatment.</p> <p>The tens of billions saved in the budget could be used to enhance the size and scope of the age pension. It could incorporate <a href="https://theconversation.com/fall-in-ageing-australians-home-ownership-rates-looms-as-seismic-shock-for-housing-policy-120651">appropriate rent assistance</a> and begin at age 60 instead of 67.</p> <p>It’s possible. Certainly, there would be job losses, but in other industries we have come to accept that there is no point in continuing to pay people to do things that aren’t needed, and especially no point in making those payments compulsory.</p> <p>It’d be one of the best things we could do to enhance the working of our economy.</p> <p>This article originally appeared on <a href="https://theconversation.com/superannuation-isnt-a-retirement-income-system-we-should-scrap-it-130191">The Conversation</a>.</p> <p><em>Image: Getty</em></p>

Retirement Income

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How leaving work can be good for you

<p>A few years ago, my mother had a bit of a crisis in the lead-up to her retirement. She struggled with her self-worth, perceived value to society and fears of boredom.</p> <p>She’s not alone in her worry. The literature suggests retirees may experience the loss of <a href="http://gerontologist.oxfordjournals.org/content/55/5/802.long#ref-38">identity</a>, usefulness, sense of purpose and <a href="http://www.cornellpress.cornell.edu/book/?GCOI=80140100816130">social relationships around work</a>. For some people, retirement is also associated with reduced income, <a href="http://link.springer.com/article/10.1007%2Fs00391-016-1036-y">social exclusion</a> and <a href="http://www.nber.org/papers/w12123">physical and mental deterioration</a>.</p> <p>Retirement wasn’t all doom and gloom for Mum. Within months of retirement, she was busy with piano practice, dance classes, choir rehearsals, painting and reading. Today she wonders how she survived decades of working. She is one of many who reap benefits from retirement.</p> <p>Our recent study, published in the <a href="http://www.ajpmonline.org/article/S0749-3797%2816%2900045-3/abstract">American Journal of Preventive Medicine</a>, followed 27,257 working Australian adults for more than three years. During this time, more than 3,000 retired.</p> <p>After controlling for various confounding factors, we found those who retired were more likely to enjoy a healthier lifestyle than their counterparts who remained in the workforce.</p> <h2>What else did we find?</h2> <p>During the study period, retirees increased their physical activity by 94 minutes per week, compared with 32 minutes among non-retirees. Retirees also became less sedentary, with a reduction of 67 minutes of sitting per day, compared with 27 minutes among non-retirees.</p> <p>Retirees were also more likely to get a healthy amount of sleep. They gained 11 minutes of sleep per night while the non-retirees lost four minutes.</p> <p>Finally, half of the female smokers quit smoking after retirement, a cessation rate twice as high as working female smokers.</p> <p>Overall, our findings weren’t a surprise. Several prior studies from North America and Europe found retirement was associated with more physical activity in leisure time. This is likely because retirement <a href="http://link.springer.com/article/10.1186%2Fs12966-015-0186-4#page-1">reduces common barriers to physical activity</a>, such as lack of time, low energy and competing priorities.</p> <p>The reduction in sedentary time following retirement that we noted could be explained by a reduction in occupational sitting and commuting. Most office jobs involve prolonged sitting. A <a href="https://ijbnpa.biomedcentral.com/articles/10.1186/1479-5868-9-128">previous study among office, call centre and customer service employees</a>, for instance, found an average of 77% of their work time was spent in uninterrupted sitting.</p> <p>There is evidence that certain types of employees, such as those in skilled occupations, <a href="http://www.ncbi.nlm.nih.gov/pubmed/22368226">sit even more than others</a>. This may explain why, in our study, those with higher educational attainment, people who lived in urban areas and those who worked full-time experienced the most reduction in total sitting time.</p> <p>Our finding about sleep duration is in line with a <a href="http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2768952/">previous French study</a>, which found people had less sleep disturbances after they retired. The mechanisms for the change are unknown, but we hypothesise that it might be due to the removal of work demands and stress, and having more time.</p> <p>Our study is the first to find that female retirees are more likely to quit smoking. Explanations may include reduced occupational stress and disposable income after retirement. Perhaps retirement also prompted smokers to rethink their lifestyles.</p> <p>The behavioural changes we observed among retirees are not trivial; they have <a href="http://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1001917">profound effects on health and longevity</a>. Positive lifestyle changes following retirement <a href="http://www.sciencedirect.com/science/article/pii/S0002934306011855">may therefore lead to better health</a> down the track.</p> <h2>But not everyone benefits equally</h2> <p>Retirement doesn’t benefit everyone equally. Our study showed those who retired before 65, those who worked full-time prior to retirement and those who retired voluntarily benefited more from retirement in terms of lifestyle improvement.</p> <p>This is consistent with <a href="http://eurpub.oxfordjournals.org/content/24/3/433.short">previous research</a>, which suggests the lifestyle changes associated with retirement transition differed by various factors, such as reasons for retirement, and pre-retirement lifestyles and circumstances.</p> <p>So retirement may not automatically lead to better health, but it presents an opportunity to engineer a healthier lifestyle.</p> <h2>Window of opportunity for lifestyle changes</h2> <p>We live in a rapidly ageing society. Globally, the number of people aged 60 years and above is <a href="http://www.who.int/features/factfiles/ageing/ageing_facts/en/">expected to increase</a> from 900 million in 2015 to 2 billion in 2050. In Australia, <a href="http://www.abs.gov.au/ausstats/abs@.nsf/0/1CD2B1952AFC5E7ACA257298000F2E76?OpenDocument">15% of the population</a> is aged above 65 years and <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6238.0Main%20Features3July%202014%20to%20June%202015?opendocument&amp;tabname=Summary&amp;prodno=6238.0&amp;issue=July%202014%20to%20June%202015&amp;num=&amp;view=">40% of people aged 45 years</a> and over are retired. The health and well-being of retirees therefore plays a critical role in the health of our society.</p> <p>Retirement is a unique opportunity to interrupt previous routines and establish new habits. A number of <a href="http://ijbnpa.biomedcentral.com/articles/10.1186/s12966-016-0336-3">intervention programs</a> have been found to promote healthy lifestyles among adults around retirement age. These use various strategies from professional counselling to in-home and computer-based programs.</p> <p><a href="http://www.ncbi.nlm.nih.gov/pubmed/23758511">Other interventions</a> have offered an explicit social role, such as foster grandparents, mentors and volunteer works. These are promising options for health promotion among retirees, though the evidence is not yet robust.</p> <h2>What can you do?</h2> <p>Here are a few suggestions for those who are retiring soon.</p> <p>1) Embrace retirement. Rather than thinking about retirement as the end of a working life, consider it as the start of life after work with new freedom, opportunities and <a href="http://www.ncbi.nlm.nih.gov/pubmed/23199311">identities</a>.</p> <p>2) Prepare for retirement ahead of time. Plan with key concepts such as health, leisure and enjoyment in mind. Pick up new hobbies, discover new passions, or reconnect with your old interests.</p> <p>3) Find a new role that makes your life meaningful, whether it is a grandparent, teacher, volunteer or community organiser. Discover new identities within society, make new friends and stay connected.</p> <p>If you’re not retiring in the near future, don’t wait until retirement to live a healthy, enjoyable and fulfilling life. Eat well, be active, get healthy amounts of sleep and find time in your busy life to savour the moment – even just for a few minutes a day.</p> <p>This article originally appeared on <a href="https://theconversation.com/retirees-dont-worry-about-your-health-deteriorating-leaving-work-can-be-good-for-you-54179">The Conversation</a>. </p> <p><em>Image: Getty</em></p>

Retirement Income

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14 personal finance tips you were never taught

<p>1. Take a day to think about large purchases to avoid impulse buys</p> <p>“Delaying your purchases for a day gives you time to think about whether or not you really need the items, and it curbs regrettable impulse buys,” advises Marc Diana, CEO of MoneyTips. “Sale items may be an exception to this rule, but even then, question how badly you need the item compared to saving or investing the money you would use to purchase it. When times are tough, and you’re cutting expenses, would you rather have a rarely worn $300 pair of shoes or $300 cash?”</p> <p>2. Budgets are freeing, not constricting</p> <p>Says financial educator Tiffany Aliche, “Keeping a budget allows you to say yes to your goals in a strategic way. If you have a budget, you can save for the holiday, house or car you want to get. You can look at it as ‘No dining out,’ but I see it as ‘Yes to a trip to Paris.’ A budget is not a NO plan, but a YES plan with actual steps towards achieving your goals.”</p> <p>3. Budget with the 50/20/30 rule</p> <p>Lynn Toomey, co-founder of Your Retirement Advisor, suggests following this easy budgeting rule:</p> <p>Use 50 per cent of your income for non-discretionary necessities like food, rent/house payment, utilities, and transportation.</p> <p>Put aside 20 per cent of your income for an emergency fund (three to six months’ salary is a good target), retirement, savings, and to pay off any debts.</p> <p>Use 30 per cent of your income for discretionary (non-essential) spending such as entertainment, holidays and gifts.</p> <p>4. Penny pinching is not the road to wealth</p> <p>Spending less doesn’t mean you’ll have more. Saving is a good way to stabilise your finances, but you still need to invest. “Pretend there are two islands,” advises Aliche, who is also known as The Budgetnista: “Financially Stuck Island and Wealthy Island.” She says that your savings can be like a car – you can’t drive off Financially Stuck Island without a bridge. Investing is the bridge to financial success. “To get from one island to another, you need to get in your savings car and drive it over your investment bridge.”</p> <p>5. It's okay to put yourself over your kids</p> <p>Many people want their kids to go to university, says Aliche, “but it’s more important for you to save enough for retirement. Because the best gift you can give your child is not a free ride to school, but rather not to be a financial burden on them when it’s time to start their own family. Kids can get student loans; no one is going to lend you money without collateral when you’re retired.”</p> <p>6. Financial advisors aren't only for wealthy people</p> <p>Millions of people have trillions invested in stocks, bonds, mutual funds and other stock exchange investments, but just because you can easily make trades yourself doesn’t mean you should. “Why not do what you do best to earn money and let a trained professional invest it for you?” asks Brian Saranovitz, president of Your Retirement Advisor. “A recent Vanguard Investments study indicated that integrating proper retirement strategies can add as much as 3 per cent efficient return to a retirement portfolio.”</p> <p>Adds Aliche, “You need to purposefully seek out knowledge. If you break a leg, you know that you need to go to a doctor. With personal finance, people have got the notion that they could just fix it themselves. When it comes to investing, don’t be afraid to seek professional help.”</p> <p>7. Get a clear picture of yourself at 80</p> <p>Barring tragedy, you will live to a ripe, old age. Aliche recommends naming your 80-year-old image of yourself. “Mine is Wanda. I imagine Wanda sitting on the front steps in her yard. People feel disconnected from their older self. The more you can picture her, the better. I don’t want to see her mopping floors at 80. When I’m making a decision, I think, ‘How will this affect Wanda?’ If I dip into my retirement funds to buy an expensive car, that’s going to hurt Wanda.” If it’s easier, pretend you’re living with your grandfather or grandmother. “You’re not going to tell Granny, ‘You have to go to work. We need the money,’” she says.</p> <p>8. You can never have too much retirement savings</p> <p>Says Lynn Toomey, co-founder of Your Retirement Advisor, “Life is good. Retirement is better, if you are prepared.” She points out that retirement is laden with potential costs, such as healthcare, longevity, market volatility and inflation. “Even if you think you’re saving enough and have assets, it still may not be enough. The earlier you start saving and investing, the longer compound interest can work its magic to help you achieve a successful retirement.”</p> <p>9. Don't blow your tax refund</p> <p>“What are you planning on doing with your tax refund?” asks financial advisor Mike Zaino. “If you’re like most people, the world of instant gratification is beckoning. It could be extremely damaging to your retirement account, however, especially given the time value of money and what Albert Einstein called ‘The eighth wonder of the world” – compound interest.”</p> <p>10. Ask current lenders for a better rate</p> <p>“Banks, credit unions and other lenders are keenly aware of their competition,” says Diana of MoneyTips.com. “If your credit score qualifies you for a better rate from another credit card issuer or lender, ask them to match the rate. There’s no downside to asking; the worst they could do is refuse.”</p> <p>11. Asking for your credit limit to be raised can improve your credit score</p> <p>Keep your credit utilisation – the amount of credit you use compared to your credit limit – low to boost your all-important credit, advises Diana. “You can borrow less, or you can ask for a raise in your credit limit.” A recent study from CreditCards.com found that only 28 per cent of respondents have never asked for an increase in their credit limit. However, a whopping 89 per cent of those who asked for a credit limit increase received one.</p> <p>12. Unless they have a high annual fee, don't close old credit cards</p> <p>“The longer your stable credit history, the better it reflects on your credit score,” explains Diana. “The age of accounts is averaged over all of your credit accounts, so closing an older account that is infrequently used actually harms your credit score in two ways: it lowers your credit limit, which raises your credit utilisation; and it lowers your average account age. If you have an old card with a decent credit limit, use it at least annually to keep it open. But don’t forget to pay the bill on time!”</p> <p>13. Don't ever co-sign a loan</p> <p>“Co-signing a loan isn’t just vouching for someone’s character,” explains Toomey. “Understand that if the borrower doesn’t pay, then you’re responsible for every single missed payment. If they don’t pay, it’s your credit that will be ruined.”</p> <p>14. Being debt free should not be your goal</p> <p>Says Aliche, creator of the Live Richer Challenge, “People focus on getting out of debt. If they use that money to grow wealth instead of getting rid of debt, they could be debt-free faster. Do you pay off your student loans to get debt-free, or invest money in your business to grow and secure wealth for yourself? If you focus on being debt-free, that’s all you’ll be. If you focus on building wealth, then you can be wealthy and debt-free.”</p> <p>This article originally appeared on <a href="https://www.readersdigest.com.au/food-home-garden/money/14-personal-finance-tips-you-were-never-taught-but-need-to-know">Reader's Digest</a>. </p> <h2 class="slide-title" style="box-sizing: border-box; overflow-wrap: break-word; border: 0px; font-family: Georgia, 'Times New Roman', serif; font-size: 24px; margin: 0px 0px 15px; outline: 0px; padding: 15px 0px 0px 20px; vertical-align: baseline; clear: both; line-height: 1.3; color: #444444;"> </h2> <p> </p> <div class="slide-image" style="box-sizing: border-box; border: 0px; font-family: Raleway, sans-serif, Arial; font-size: 16px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline; color: #444444;"> </div>

Retirement Income

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How incomes, taxes and benefits work out for Australians

<p>The Australian Bureau of Statistics has just released its latest analysis of the effects of government benefits and taxes on household income. Overall, it shows government spending and taxes reduce income inequality by more than 40% in Australia. Disparities between the richest and poorest states are also greatly reduced.</p> <p>The ABS analysis provides the most up-to-date (to 2015-16) and comprehensive figures on the impacts of government spending and taxes on income distribution. As well as direct taxes and social security benefits, it estimates the impact of “social transfers in kind” – goods and services that the government provides free or subsidises. These include government spending on education, health, housing, welfare services, and electricity concessions and rebates.</p> <p>The figures also include a wide range of indirect taxes. Among these are GST, stamp duties and excises on alcohol, tobacco, fuel and gambling.</p> <p>The 2015-16 results are the seventh in a series published every five to six years since 1984. The methodology is based on similar studies by the UK Office of National Statistics since the 1960s. The latest UK analysis coincidentally also came out on Wednesday.</p> <h2>How do the calculations work?</h2> <p>The ABS analyses income distribution in a number of stages.</p> <p>First, it calculates the distribution of “private income”. This includes wages and salaries, self-employment, superannuation, interest, dividends and income from rental properties, among other items. It also includes net imputed rent from owner-occupied dwellings and subsidised private rentals.</p> <p>Next the ABS adds social security benefits, such as the Age Pension, unemployment and family payments, to give “gross income”.</p> <p>Then it deducts direct taxes – primarily income tax – to give “disposable income”.</p> <p>The next stage is to add the estimated value households derive from government services. This is mainly the value of public health care and education spending.</p> <p>The final stage is to deduct the estimated value of indirect taxes.</p> <h2>So what are the impacts on income inequality?</h2> <p>It is possible to calculate measures of economic inequality at different stages in this process. By implication, the difference between inequality measures is the result of the different government policies taken into account.</p> <p>Figure 1 shows the Gini coefficient, which ranges between zero – where all households have exactly the same income – and 100% – where one household has all of the income. The Gini coefficient for private income in 2015-16 was 44.2. The addition of social security benefits, which mainly increase the incomes of low-income groups, reduces the coefficient by 8.1 percentage points.</p> <p>Deducting income taxes – which are progressive – further reduces inequality by 4.5 points. Government non-cash benefits reduce the Gini coefficient by nearly as much as the social security system. However, indirect taxes slightly increase income inequality.</p> <p> </p> <p>The Gini coefficient for final income is 24.9. So, compared to a coefficient of 44.2 for private income, government spending and taxes reduce overall income inequality by more than 40%.</p> <p>While most of the reduction in inequality is due to government spending, taxes are obviously important to pay for this spending.</p> <p>The social security system reduces income inequality (and poverty) because Australia <a href="http://insidestory.org.au/how-fair-is-australias-welfare-state/">targets benefits to the poor more than in any other high-income country</a>.</p> <p>Figure 2 shows the distribution of social security benefits and government services across income groups, from the poorest 20% to the richest 20% of households. The poorest 20% receive about seven times as much in benefits as the richest 20%. The average for OECD countries is close to one, with rich and poor receiving about the same amount.</p> <p>Government spending on social services is also progressively distributed. This spending is considerably greater than social security spending and includes both Commonwealth and state spending on education and health.</p> <p>The poorest 20% receive about 70% more in non-cash benefits than do the richest. This is not due to income-testing. Instead, it’s largely a result of the greater value of public health spending on hospitals and Medicare for older people, who tend to be in the bottom half of the income distribution.</p> <p>Taxes, of course, work to reduce income inequality, as high-income groups pay a higher share than low-income groups. Figure 3 shows that the poorest 20% pay about 5% of their disposable income in direct taxes, while the richest 20% pay about 30% of their disposable income.</p> <p>In contrast, indirect taxes – particularly those on tobacco and gambling – are regressive. Low-income groups pay more than high-income groups as a share of their disposable income. However, the undesirable effects of smoking and gambling on the wellbeing of low-income households need to be borne in mind.</p> <p>When direct and indirect taxes are added together the overall tax system is less progressive, but the richest 20% still pay nearly twice as much of their disposable income as do the poorest 20%.</p> <h2>Redistribution also happens between age groups and states</h2> <p>In addition to reducing inequalities between income groups, government spending and taxes redistribute across age groups. Government spending is much higher for households of Age Pension age than for younger households. This is because of both the Age Pension and older households’ use of the healthcare system.</p> <p>For example, households where the reference person is 75 or older receive on average just over $1,000 a week in government spending but pay about $180 a week in direct and indirect taxes. Households with a person aged 45 to 54 pay the highest taxes on average – about $800 per week – and on average receive about $620 a week in social spending.</p> <p>There is also redistribution across states and territories. For example, average private income is about 65% higher in Western Australia than in Tasmania. However, on average, Western Australian households receive about two-thirds of the social security benefits that Tasmanian households get. This reduces the disparity in gross income to about 45%.</p> <p>Western Australian households pay about twice as much in income taxes as Tasmanians, reducing the disparity to 35%. Households in the West receive only about 3% more in spending on social services than in Tasmania, which reduces the disparity in average incomes to 28%. West Australian households also pay about 20% more in indirect taxes than Tasmanian households (although as a percentage of disposable income, this is a higher share in Tasmania).</p> <p>These figures suggest that while the financing of fairly equal social services across most parts of Australia reduces inequality between states, the income tax and social security systems also significantly reduce disparities. This is because income tax and social security are national systems and because Tasmania is the poorest state largely due to the higher share of age pensioners in its population.</p> <p>Overall, this publication provides an invaluable picture of how government spending and taxes affect household economic well-being. Its results are relevant not only to the political debate about tax cuts, but also to long-term policy development to prepare Australia for an ageing population.</p> <p>This article originally featured on <a href="https://theconversation.com/who-gets-what-who-pays-for-it-how-incomes-taxes-and-benefits-work-out-for-australians-98627">The Conversation</a>. </p> <p><em>Image: Getty</em></p>

Retirement Income

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Running low on your rainy day fund?

<p dir="ltr">More than $100 million is sitting with Victoria’s revenue office and is ready to be claimed by thousands of people.</p> <p dir="ltr">The State Revenue Office (SRO) is currently holding $111 million in unclaimed cash and the sum includes money from utility companies, local councils, real estate agents and even lottery tickets.</p> <p dir="ltr">There are more than 740,000 entitlements waiting to be claimed across Victoria. The forgotten cash belongs to people of all ages across the state and data revealed the local government areas that had the most potential claims.</p> <p dir="ltr">The City of Melbourne tops the list with 57,000 potential claims totalling $15.2 million, which means there is an average of $266 per person who is yet to take their money.</p> <p dir="ltr">Monash comes in second place with a total of $7 million in unclaimed funds, followed by Boroondara at $6.7 million and Whitehorse at $4.8 million.</p> <p dir="ltr">There are 24,700 potential claims in the Greater Geelong area and the average they can claim is $120. There is also unclaimed Tattersalls, Intralot and Tabcorp prizes that have been unclaimed for six months.</p> <p dir="ltr">The highest unclaimed gaming ticket is $2,136,327 from Tattersalls, which was received in March 2016.</p> <p dir="ltr"><strong>So, how do you search and claim forgotten cash?</strong></p> <p dir="ltr">Anyone who wants to search and claim forgotten cash can do so for free via the <a href="https://www.sro.vic.gov.au/unclaimed-money">SRO website.</a> </p> <p dir="ltr">To search the register, Victorians need to provide their name or company name, the address they believe unclaimed money would have been linked to at the time and the postcode. </p> <p dir="ltr">Anyone claiming lottery or TAB winnings must supply the original ticket.</p> <p><em><span id="docs-internal-guid-60aedf36-7fff-bac0-b97f-a72b0516e216">Image: Getty</span></em></p>

Retirement Income

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Experts warn lotto winners about going broke after a win

<p dir="ltr">With the $120 million lottery prize winner announced on Thursday night, a financial expert has revealed a sobering statistic.</p> <p dir="ltr">“Most lotto winners actually go broke within a couple of years,” Adele Martin, a certified financial planner, said in news.com.au’s ‘I’ve Got News For You’ podcast.</p> <p dir="ltr">Speaking to podcast host Andrew Bucklow, she added: That’s all around the world, not just in Australia.</p> <p dir="ltr">“And that’s because, you know, if you’re not good at managing $100,000, you aren’t going to magically be better at managing $120 million.</p> <p dir="ltr">“It’s the same principles, just more zeros.”</p> <p dir="ltr">Mr Bucklow delved into that scary fact and it didn’t take long to discover some tragic cases of past lottery winners. </p> <p dir="ltr">Amy McCauley, who was a bus driver in New York, won US$15 million (A$20 million) in the 1990s. After the win, she was besieged by friends and family members asking for money. In the end, she fell out with two of her brothers, ditched most of her so-called friends, and moved to a town where no one knew her.</p> <p dir="ltr">UK-based Jane Park won £1 million ($1.87 million) when she was just 17 years old. She bought an apartment, two cars, splashed out on clothes and went on a number of holidays. But she later, said the win made her lonely and miserable.</p> <p dir="ltr">In an even more extreme case, British woman Callie Rogers won £1.9 million (A$3.56 million) when she was 16. She gave away half of the money to friends and family, then spent a further £300,000 on clothes and got three boob jobs.</p> <p dir="ltr">Abraham Shakespeare was 40 years old when he won US$30 million (A$41 million) in the US in 2006. He was befriended by a woman named Dee Dee Moore. She was convicted of shooting and killing Shakespeare and hiding his body under a concrete slab in her backyard.</p> <p dir="ltr">However, it doesn’t always end badly.</p> <p dir="ltr">Mr Bucklow spoke to a Western Australian gym owner who turned $5 into $80 million in December last year.</p> <p dir="ltr">She spent just $5 on a lottery ticket with a syndicate with another 54 other women from her gym. They got lucky and each took home $1.45 million.</p> <p dir="ltr">“I haven’t had barely anyone who’s asked for cash. I’ve given a little bit to family to help I’ve helped my children out but not one person has come out of the woodwork that you weren’t expecting to ask for money so it’s been great in that way.”</p> <p dir="ltr">She revealed she still runs the gym, working 12 hours a day six days a week.</p> <p dir="ltr">The group of gym-goers have entered again into tonight’s $120 million lottery, partly for the sake of those who missed out on entering the syndicate last time.</p> <p dir="ltr">As for how to avoid going broke after a big win, finance guru Ms Martin had a word of advice.</p> <p> </p> <p dir="ltr">If you win the lottery “the first thing you should do is to keep calm and carry on, which I know is easier said than done,” she advises. </p> <p><em><span style="font-size: 12pt; font-family: Arial; color: #000000; background-color: transparent; font-weight: 400; font-variant: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Images: Getty</span></em></p>

Retirement Income

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Want to become debt-free this year?

<p><strong>Simple tips that help you live debt free</strong></p><p>Getting into debt can be incredibly stressful. Constantly worrying about paying your debt while still having enough money to stay afloat can make you feel lost like you’re running in a never-ending maze. There are ways to stay out of debt, though. You can avoid these 15 money mistakes that are costing you thousands, learn 5 steps to avoid the credit card trap and even learn what rich people never ever buy to help you save a couple of bucks. You can also pick up these smart habits to help you live debt-free.</p><p><strong>Set goals</strong></p><p>Having a plan means having a purpose. “[People] that lead healthy financial lives more often than not have clear financial goals and are actively working towards them,” says Yoni Dayan, chief editor of Money Under 30; he adds that “if you have a good ‘why’ to save, the ‘how’ will come much more naturally.”</p><p><strong>Wait to buy </strong></p><p>“If you have trouble with impulse spending, waiting a few days is a great habit,” Joe Udo of blog Retire By 40 explains. “You may find a lower price or simply realise that you don’t need it after all.” While this is particularly helpful when it comes to big-ticket items, like a new TV or even a new car, it can also apply to everyday buys that can add up over time.</p><p><strong>Turn off auto-pay</strong></p><p>Financial planner, Shannah Compton Game, recommends removing all auto-pay or auto-fill options on sites where you shop frequently. This forces you to “think about how much money you’re spending before you hit the ‘buy now’ button,” she says</p><p><strong>Pay as you go </strong></p><p>Surprise parties are great. Surprise bills are not. To avoid owing at the end of the month, Erica Gellerman, creator of The Worth Project, suggests treating your credit card like a debit card. “For example, if I swipe on lunch for $10 and gas for $40 I’ll use the credit card app on my phone that night to transfer $50 from my checking account,” she explains. “That way I’m not spending money that I don’t have.”</p><p><strong>Pre-pay your credit card</strong></p><p>This tip from Compton Game is pure genius: “Pre-pay your credit card for however much you’ve budgeted for the week for your expenses,” she advises. It will help keep your bank balance in check and stop you from spending money you don’t have.</p><p><strong>Don't carry a balance</strong></p><p>There’s a two-word reason: interest payments. Udo says that when he uses credit cards, “I always make sure to pay the bill in full every month. I get all the convenience without having to pay interest to the bank.” If you can’t pay it all, a good rule of thumb is to never carry more than 30 per cent of your credit limit to the next month. Bonus: paying off your balance every month is a good way to boost your credit rating.</p><p><strong>Use cash</strong></p><p>Another thing to consider if you find yourself holding a hefty credit card bill when the 31st rolls around, is to start paying with cash. Udo explains that not only does this make sure you’re living within your means but “the physical action of handing over cash to someone else is a lot more difficult than swiping a card.”</p><p><strong>Automate your savings</strong></p><p>Remembering to set aside money each month is tough. Fortunately, financial planner, Sophia Bera, has a sneaky solution. “Automate your savings and retirement contributions so you don’t have to think about it yet you’re consistently making progress on your goals.”</p><p><strong>Find inexpensive alternatives</strong></p><p>More free time often involves spending more money, from brunch to happy hour to window shopping (which turns into actual shopping). “Nothing is wrong with these activities, but when I was doing them out of habit, I realised that so much of my spending was on things that I didn’t really care that much about,” Gellerman says. Now she keeps a list of budget-friendly activities to swap out for her pricier pastimes, like inviting friends over or going on a walk.</p><p><strong>Have a good attitude </strong></p><p>As new age-y as it may sound, the law of attraction applies to money, too. The better your attitude is towards your finances, the better your finances will be. “Come at money from a place of enjoyment and abundance instead of fear or scarcity,” Taylor Simpson, founder of The Money Mindset Masterclass says. “Know and believe money comes to you easily – when you feel this, you’ll live it.” One way to do that? Say “thank you” when you spend money to start seeing it as something that comes and goes effortlessly.</p><p><strong>Create an emergency fund</strong></p><p>According to a recent survey by Mozo, only 25 per cent of Australians have the savings to stay afloat when faced with unforeseen circumstances. To prevent going into debt, however, you should have enough set aside that you could cover a minimum of three to six months worth of living expenses in case something drastic should happen.</p><p><strong>Don't boost your budget</strong></p><p>No matter what. That means even if you get a raise, start a side gig or even win the lottery – stay firm to your original budget. Better yet, funnel all that extra income directly into your savings or retirement fund, so you won’t even feel like you’re missing anything.</p><p><strong>Skip the take-away coffees</strong></p><p>Yes, you’ve heard it before but it bears repeating: Time, in partnership with NextAdvisor, broke down exactly how much you’d save if you swapped your twice-daily coffee habit with home-brewed coffee – and it’s a lot. Assuming you spend $3.95 on your cappuccino, twice a day, you could be losing over $2,800.00 per year – compared to spending just $100 per year with home-brewed coffee. Something to keep in mind is that number could be more or less, depending on your order. If you have a more expensive coffee habit, prepare to spend more per year.</p><p><strong>Track your progress</strong></p><p>If you have a financial goal in mind, say to save up an emergency fund by the end of the year, track your progress to see how you’re doing. Seeing that number increase each time you look can give you the motivation to keep your smart spending habits on track. Or, if you don’t see it increase as much as you’d like, you can adjust your spending habits to get back on track. Either way, tracking how much you save will help you figure out if your saving habits are efficient or not.</p><p><strong>Compare prices</strong></p><p>It’s tempting to grab something we want or need as soon as we see it, but smart spenders know to compare prices and see where to get the best deal. They utilise fliers, apps, and websites to compare prices. For instance, MotorMouth, which makes it easy to compare the price of fuel at one servo with the others, highlighting the cheaper and more expensive service stations right across the region.  Comparing prices can cut your spending and allow you to put extra money aside.</p><p>This article originally appeared on <a href="https://www.readersdigest.com.au/food-home-garden/money/15-everyday-habits-of-debt-free-people">Reader's Digest</a>. </p>

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Confusion, financial pressure, discomfort: older people can struggle with sustainable living, despite its obvious benefits

<p>Improving the sustainability of Australia’s housing stock is <a href="https://www.google.com/search?client=safari&amp;rls=en&amp;q=building+sector+australia+emissions+the+conversation&amp;ie=UTF-8&amp;oe=UTF-8">crucial</a> to meeting national emissions reduction goals. But for older adults, such changes can bring both benefits and challenges.</p> <p>My <a href="https://www.sciencedirect.com/science/article/abs/pii/S0360132321007344">recent research</a> examined the literature on environmental sustainability measures at residences for older adults. These included private homes, retirement villages and nursing homes.</p> <p>I found that while sustainability measures can bring multiple benefits to older people, they also bring challenges. For example, people living in sustainable dwellings may use less energy and water which leads to lower bills. But older people may suffer cognitive decline and struggle to use sustainable technology devices.</p> <p>The full effects of environmentally sustainable features must be better understood if we’re to provide seniors with high-quality residential environments.</p> <p><img src="https://images.theconversation.com/files/441440/original/file-20220119-15-60lcsc.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="Older man walks down corridor" /> <span class="caption">Sustainability measures can bring benefits and challenges to older people.</span> <span class="attribution"><span class="source">Shutterstock</span></span></p> <h2>Sustainability and ageing: a complex mix</h2> <p>Forecasts suggest that by 2056, <a href="https://www.aihw.gov.au/reports-data/population-groups/older-people/overview">22% of Australians</a> – or 8.7 million people – will be aged 65 or older. High-quality residential environments are important to maintaining the welfare of these people as they age.</p> <p>Environmental sustainability is playing an ever greater role in residential development across the board, including retirement villages. And <a href="https://www.hindawi.com/journals/jar/2014/919054/">previous research</a> suggests most retirement village residents want to lead more sustainable lifestyles.</p> <p>As climate change worsens, the dwellings of older adults should allow them to adapt to these changing conditions. The reduced ability of elderly people to regulate their body temperature means global warming is a profound threat to this group.</p> <p>Improving the sustainability of a residential environment may include:</p> <ul> <li>reducing waste</li> <li>using low carbon or recycled building materials</li> <li>solar passive design</li> <li>efficient heating and cooling</li> <li>using renewable energy such as rooftop solar.</li> </ul> <p><a href="https://new.gbca.org.au/case-studies/building/stockland-takes-sustainability-retirement-living/">Some residential projects</a> for the elderly already include environmental sustainability. A <a href="https://www.emerald.com/insight/content/doi/10.1108/F-08-2011-0060/full/html">case study</a> of a not-for-profit retirement village in South Australia revealed practices such as innovative floor plans, thermally efficient building materials, good window orientation and a water harvesting system.</p> <p>And my previous research <a href="https://www.sciencedirect.com/science/article/abs/pii/S0959652619341605">found</a> a range of sustainability features at eight private and not-for-profit retirement villages in Queensland.</p> <p>However, while many retirement village developers prioritise “social sustainability” features such as care provision and social interaction, environmental sustainability is <a href="https://www.sciencedirect.com/science/article/abs/pii/S0959652617313963">largely ignored</a>.</p> <p><img src="https://images.theconversation.com/files/441450/original/file-20220119-25-1qtv5d.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="elderly woman holds hands of carer" /> <span class="caption">Forecasts suggest that by 2056, 22% of Australians will be aged 65 or older.</span> <span class="attribution"><span class="source">Shutterstock</span></span></p> <h2>On the plus side</h2> <p>The benefits of environmentally sustainable features in in older adults’ residential environment include:</p> <p><strong>- reduced resource consumption:</strong> sustainable dwellings usually require less water and energy use, which lowers living costs. This is especially important for older adults who often have reduced financial capacity after retirement. Older people also use energy <a href="https://www.sciencedirect.com/science/article/abs/pii/S0301421597000402">more intensively</a> than other groups because they have fewer household members, greater heating requirements and spend more time at home.</p> <p><strong>- reduced health risks:</strong> environmentally sustainable measures can lead to healthier indoor environments. For example, good ventilation and high-quality air conditioning often lead to improved indoor air quality and more comfortable ambient temperatures.</p> <p><strong>- alleviated environmental challenges:</strong> many older people want their homes to be more environmentally friendly. Doing their bit to alleviate global problems such as greenhouse gas emissions can provide them with peace of mind.</p> <p><img src="https://images.theconversation.com/files/441438/original/file-20220119-15-124namg.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="elderly person's hands on heater" /> <span class="caption">Sustainable dwellings usually require less water and energy use,</span> <span class="attribution"><span class="source">Shutterstock</span></span></p> <h2>The potential downsides</h2> <p>The challenges of environmentally sustainable home features for older adults include:</p> <p><strong>- financial pressure:</strong> the income of many older adults is substantially reduced after retirement. This <a href="https://www.sciencedirect.com/science/article/abs/pii/S0301421511005222">can conflict</a> with the high initial investment of developing an sustainable housing and the cost of replacing existing systems with sustainable ones.</p> <p><strong>- reducing energy consumption:</strong> in some cases, sustainability measures can involve tolerating slightly higher or cooler temperatures. For example, moving from a gas-heating system to a more sustainable type may <a href="https://www.sciencedirect.com/science/article/pii/S0301421515001172">delay</a> the arrival of heat in a room and leave older people uncomfortable for a short time. This may conflict with older people’s <a href="https://ideas.repec.org/a/eee/enepol/v84y2015icp250-256.html">increased sensitivity</a> to ambient temperatures.</p> <p><strong>- confusion and complexity:</strong> Older adults can have <a href="https://academic.oup.com/bmb/article/92/1/135/332828">reduced cognitive capabilities</a> affecting memory and information processing speed. As a result they may struggle to use sustainable technologies such as smart thermostats. Research has <a href="https://www.sciencedirect.com/science/article/abs/pii/S0301421514006259">suggested</a> ways of overcoming this, such as better recognising the diversity of older adults to achieve a better “person-technology fit”.</p> <p><img src="https://images.theconversation.com/files/441437/original/file-20220119-25-fkfanl.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="Four older women shelter from the sun under umbrella" /> <span class="caption">Older people may have increased sensitivity to hot or cold temperatures.</span> <span class="attribution"><span class="source">Paul Miller/AAP</span></span></p> <h2>Next steps</h2> <p>Older adults have unique needs which their homes <a href="https://www.sciencedirect.com/science/article/abs/pii/S0360132321007344">must satisfy</a>, even when sustainability features are being adopted.</p> <p>Ageing should be seen as a dynamic process with physical, psychological and social dimensions. And the complex interrelationships of ageing, environmental sustainability and the residential environment also need to be recognised.</p> <p>Best practices and lessons learned in creating sustainable living environments for older adults should be <a href="https://www.sciencedirect.com/science/article/abs/pii/S0959652618325241">shared</a>.</p> <p>Finally, developers making sustainability decisions should consult other stakeholders. These include contractors, occupational therapists, researchers and most importantly, older adults themselves.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/174535/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><span><a href="https://theconversation.com/profiles/xin-hu-685656">Xin Hu</a>, Lecturer, School of Architecture and Built Environment, <em><a href="https://theconversation.com/institutions/deakin-university-757">Deakin University</a></em></span></p> <p>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/confusion-financial-pressure-discomfort-older-people-can-struggle-with-sustainable-living-despite-its-obvious-benefits-174535">original article</a>.</p> <p><em>Image: Shutterstock</em></p>

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What a disaster: federal government slashes COVID payment when people need it most

<p>With Australia’s official COVID-19 infection numbers topping <a href="https://www.nytimes.com/interactive/2021/world/australia-covid-cases.html">100,000 a day</a>, the federal government has slashed its last remaining pandemic support payment.</p> <p>The decision is ill-timed, irresponsible and heartless. It is stripping away support for those most affected by the pandemic at the time they need it most. It will place those in low paid and precarious work in further financial stress as they lose income to isolate when infected or in close contact with someone else with COVID-19.</p> <p>The Pandemic Leave Disaster Payment was introduced in August 2020 in response to concerns casual workers and others without sick or pandemic leave entitlements could not take time off work when infected or in contact with someone with COVID-19.</p> <p>The leave payment was initially available to those not qualifying for JobKeeper – or, after JobKeeper ended in March 2021, the “disaster payment” introduced in response to <a href="https://theconversation.com/support-package-for-sydney-better-and-more-fit-for-purpose-than-jobkeeper-164394">the Sydney lockdown</a> in July 2021. Since that payment ended the Pandemic Leave Disaster Payment is the only individual financial support the federal government provides.</p> <p>Available to people who had contracted COVID, were a close contact or needed to care for someone who had COVID, until this week it paid A$750 a week for two weeks. You could claim the payment regardless of the number of hours of paid work you lost.</p> <p>On January 18 the rules tightened – a move announced via a <a href="https://ministers.pmc.gov.au/mckenzie/2022/changes-pandemic-leave-disaster-payment">press release </a> on January 8 (a Saturday).</p> <p>Now it only pays $750 if you lose 20 hours or more of paid work a week. If you lose 8-19 hours you get just $450 a week. If you lose less than eight hours you get nothing.</p> <p>Getting the payment has also been made more difficult by imposing a 14-day time limit to apply, from the start of the isolation period. To qualify, you must show evidence of a positive PCR or rapid antigen test. Considering the difficulty of obtaining RATs, and delays in PCR test results <a href="https://www.smh.com.au/politics/victoria/test-samples-no-longer-suitable-after-seven-day-wait-20220108-p59ms1.html">of a week or more</a>, this is a unreasonable and unnecessary constraint.</p> <h2>Flawed eligibility rules</h2> <p>A major flaw in the eligibility rules for the leave payment it is not available to people receiving social security payments. This excludes all JobSeeker recipients, despite about <a href="https://data.gov.au/data/dataset/dss-payment-demographic-data/resource/80cc89a3-3208-4e0d-9745-598f7a882e28">one in four</a> being in some form of paid work – generally low-paid casual jobs.</p> <p>The leave payment has been a vital part of the economic supports to help people stay safe and protect their loved ones and the community.</p> <p>The peak body for the community services sector, the Australian Council of Social Service, has <a href="https://www.acoss.org.au/media-releases/?media_release=another-income-hit-for-casual-workers-massive-cut-to-pandemic-leave-disaster-payment">condemned this decision</a>. It says cutting the payment will leave people without enough to cover basic costs, let alone the extra costs of isolation such as delivery fees, rapid tests (if you can get them) and personal protective equipment.</p> <h2>Worst time possible</h2> <p>There could scarcely be a worse time to cut this payment, with Australia now in the worst stage of the pandemic.</p> <p>Between August 5 2020 and July 8 2021 the Pandemic Leave Disaster Payment provided <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp2122/Quick_Guides/COVID-19DisasterPayments">almost 15,000 grants</a> to support those in need. During this period the peak COVID case rate was just over 500 day, in August 2020. Consider, therefore, the likely need now we’re at more than <a href="https://www.nytimes.com/interactive/2021/world/australia-covid-cases.html">100,000 a day</a>.</p> <p>With no other form of federal income support available you may apply for an unemployment or sickness payment like JobSeeker. But Services Australia advises this will be paid about <a href="https://www.servicesaustralia.gov.au/when-youll-get-your-first-jobseeker-payment?context=51411">two weeks after</a> a claim is granted. That is of little help to cover rent while you’re isolating with COVID. JobSeeker is also a maximum of $315 a week – inadequate to cover basic costs.</p> <p>This cut will affect many of the same people <a href="https://www.dailytelegraph.com.au/news/national/pm-announces-national-day-of-thanks-for-pandemic-heroes/news-story/174c8ccb94814aaa554d79eea0193e4f">lauded as the heroes of pandemic</a> – essential workers employed casually in health and aged care, supermarkets, hospitality venues and warehouses. It will also hurt temporary visa holders, who are entitled to the leave payment and do not qualify for any other federal income support.</p> <p>Last week <a href="https://www.acoss.org.au/media-releases/?media_release=community-sector-calls-for-collaboration-and-decisive-leadership-from-national-cabinet-to-deal-with-covid-debacle">ACOSS called for</a> the establishment of a civil society COVID Rapid Response Group to work alongside National Cabinet. We need the interests of people most at risk in the room at the highest levels when decisions like the future of the Pandemic Leave Disaster Payment are made.</p> <p>Cutting this payment now is effectively telling low-paid workers at the worst stage of the pandemic in Australia that they’re on their own.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/175146/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><span><a href="https://theconversation.com/profiles/cassandra-goldie-94635">Cassandra Goldie</a>, Adjunct Professor and UNSW Law Advisory Council Member, <em><a href="https://theconversation.com/institutions/unsw-1414">UNSW</a></em></span></p> <p>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/what-a-disaster-federal-government-slashes-covid-payment-when-people-need-it-most-175146">original article</a>.</p> <p><em>Image: Mick Tsikas/AAP</em></p>

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Healthy humans drive the economy: we’re now witnessing one of the worst public policy failures in Australia’s history

<p>Australians are getting a stark reminder about how value is actually created in an economy, and how supply chains truly work.</p> <p>Ask chief executives where value comes from and they will credit their own smart decisions that inflate shareholder wealth. Ask logistics experts how supply chains work and they will wax eloquent about ports, terminals and trucks. Politicians, meanwhile, highlight nebulous intangibles like “investor confidence” – enhanced, presumably, by their own steady hands on the tiller.</p> <p>The reality of value-added production and supply is much more human than all of this. It is people who are the driving force behind production, distribution and supply.</p> <p>Labour – human beings getting out of bed and going to work, using their brains and brawn to produce actual goods and services – is the only thing that adds value to the “free gifts” we harvest from nature. It’s the only thing that puts food on supermarket shelves, cares for sick people and teaches our children.</p> <p>Even the technology used to enhance workers’ productivity – or sometimes even replace them – is ultimately the culmination of other human beings doing their jobs. The glorious complexity of the whole economy boils down to human beings, using raw materials extracted and tools built by other human beings, working to produce goods and services.</p> <h2>A narrow, distorted economic lens</h2> <p>The economy doesn’t work if people can’t work. So the first economic priority during a pandemic must be to keep people healthy enough to keep working, producing, delivering and buying.</p> <p>That some political and business leaders have, from the outset of COVID-19, consistently downplayed the economic costs of mass illness, reflects a narrow, distorted economic lens. We’re now seeing the result – one of the worst public policy failures in Australia’s history.</p> <p>The Omicron variant is tearing through Australia’s workforce, from <a href="https://www.smh.com.au/national/nsw/nurses-are-in-despair-as-staffing-shortages-bite-in-nsw-hospitals-20220103-p59ljc.html?fbclid=IwAR3obDpqk7Muu2xpOA1H7MH2D2TuxPIzMQrL_NKk2QoKHA2LriWoRcmRO8o">health care</a> and <a href="https://www.smh.com.au/national/nsw/hundreds-of-nsw-childcare-centres-shut-due-to-covid-20220104-p59ls4.html">child care</a>, to <a href="https://www.edenmagnet.com.au/story/7575635/knock-on-effects-through-supply-chain-despite-eased-covid-rules-for-workers/">agriculture</a> and <a href="https://www.freshplaza.com/article/9388733/omicron-has-now-put-us-in-a-desperate-situation-in-regards-to-workers-shortage-and-shipping-issues/">manufacturing</a>, to <a href="https://www.abc.net.au/news/2022-01-06/supermarket-shortage-supply-chain-truck-driver-covid/100741392">transportation and logistics</a>, to <a href="https://www.smh.com.au/national/surf-lifesavers-and-students-fill-paramedic-shifts-as-omicron-spreads-20220108-p59mrq.html">emergency services</a>.</p> <p>The result is an unprecedented, and preventable, economic catastrophe. This catastrophe was visited upon us by leaders – NSW Premier Dom Perrotet and Prime Minister Scott Morrison in particular – on the grounds they were protecting the economy. Like a Mafia kingpin extorting money, this is the kind of “protection” that can kill you.</p> <h2>Effect as bad as lockdowns</h2> <p>On a typical day in normal times, between <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/nov-2021/EM2b.xlsx">3% and 4% of employed Australians</a> miss work due to their own illness. Multiple reports from NSW indicate up to half of workers are now absent due to COVID: because they contracted it, were exposed to it, or must care for someone (like children barred from child care) because of it. With infections still spreading, this will get worse in the days ahead.</p> <p>Staffing shortages have left hospitals in chaos, supermarket shelves empty, supply chains paralysed. ANZ Bank data, for example, shows <a href="https://twitter.com/ANZ_Research/status/1479284711151345666?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet">economic activity in Sydney</a> has fallen to a level lower than the worst lockdowns.</p> <hr /> <p><strong>Spending in Sydney and Melbourne now near lockdown conditions</strong></p> <p><a href="https://images.theconversation.com/files/440169/original/file-20220111-17-1jp9jpu.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/440169/original/file-20220111-17-1jp9jpu.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="ANZ Bank data shows spending in Sydney and Melbourne has fallen to levels typical of lockdown conditions." /></a> <span class="caption"></span> <span class="attribution"><span class="source">ANZ Research</span></span></p> <hr /> <p>If relaxing health restrictions in December (as Omicron was already spreading) was motivated by a desire to boost the economy, this is an own-goal for the history books.</p> <h2>Relaxing isolation rules</h2> <p>Now the response to Omicron ravaging labour supply is to relax isolation requirements for workers who have contracted, or been exposed to, COVID-19.</p> <p>The first step was to shift the goalposts on “test, trace, isolate and quarantine” arrangements by redefining “close contact”.</p> <p>On December 29 <a href="https://www.pm.gov.au/media/press-conference-kirribilli-nsw-10">the Prime Minister said</a> it was important to move to a new definition “that enables Australia to keep moving, for people to get on with their lives”. The next day National Cabinet <a href="https://www.pm.gov.au/media/national-cabinet-statement-12">approved a definition</a> such that only individuals having spent at least four hours indoors with a COVID-infected person needed to isolate.</p> <p>Australians certainly want supply chains to keep moving. That won’t happen by simply pretending someone with three hours and 59 minutes of face-to-face indoor contact with Omicron is safe. Putting asymptomatic but exposed and potentially infected people back to work will only accelerate the spread.</p> <p>The second step has been to reduce the isolation period for those who do pass this tougher “close contact” test. At its December 30 meeting National Cabinet agreed to a standard isolation period of seven days (ten days in South Australia), <a href="https://www1.racgp.org.au/newsgp/gp-opinion/so-you-have-been-asked-to-self-isolate-or-quaranti">down from 14 days</a>.</p> <p>For “critical workers” in essential services including food logistics, the NSW and Queensland governments <a href="https://www.news.com.au/finance/work/at-work/isolation-rules-relaxed-for-critical-workers-as-nsw-battles-supply-chain-issues/news-story/2b97ef133f6c3caff9dcd5bc548cc58b">have gone even further</a>, allowing employers to call them back to work so long as they are asymptomatic.</p> <h2>Snatching defeat from the jaws of victory</h2> <p>This follows a <a href="https://www.cdc.gov/media/releases/2021/s1227-isolation-quarantine-guidance.html">US precedent</a>, despite <a href="https://www.nejm.org/doi/pdf/10.1056/NEJMc2102507?articleTools=true">scientific evidence</a> indicating contagion commonly lasts longer than 5 days.</p> <p>Employers will use this change to pressure exposed and even sick workers to return to work, risking their own health, colleagues, customers, and inevitably spreading the virus further.</p> <p>Copying US COVID protocols only guarantees US-style infection rates. In fact, since 5 January, Australia’s seven-day rolling average infections per million <a href="https://ourworldindata.org/explorers/coronavirus-data-explorer?zoomToSelection=true&amp;time=2021-03-30..latest&amp;facet=none&amp;pickerSort=desc&amp;pickerMetric=total_cases_per_million&amp;hideControls=true&amp;Metric=Confirmed+cases&amp;Interval=7-day+rolling+average&amp;Relative+to+Population=true&amp;Color+by+test+positivity=false&amp;country=USA%7EAUS">now exceed that of the US</a>.</p> <hr /> <p><a href="https://images.theconversation.com/files/440179/original/file-20220111-21-zzh3bj.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/440179/original/file-20220111-21-zzh3bj.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="Daily new confirmed COVID-19 cases per million people, Australia compared to United States." /></a> <span class="caption"></span> <span class="attribution"><a href="https://ourworldindata.org/explorers/coronavirus-data-explorer?zoomToSelection=true&amp;time=2021-03-30..latest&amp;facet=none&amp;pickerSort=desc&amp;pickerMetric=total_cases_per_million&amp;hideControls=true&amp;Metric=Confirmed+cases&amp;Interval=7-day+rolling+average&amp;Relative+to+Population=true&amp;Color+by+test+positivity=false&amp;country=USA~AUS" class="source">Our Wold in Data</a>, <a href="http://creativecommons.org/licenses/by/4.0/" class="license">CC BY</a></span></p> <hr /> <p>From one of the best COVID responses in the world to one of the worst, Australia has snatched defeat from the jaws of victory.</p> <h2>It’s not too late to limit the carnage</h2> <p>The idea that health considerations <a href="https://www.theguardian.com/australia-news/2021/oct/07/its-an-economic-crisis-too-in-nsw-what-a-difference-a-new-premier-makes">had to be balanced with economic interests</a> was always a false dichotomy. A healthy economy requires healthy workers and healthy consumers.</p> <p>The Omicron surge has created an economic emergency that will be difficult to endure.</p> <p>But it’s not too late to limit further avoidable contagion. Infection prevention practices (including masks, capacity limits, prohibitions on group indoor activities, PPE and distancing in workplaces, and free and accessible rapid tests) must be restored and enforced.</p> <p>Income supports for workers who stay home must be restored. Staffing strategies need to emphasise steady, secure jobs, rather than outsourcing and gig arrangements which have facilitated contagion.</p> <p>Above all, our policy makers need to remember the economy is composed of human beings, and refocus their attention on keeping people healthy. Protecting people is the only thing that can protect the economy.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/174606/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><span><a href="https://theconversation.com/profiles/jim-stanford-521684">Jim Stanford</a>, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, <em><a href="https://theconversation.com/institutions/university-of-sydney-841">University of Sydney</a></em></span></p> <p>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/healthy-humans-drive-the-economy-were-now-witnessing-one-of-the-worst-public-policy-failures-in-australias-history-174606">original article</a>.</p> <p><em>Image: Shutterstock</em></p>

Retirement Income

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Should I pay off the mortgage ASAP or top up my superannuation? 4 questions to ask yourself

<p>At a certain point in life, many wonder what’s better: to pay off the home loan ASAP or top up your superannuation?</p> <p>If your emergency cash buffer looks OK and you have enough to cover you for around three to six months if you lost your job, the super versus mortgage question is a good one to ponder. There’s no one-size-fits-all answer.</p> <p>On the face of it, there’s a compelling case for building up your super; you can take advantage of the <a href="https://moneysmart.gov.au/budgeting/compound-interest-calculator">magic of compound interest</a> (and, potentially, some <a href="https://moneysmart.gov.au/grow-your-super/super-contributions">tax breaks</a> as well) – all while interest rates on mortgages are low.</p> <p>If you’re getting <a href="https://www.superannuation.asn.au/media/media-releases/2021/media-release-29-june-2021">8% compound interest on super</a> and paying only 3% on your mortgage, building up super might seem a good option.</p> <p>But financial decisions are about psychology as well as numbers. Much depends on your debt comfort zone.</p> <p>It’s best to seek professional assistance from a <a href="https://moneysmart.gov.au/managing-debt/financial-counselling">financial counsellor</a> or adviser. But here are some questions to consider along the way.</p> <h2>1. Am I ‘on track’ to have enough super upon retirement?</h2> <p>Use the government’s Moneysmart <a href="https://moneysmart.gov.au/retirement-income/retirement-planner">retirement planners</a> or your super fund’s calculator to check.</p> <p>If it’s looking sparse – perhaps due to career breaks or part-time work – you might consider <a href="https://www.ato.gov.au/individuals/super/growing-your-super/adding-to-your-super/salary-sacrificing-super/">salary sacrificing</a> extra into your super (on top of what your employer already puts in there).</p> <p>An additional A$50 a week, for example – even just for a few years – can help remedy your meagre super projections.</p> <p>According to <a href="https://moneysmart.gov.au/grow-your-super/super-contributions">Moneysmart</a>:</p> <blockquote> <p>The payments, called concessional contributions, are taxed at 15%. For most people, this will be lower than their marginal tax rate. You benefit because you pay less tax while you boost your retirement savings […] The combined total of your employer and salary sacrificed concessional contributions must not be more than $27,500 per financial year.</p> </blockquote> <p>Try the <a href="https://www.industrysuper.com/understand-super/salary-sacrifice-calculator/">Industry Super</a> or <a href="https://moneysmart.gov.au/grow-your-super/super-contributions-optimiser">Moneysmart</a> calculators to see how much extra you’d have at retirement if you salary sacrificed into super for a few years. Consider seeking advice from your super fund on your super investment options and Age Pension entitlements.</p> <p>You might also consider an after-tax <a href="https://www.ato.gov.au/individuals/super/growing-your-super/adding-to-your-super/personal-super-contributions/">personal super contribution</a> (that is, putting extra money from savings or from your take-home pay into super). The contributions may be <a href="https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/claiming-deductions-for-personal-super-contributions/">tax deductible</a>, but even if not, the returns in super are tax friendly.</p> <p><a href="https://images.theconversation.com/files/430652/original/file-20211107-9872-q6fqib.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/430652/original/file-20211107-9872-q6fqib.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="A middle aged couple do financial planning together on a laptop." /></a> <span class="caption">Are you ‘on track’ to have enough super upon retirement? Use online calculators to find out.</span> <span class="attribution"><span class="source">Shutterstock</span></span></p> <h2>2. What about the pension?</h2> <p>Are you expecting a full Age Pension? To find out if you’re likely to qualify for one, use an <a href="https://www.superguide.com.au/in-retirement/age-pension-calculator">online calculator</a> or ask your super fund. People with “too much super” don’t get the pension (although most retirees get some part pension). For some, the more you put into super, the <a href="https://grattan.edu.au/wp-content/uploads/2020/03/Grattan-Institute-sub-balancing-act-retirement-income-review.pdf">less you get in Age Pension payments</a>.</p> <p>For single homeowners, the total asset threshold for a full Age Pension is $270,500 (including super but excluding your main residence), while the part-Age Pension threshold is $593,000. For couple homeowners, the combined total asset threshold for a part-Age Pension is $891,500 (also including super but excluding the main residence).</p> <p>If you’re on a median income and your super balance is predicted to land between the lower and upper asset thresholds for the pension, <a href="https://grattan.edu.au/wp-content/uploads/2020/03/Grattan-Institute-sub-balancing-act-retirement-income-review.pdf">some models predict</a> that for every extra $1,000 put into super at age 40, you would only be around $25 per year better off in terms of retirement income (due to the tapering off in eligible Age Pension income).</p> <p>For people on low incomes, extra super contributions may not be the answer at all if the result is more financial stress during your working life and immediate housing security risk.</p> <h2>3. If I retired with a mortgage, could I cope?</h2> <p>Many people end up retiring earlier than planned, due to health or other issues.</p> <p>If you were still paying off your mortgage at retirement, would you feel comfortable about that? Or would it be a source of worry?</p> <p>Traditionally, most people enter retirement having paid off their home loan but now <a href="https://theconversation.com/more-people-are-retiring-with-high-mortgage-debts-the-implications-are-huge-115134">more are approaching retirement</a> with some mortgage remaining. It might not be the end of the world if you had $100,000 left on the mortgage when you stop working. After all, you can draw out up to <a href="https://moneysmart.gov.au/retirement-income/super-lump-sum">$215,000 of your super tax free at retirement</a> to pay off debt. Doing so can also increase your Age Pension entitlement (as your primary residence is exempt from pension assets tests while super is not).</p> <p>The wealth accumulation in superannuation is going to outpace the interest on a mortgage in most cases for some time, even after you retire. Even so, you might feel it’s worth making the last vestiges of your debt go away in retirement so you can stop worrying about it.</p> <p><img src="https://images.theconversation.com/files/430653/original/file-20211107-10121-1tkhmjc.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="An older same sex couple laugh together in the garden." /> <span class="caption">If you and your partner retired with a mortgage debt, would you feel OK about that or would it be a source of worry?</span> <span class="attribution"><span class="source">Shutterstock</span></span></p> <h2>4. Will the choices I make today cost me later – and am I OK with that?</h2> <p>Australian property values have skyrocketed and many have borrowed more to pay for renovations. The full “cost” of a renovation may not be apparent at first.</p> <p>The true cost of a $150,000 renovation over the next 20 years could be more like $700,000. How? Well, if that $150,000 was put into a balanced allocation in super for a couple of decades, it would likely grow to be about $700,000. That’s compound interest for you. You’d hope to get that in capital gains from the renovation.</p> <p>But it’s never just about the finances. The extra mortgage might be worth it because it paid for a home that brings comfort and joy (as well as the capital gains).</p> <p>Likewise, paying off your mortgage ASAP might mean forgoing the extra you’d get if you’d put it in super. But for some, wiping out a mortgage will be worth it to be debt-free. Perhaps after the mortgage is gone, you can maximise salary sacrificing into super until retirement, while also reducing your tax bill.</p> <h2>At least do the sums</h2> <p>There’s always more than one solution. To know what’s right for you, you’ll need to get advice for your personal circumstances.</p> <p>But it’s good to look at where your super is now and where it’s heading, and <a href="https://www.canstar.com.au/home-loans/debt-income-ratio/">calculate your debt-to-income ratio</a> (debt divided by income). It’s often used to guage how serious (or not) your debt is. Lenders and regulators might consider a debt-to-income ratio over <a href="https://www.apra.gov.au/sites/default/files/2021-09/Quarterly%20authorised%20deposit-taking%20institution%20property%20exposure%20statistics%20-%20Highlights%20June%202021.pdf">six times your income to be “high”</a>, but your personal debt comfort zone might be much lower.</p> <p>Emotions play a bigger part in financial planning than many like to admit. Desire to pay off a mortgage quickly can be influenced by how you were raised, feelings of anxiety and stigma that often come with debt, and Australia’s cultural bias toward debt-free home ownership.</p> <p>Depending on circumstances though, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. At least do the sums, so you can make an informed choice.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/170470/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><span><a href="https://theconversation.com/profiles/di-johnson-1265246">Di Johnson</a>, Lecturer in Finance, <em><a href="https://theconversation.com/institutions/griffith-university-828">Griffith University</a></em></span></p> <p>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/should-i-pay-off-the-mortgage-asap-or-top-up-my-superannuation-4-questions-to-ask-yourself-170470">original article</a>.</p> <p><em>Image: Shutterstock</em></p>

Retirement Income

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Progressive in theory, regressive in practice: that’s how we tax income from savings

<p>We’re told Australia has a progressive tax system – the more you earn, the higher the rate.</p> <p>And that’s certainly the case for earnings from wages. An Australian on A$35,000 sacrifices 21 cents out of each extra dollar they earn whereas an Australian on $90,000 sacrifices 39 cents.</p> <p>That’s how it’s meant to be for income from savings, but in practice it isn’t.</p> <p>Fresh calculations released this morning by the <a href="https://taxpolicy.crawford.anu.edu.au/sites/default/files/uploads/taxstudies_crawford_anu_edu_au/2020-07/20271_anu_-_ttpi_policy_report-ff2.pdf">Tax and Transfer Policy Institute</a> at the Australian National University show that low income Australians in the bottom tax bracket pay a higher marginal rate of tax on income from savings than high earners in the top tax bracket.</p> <p>It is because of exemptions and special rates, and the alacrity with which high earners take advantage of them.</p> <h2>Super gives the most to the highest earners</h2> <p>The taxation of superannuation drives the results.</p> <p>Super contributions are generally taxed at a flat rate of 15%. For low earners on an income tax rate of zero, 15% would constitute a considerable extra impost did the government not refund the difference with a <a href="https://drive.google.com/file/d/1W9FN4deDYY9q0ooFDPNqq1CvYAUz90Ao/view">tax offset</a> that cuts the effective rate to zero.</p> <p>High earners on the 47% marginal rate do much better. The tax rate of 15% offers substantial tax relief. For them, it is an effective rate of minus 32%.</p> <p>Other tax concessions are directed at older Australians, who are often on higher incomes than younger Australians.</p> <h2>Highest bracket, lowest rate</h2> <p>Our calculation of the marginal effective annual tax rates actually paid on income from savings is published in a report entitled <a href="https://taxpolicy.crawford.anu.edu.au/sites/default/files/uploads/taxstudies_crawford_anu_edu_au/2020-07/20271_anu_-_ttpi_policy_report-ff2.pdf">the taxation of savings in Australia: theory, current practice and future policy directions</a>.</p> <p>It shows that the marginal tax rate high earners pay on additional savings held over a twenty year period is 5.3% of income, on average, whereas for low earners in the bottom (zero) tax bracket it’s 12.2%.</p> <p>Low earners in the second lowest tax bracket are paying 13.8%.</p> <hr /> <p><strong>Marginal effective tax rates actually paid on income from savings, by bracket</strong></p> <p><a href="https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /></a> <span class="caption">Authors’ calculations using data from the Australian Survey of Income and Housing, 2019.</span> <span class="attribution"><a href="https://taxpolicy.crawford.anu.edu.au/" class="source">TTPI Policy Report 01-2020</a></span></p> <hr /> <h2>The way forward: a dual income tax system</h2> <p>Our report proposes taxing all types of saving at the same flat low rate.</p> <p>This dual income tax system (a progressive rate for wages and salaries, a flat rate for income from savings) has been used in Norway, Finland, Sweden and Denmark since the early 1990s. Elements of it are used in Austria, Belgium, Italy, Greece and the Netherlands.</p> <p>If the rate were 10%</p> <p>• all interest payments would be taxed at 10%</p> <p>• all dividends, both domestic and foreign, would be taxed at a rate of 10%</p> <p>• all capital gains (including owner-occupied housing) would be taxed at 10%</p> <p>• superannuation contributions would be made from after-tax income and then earnings in the accounts taxed at 10%</p> <p>• rent and capital gains on investment properties would be taxed at 10%</p> <p>• the imputed rent from owner-occupied housing (the benefit home owners get from not having to pay rent that is taxed) would be calcuated and taxed at a rate of 10%. An alternative would be to raise the same amount through a broad-based land tax.</p> <p>Our calculations suggest that if the tax were applied broadly at a rate of 6.2%, it would raise as much as is raised now from taxes on income from savings. If income from owner-occupied housing were excluded, the rate would need to be 10.2%.</p> <p>But there is no particular reason for the rate to be set to generate as much from savings income as it does now. It could be set to raise more, or to raise less.</p> <p>The design and implementation of a dual income tax should be considered alongside broader changes to the tax and transfer system. In particular, it should be combined with removing opportunities to re-classify income for tax minimisation purposes. We outline some of the considerations <a href="https://taxpolicy.crawford.anu.edu.au/sites/default/files/uploads/taxstudies_crawford_anu_edu_au/2020-07/20271_anu_-_ttpi_policy_report-ff2.pdf">in our report</a>.</p> <p>In the meantime, as steps towards a flatter fairer system of taxing income from savings, the government could consider better targeting superannuation subsidies, replacing real estate stamp duty with land tax and including the family home in the means tests for pensions and other age-related benefits.</p> <p>Our current approach to taxing income from savings is a mess at best and a serious driver of intergenerational inequality at worst. Some savings tax arrangements are progressive, taxing higher incomes more heavily, and some are regressive.</p> <p>We want to encourage and reward savings. But we also need to remove the crazy incentives that impel ordinary Australians to take part in distorting and costly tax planning schemes.</p> <p>Our report outlines a way forward, and steps to get there.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/142823/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><span><a href="https://theconversation.com/profiles/robert-breunig-167291">Robert Breunig</a>, Professor of Economics and Director, Tax and Transfer Policy Institute, <em><a href="https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a></em>; <a href="https://theconversation.com/profiles/kristen-sobeck-714969">Kristen Sobeck</a>, Senior Research Officer, <em><a href="https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a></em>, and <a href="https://theconversation.com/profiles/peter-varela-1136772">Peter Varela</a>, Research Fellow, Tax and Transfer Policy Institute, <em><a href="https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a></em></span></p> <p>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/progressive-in-theory-regressive-in-practice-thats-how-we-tax-income-from-savings-142823">original article</a>.</p> <p><em>Image: Shutterstock</em></p>

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The majority of Australians are not saving enough for retirement

<p>Only 53% of couples and 22% of single people are on track to achieve a comfortable level of retirement income, according to an in-depth study of the adequacy of retirement savings.</p> <p>The outcome of a collaboration between researchers at the University of Melbourne and Towers Watson, the <a href="http://www.melbourneinstitute.com/downloads/working_paper_series/wp2014n05.pdf">study</a> has found a significant number of Australians are not likely to achieve adequate retirement incomes, even when all sources of savings are considered.</p> <p>The research sought to address the considerable uncertainty among policy makers and the broader community about the extent and nature of retirement savings deficiencies in Australia. To do so, we developed a set of metrics indicating the adequacy of retirement savings and applied those metrics to a large representative sample of the Australian population.</p> <p>The clear finding is that most Australians are still not on track towards reaching a comfortable income during retirement, and will continue to draw a large part of retirement income from the age pension. The implication is that, despite superannuation reforms dating back over 20 years, the problem of inadequate retirement savings remains a significant public policy issue for Australia.</p> <p>An important innovation of our study is that the metrics we developed take into account not only superannuation holdings (and projected growth in superannuation holdings through investment returns and future contributions) and the projected age pension entitlement, but also a variety of other household assets that could be used to fund retirement, including various financial assets and property.</p> <p>Using this information, we are able to forecast a person’s expected income throughout retirement. We then compare this income to a “target” income, which is provided by the <a href="http://www.superannuation.asn.au/resources/retirement-standard">Association of Superannuation Funds in Australia (ASFA) Retirement Standard</a> for a “comfortable” lifestyle. The ASFA standard for a comfortable lifestyle is a widely used benchmark, and specifies a minimum income of A$57,665 for couples and $42,158 for single people.</p> <p>The ASFA benchmarks are very close to both current average income levels of retirees in Australia and the income levels that pre-retirement Australians on average believe they will need for a satisfactory lifestyle in retirement. While this concordance may seem reassuring, our findings for the projected retirement incomes of pre-retirement Australians were not.</p> <p>We projected retirement income levels for a large, representative sample of Australians aged 40 to 64 ­– drawn from the nationally representative <a href="http://www.melbourneinstitute.com/hilda/">Household, Income and Labour Dynamics in Australia (HILDA) Survey</a> – and compared our projections to the income required to sustain a comfortable lifestyle.</p> <p>Based on our calculations, only 53% of couples and 22% of singles are on track to achieve a comfortable level of retirement income.</p> <p>Our study also shows the relative importance of different sources of retirement income. If we ignore all sources of retirement income other than superannuation, only 15% of couples and 5% of singles are projected to achieve the target. Indeed, applying the <a href="http://www.oecd-ilibrary.org/sites/factbook-2010-en/11/02/02/index.html?itemId=/content/chapter/factbook-2010-89-en">OECD poverty benchmark</a> of half median income, most retirees would be living in poverty.</p> <p>Factoring in the age pension improves projected retirement incomes for many people, but still only 32% of couples and 11% of singles are on track to have a comfortable retirement income.</p> <p>Our calculations have several implications. First, they show that, for most people, superannuation is not sufficient to fund a comfortable retirement, even if they have contributed to superannuation for most of their working lives.</p> <p>Second, it is important to take into account all potential sources of retirement income, including non-superannuation assets, when computing the adequacy of retirement savings. Omitting any of these sources will likely lead to substantial under-estimation of adequacy.</p> <p>Third, single people are particularly under-prepared for retirement, being three times more likely than couples to have severely inadequate projected retirement incomes.</p> <p>Fourth, there is a gap between expectations about the importance of the different sources of retirement income and the likely reality. <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Features50March%202009">Data from the Australian Bureau of Statistics</a> show that over half of men and two-fifths of women expect superannuation to be the main source of retirement income. However, our projections show that the age pension will provide 61% of the retirement income of single people, and 39% of the retirement income of couples. Moreover, 96% of single people and 89% of couples aged 40 to 64 today are expected to receive at least a partial age pension at some stage during retirement.</p> <p>Our analyses show that most people need to think ahead to their financial situation in retirement and, if possible, make some changes – the sooner, the better. The first step is to find out whether your savings are likely to be adequate – and you can now do this easily on the <a href="https://www.moneysmart.gov.au/tools-and-resources/calculators-and-tools/retirement-planner">ASIC MoneySmart web site</a>.</p> <p>The site offers a calculator based on a simplified version of the algorithm we used in our study. It takes less than 10 minutes to enter the required information and obtain an estimate of the adequacy of your retirement savings.</p> <p>Knowing now whether you need to save more towards your retirement is an essential first step towards a retirement in which you don’t have to fear running out of money.</p> <p><em>Professor Kevin Davis contributed to this study, which began prior to his appointment as a panel member of the Financial System Inquiry.</em><!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/24957/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><span><a href="https://theconversation.com/profiles/roger-wilkins-95906">Roger Wilkins</a>, Principal Research Fellow and Deputy Director (Research), HILDA Survey, Melbourne Institute of Applied Economic and Social Research, <em><a href="https://theconversation.com/institutions/the-university-of-melbourne-722">The University of Melbourne</a></em> and <a href="https://theconversation.com/profiles/carsten-murawski-3627">Carsten Murawski</a>, Senior Lecturer in the Department of Finance and co-head of the Decision Neuroscience Lab, <em><a href="https://theconversation.com/institutions/the-university-of-melbourne-722">The University of Melbourne</a></em></span></p> <p>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/the-majority-of-australians-are-not-saving-enough-for-retirement-24957">original article</a>.</p> <p><em>Image: Shutterstock</em></p>

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Finance drives everything — including your insecurity at work

<p>There’s a common link between the many things that have promoted insecurity at work: the growth of franchising; labour hire; contracting out; spin-off firms; outsourcing; global supply chains; the gig economy; and so on. It’s money.</p> <p>At first, that seems too obvious to say. But I’m talking about the way financial concerns have taken control of seemingly every aspect of organisational decision-making.</p> <p>And behind that lies the rise and rise of finance capital.</p> <p>Over the past three decades there has been a <a href="https://d3n8a8pro7vhmx.cloudfront.net/theausinstitute/pages/2838/attachments/original/1532441299/Labour_Share_Symposium_Peetz.pdf?1532441299">shift in resources from the rest of the economy to finance</a>. Specifically, to finance <em>capital</em>.</p> <p>One way to see this is in the chart below. It shows the income shares of labour and capital, and the breakdown for each between the finance and non-finance (“industrial”) sectors, in two four-year periods. They were 1990-91 to 1993-94 (when the ABS started publishing income by industry) and, most recently, 2013-14 to 2016-17. (I use four-year periods to reduce annual fluctuations and show the longer-term trends. <a href="https://d3n8a8pro7vhmx.cloudfront.net/theausinstitute/pages/2838/attachments/original/1532441299/Labour_Share_Symposium_Peetz.pdf?1532441299">Here</a> is more detail and explanation of methods.)</p> <h2>Income shares of labour and capital</h2> <p><img src="https://images.theconversation.com/files/231263/original/file-20180809-30464-pr7pkc.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /> <span class="caption">Factor shares by industry, 1990-94 and 2013-17.</span> <span class="attribution"><span class="source">Source: ABS Cat No 5206.0</span></span></p> <p>The key thing to notice in the chart is that finance capital’s share of national income doubled (it’s the dark red boxes in the lower right-hand side of the chart), while everyone else’s went down.</p> <p>So, over that quarter-century, <a href="http://www.abs.gov.au/AUSSTATS/ABS@Archive.nsf/log?openagent&amp;5204046_factor_income_by_industry.xls&amp;5204.0&amp;Time%20Series%20Spreadsheet&amp;0B9214F6B9273E85CA2581C50014A63A&amp;0&amp;2016-17&amp;27.10.2017&amp;Latest">the share of labour income (wages, salaries and supplements) in national income fell</a>. In the early 1990s it totalled 55.02% — that’s what you get when you add labour income in finance, 3.21%, to labour income in “industrial” sectors, 51.81%. In recent years this fell to 53.58%. There were falls in both finance labour income (from 3.81 to 2.83% of national income) and industrial labour income.</p> <p>The total share of profits and “mixed income” accordingly rose from 44.99% to 46.42%. The thing is, all of that increase (and a bit more) went to finance capital. Profits in finance went from 3.16% to 6.16% of the economy.</p> <p>At the same time there has been a large increase in the share of national income going to the very wealthy — the top 0.1% — in <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1631072">Australia</a> and many <a href="https://www.parisschoolofeconomics.eu/en/news/the-top-incomes-database-new-website/">other countries</a>.</p> <p>This shift in resources does not reflect more people being needed to do important finance jobs. Nor is it higher rewards for workers in finance. The portion of national income, and for that matter <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/ProductsbyCatalogue/5F60A449AE6DE5F6CA258090000ED52A?OpenDocument">employment</a>, devoted to labour in the financial sector actually fell from 3.21% to 2.83%.</p> <p>The economy devotes proportionately no more labour time now to financial services than it did a quarter century ago. Yet rewards to finance have increased immensely. The share of national income going to “industrial” sector profits and “mixed income” has declined.</p> <p>In short, the <a href="https://books.google.com.au/books/about/The_End_of_Laissez_Faire.html?id=GKAiBAAAQBAJ&amp;redir_esc=y">widely recognised</a> <a href="https://www.bis.org/publ/work231.htm">shift in income</a> from <a href="http://eprints.lse.ac.uk/83616/1/dp1482.pdf">labour to capital</a> is really a net shift in income from labour, and from capital (including unincorporated enterprises) in other industries, to finance capital.</p> <h2>Finance matters</h2> <p>You may have heard about “<a href="http://www.levyinstitute.org/publications/financialization">financialisation</a>”. It’s not really about more financial activity. It is about the growth of finance capital and its impact on the behaviour of other actors.</p> <p>Financialisation has led to finance capital taking the <a href="https://theconversation.com/who-owns-the-world-tracing-half-the-corporate-giants-shares-to-30-owners-59963">lead shareholdings in most large corporations</a>, not just in Australia but in other major countries (to varying degrees) as well.</p> <p>This role as main shareholder and, of course, chief lender to industrial capital has driven the corporate restructuring over the past three decades that has led to greater worker insecurity and low wages growth (as I recently discussed <a href="https://theconversation.com/self-employment-and-casual-work-arent-increasing-but-so-many-jobs-are-insecure-whats-going-on-100668">here</a>).</p> <p>When “industrial capital” has been restructured over recent decades — to promote franchising, labour hire, contracting out, spin-off firms, outsourcing, global supply chains, and even the emergence of the gig economy — it has been driven by the demands of finance capital. Casualisation is just one manifestation of this.</p> <h2>Short-term logic</h2> <p>Now there’s no conspiracy here (or, at least, the system doesn’t rely on one). There is actually a lot of competitive mindset in the financial sector. This is just the logic of how the system increasingly has come to work. Financial returns, particularly over the short term, have become the principal (really, the only) fact driving corporate behaviour.</p> <p>This has come at the expense of human considerations.</p> <p>That same logic is behind resistance to action on climate change. Continuing carbon emissions are the perfect, and deadly, example of short-term profits overriding longer-term interests.</p> <p>Yet even finance capital is not monolithic. There are <a href="https://theconversation.com/class-and-climate-how-financial-warfare-affects-the-air-23019">parts of finance capital</a> that have a longer-term perspective (“<a href="https://www.forbes.com/sites/85broads/2012/12/19/theres-no-business-on-a-dead-planet-green-business-is-good-business-the-necessity-of-paradigm-changes/#54d71e737547">there’s no business on a dead planet</a>”). So they are effectively in battle with those parts of finance capital for which the short term is everything. The former <em>want</em> governments to intervene in, for example, carbon pricing.</p> <h2>Policy questions</h2> <p>All this leaves some big questions for policymakers about how to redress the new imbalance of power.</p> <p>In part, it requires changing institutional arrangements (including industrial relations laws) that in recent years have made it much harder for workers to obtain a fair share of increases in national income. It requires rethinking of how we regulate work.</p> <p>But it also requires rethinking of how we regulate product markets and financial markets.</p> <p>The almost <a href="http://documents.worldbank.org/curated/en/235201468764398871/Financial-deregulation-and-the-globalization-of-capital-markets">global reduction in regulation</a> <a href="http://www.slate.com/articles/business/project_syndicate/2011/05/listen_to_the_imf_america.html">of the financial sector</a> over three decades ago has ultimately led to this imbalance. It is time to rethink all of that.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/101107/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><span><a href="https://theconversation.com/profiles/david-peetz-4004">David Peetz</a>, Professor of Employment Relations, Centre for Work, Organisation and Wellbeing, <em><a href="https://theconversation.com/institutions/griffith-university-828">Griffith University</a></em></span></p> <p>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/finance-drives-everything-including-your-insecurity-at-work-101107">original article</a>.</p> <p><em>Image: jijomathaidesigners</em></p>

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Overhaul of payments system to cover digital wallets, buy now pay later, cryptocurrency

<p>Treasurer Josh Frydenberg will announce on Wednesday a comprehensive reform of regulations governing the payments system, to bring it up to date with innovations such as digital wallets and cryptocurrency.</p> <p>The government says without the changes – the biggest in 25 years – Australians businesses and consumers could increasingly be making transactions in spaces beyond the full reach of Australian law, where rules were determined by foreign governments and multinationals.</p> <p>It points out that in three decades payment methods have gone from cash to cheques, cheques to credit cards, credit cards to debit cards and now to “tap and go” via digital wallets on phones or watches.</p> <p>Around a decade ago, cryptocurrency was a concept. Currently, there are more than 220 million participants in the worldwide crypto market, including many in Australia.</p> <p>The planned reforms will centralise oversight of the payment system by ensuring government plays a greater leadership role. The treasurer will be given more power to intervene in certain circumstances.</p> <p>Consumer protection will be strengthened, and more competition and innovation will be promoted.</p> <p>The reform program will be in two phases. There will be consultations in the first half of next year on those that are most urgent and easy to implement. Consultations on the rest will be done by the end of the year.</p> <p>The government says the present one-size-fits-all licensing framework for payment service providers will be replaced graduated, risk-based regulatory requirements.</p> <p>There will be consideration of the feasibility of a retail central bank digital currency, and an examination of “de-banking” (where a bank declines to offer a service to a business or individual).</p> <p>Frydenberg says the comprehensive payments and crypto asset reform program would “firmly place Australia among a handful of lead countries in the world.</p> <p>"It is how we will capitalise on the opportunity for Australia to lead the world in this emerging and fast-growing area which has almost endless potential applications across the economy,” he says.</p> <p>“For businesses, these reforms will address the ambiguity that can exist about the regulatory and tax treatment of crypto assets and new payment methods.</p> <p>"In doing so, it will drive even more consumer interest, facilitate even more new entrants and enable even more innovation to take place.</p> <p>"For consumers, these changes will establish a regulatory framework to underpin their growing use of crypto assets and clarify the treatment of new payment methods.”<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/173331/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><span><a href="https://theconversation.com/profiles/michelle-grattan-20316">Michelle Grattan</a>, Professorial Fellow, <em><a href="https://theconversation.com/institutions/university-of-canberra-865">University of Canberra</a></em></span></p> <p>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/overhaul-of-payments-system-to-cover-digital-wallets-buy-now-pay-later-cryptocurrency-173331">original article</a>.</p> <p><em>Image: Shutterstock</em></p>

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Why happiness is becoming more expensive and out of reach for many Australians

<p>One of the most well-known findings in the economic study of happiness is that, on average, happiness increases with income, but <a href="https://www.theguardian.com/money/2016/jan/07/can-money-buy-happiness">at a certain point diminishing returns set in</a>.</p> <p>In other words, money can only buy a fixed level of happiness, after which extra income and wealth doesn’t make much difference. Presumably after this point, happiness depends on other things, such as <a href="https://blogs.lse.ac.uk/behaviouralscience/2016/01/04/does-money-buy-happiness-it-depends-on-the-context/">health, leisure time, quality of friendships and close family</a>.</p> <p>Our new study, published in October, found the income level required to be happy in Australia <a href="https://www.sciencedirect.com/science/article/pii/S235282732100224X">has been increasing and moving out of reach of most Australians</a>.</p> <p>The happiness of increasing numbers of Australians has become more dependent on income than ever this millennium.</p> <h2>Happiness increases with income, to a point</h2> <p>Nobel prize winning psychologist Daniel Kahneman first described the change point where extra income begins to matter less for happiness. He found this change point <a href="https://www.pnas.org/content/107/38/16489.short">in the United States was US$75,000</a> in 2008.</p> <p>This was substantially more than the US median income of $52,000 in the same year.</p> <p>The difference revealed an unacknowledged inequity in the distribution of well-being in the US economy. The happiness of the poorest majority of the US population (<a href="https://dqydj.com/household-income-by-year/">68%</a>) was tied to marginal changes in income, while that of a richer minority (32%) wasn’t.</p> <p>But what about fairer, more egalitarian countries with a strong middle-class, like Australia? Since the start of the millennium, Australia has enjoyed a <a href="https://www.pc.gov.au/research/completed/rising-inequality">growing household real income and stable levels of income inequality</a>, better than the US and on <a href="https://data.oecd.org/inequality/income-inequality.htm">par with the OECD average</a>.</p> <p>And the average level of <a href="https://www.oecdbetterlifeindex.org/topics/life-satisfaction/">life-satisfaction</a> in Australia has been reliably higher than the OECD average, as well as the US.</p> <p>In terms of real income, income inequality and overall life satisfaction, Australia has a stable and solid record.</p> <p>However, life satisfaction isn’t the same as happiness.</p> <h2>What did we study?</h2> <p>We used data from the influential Household, Income and Labour Dynamics in Australia (HILDA) <a href="https://melbourneinstitute.unimelb.edu.au/hilda">survey</a>, provided by the Melbourne Institute.</p> <p>This data show Australia’s average happiness has been declining since 2009.</p> <p>The annual HILDA survey asks Australians to recall how often they felt happy, joyful, sad, tired or depressed in the last month, in each year since 2001.</p> <p>The frequency of these feelings is quite different from a single rating of how satisfied you are with your life.</p> <p>In <a href="https://www.sciencedirect.com/science/article/pii/S235282732100224X">our study</a>, we combined each person’s frequencies into a single <em>happiness score</em> to see how it changed between 2001 and 2019 in relation to household income.</p> <p>When people were asked to consider how often they experienced different emotions in the past month, rather than how satisfied they are with their life in general, the average happiness score peaked in 2009 and has declined every year since 2012.</p> <p><img src="https://images.theconversation.com/files/429661/original/file-20211101-19-1akyflf.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /> <span class="caption">Household income and life satisfaction have been stable in Australia since 2009, while happiness has been decreasing.</span> <span class="attribution"><span class="source">HILDA survey</span></span></p> <h2>What did we find?</h2> <p>The change point at which the happiness of most Australians no longer strongly depends on income has almost doubled from A$43,000 to A$74,000.</p> <p>At the same time, the median income has lingered at less than A$50,000 per year since 2009.</p> <p>The number of Australians on an income below this change point has increased from around 60% to 74%.</p> <p>These changes have taken place after adjusting for inflation and cost-of-living increases.</p> <p><img src="https://images.theconversation.com/files/430696/original/file-20211108-10121-109l8gj.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /> <span class="caption">Average happiness has declined as the population below the income change point has increased.</span> <span class="attribution"><span class="source">HILDA survey</span></span></p> <h2>So what does this trend over time mean?</h2> <p>Our work shows someone living in the average Australian household earning A$50,000 in 2001 and the equivalent amount in 2019 (adjusted for inflation) has become much less happy over the past two decades.</p> <p>On the other hand, the happiness of people living in a wealthier household (for example, $80,000 per household) has been largely preserved.</p> <p>Over the first two decades of this millennium, more and more Australians’ happiness has become dependent on their income, despite high life satisfaction ratings and stable income inequality across households.</p> <p>These measures of economic well-being and equity, typically published by economic wonks and government policy-makers, aren’t revealing potentially important changes in the underlying marginal return on income across the Australian economy.</p> <p>Income by itself doesn’t explain a large proportion of the variance in happiness, only around 5% (ranging between 1.6% to 14.8% in our study). But it’s still concerning because across the entire population these small changes can be expected to accumulate.</p> <p>Australians’ happiness is becoming more sensitive to income as the change point has increased. At the same time, incomes are stagnating and happiness levels are declining, which is likely to drive further inequities in well-being between the rich and poor in Australia.</p> <p>As Australia heads into a post-COVID world and deals with the economic after-effects of the pandemic, our government and its advisers need to pay attention to more than GDP and growth, and ask whether the distribution of well-being and happiness is improving for everyone.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/170877/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><span><a href="https://theconversation.com/profiles/richard-morris-1123613">Richard Morris</a>, Research scientist, <em><a href="https://theconversation.com/institutions/university-of-sydney-841">University of Sydney</a></em> and <a href="https://theconversation.com/profiles/nick-glozier-94435">Nick Glozier</a>, Professor of Psychological Medicine, BMRI &amp; Disciplne of Psychiatry, <em><a href="https://theconversation.com/institutions/university-of-sydney-841">University of Sydney</a></em></span></p> <p>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/why-happiness-is-becoming-more-expensive-and-out-of-reach-for-many-australians-170877">original article</a>.</p> <p><em>Image: Shuttershock</em></p>

Retirement Income

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17 habits of people who are great at saving money

<h2 class="slide-title">Good savers don’t procrastinate</h2> <p>Good savers start early, say certified financial planners Janet Stanzak and Kristin Garrett. Many good money savers were taught as children to put away for a rainy day, but even those who weren’t have learned to jump on an opportunity. “Good savers don’t procrastinate financial decisions,” Garrett says.</p> <p>If your employer is not paying you Superannuation, a good rule of thumb is to put 10 and 15 per cent of your pay each month straight into a retirement or Super account.</p> <h2 class="slide-title">Good savers know the difference between wants and needs</h2> <div class="slide-image"> <div id="page2" class="slide-show"> <div id="test" class="slide listicle-slide"> <div class="slide-description"> <p>One of the biggest lies we’re sold today, Stanzak says, is that wants are actually needs. “I’ve had so many clients try and tell me that travel, new clothing, and eating out are real needs. They’re really not.” Instead, good savers actually write down a list of their basic needs, their wants, and their big wishes.</p> </div> </div> </div> <div id="page3" class="slide-show"> <div id="test" class="slide listicle-slide"> <h2 class="slide-title">Good savers don’t rely on autopay</h2> <div id="page3" class="slide-show"> <div id="test" class="slide listicle-slide"> <div class="slide-description"> <p>Autopay makes paying bills easier – in fact, it makes it too easy for money to flow out without you really registering what’s happening. Whether you pay by BPay or via another online transaction, intentionally paying your bills makes your brain note the expenditure. If you do set up autopay (no late fees, after all!), make sure you don’t just set it and forget it. Check the transactions at least once a month to make sure the charges are accurate and get a good sense of what you’re spending. Even better, Garrett adds, good savers write all those transactions down in their budget.</p> <h2 class="slide-title">Good savers make saving easy and automatic</h2> <div class="slide-image"> <div id="page4" class="slide-show"> <div id="test" class="slide listicle-slide"> <div class="slide-description"> <p>Autopay allows you to forget the pain of paying your bills, right? Well it works the other way too. Automating your savings account, either through an automatic transfer on a certain day each month or through using a savings apps, can take the sting out of saving, says Stanzak.</p> </div> </div> </div> <div id="page5" class="slide-show"> <div id="test" class="slide listicle-slide"> <h2 class="slide-title">Good savers have a budget</h2> <div class="slide-description"> <p>Yes, a real, honest-to-goodness written chart or spreadsheet that they update and balance regularly is one of the trademark money-saving tips from savvy savers. “The first clue you have that someone has a problem with money is when they can’t provide their monthly cash flow,” Stanzak says. You can’t save if you don’t even know how much money you have to begin with.</p> </div> </div> </div> </div> <div class="at-below-post addthis_tool" data-url="https://www.readersdigest.com.au/food-home-garden/money/17-habits-of-people-who-are-great-at-saving-money"> <h2 class="slide-title">Good savers use cash</h2> <div class="slide-image"> <p>This isn’t a hard-and-fast rule, Stanzak says, but good savers often tend to use physical types of money. Research shows that people can spend more money with credit cards versus paying with cash. Statistics show that the average non-cash transaction is $100 more than a cash transaction. If you’re trying to save, handing someone a wad of cash provides enough of a mental speed bump to slow down many impulse buys.</p> <h2 class="slide-title">Good savers prioritise saving</h2> <p><img class="size-full wp-image lazyloaded" src="https://3erc1e4bvanrdzas82cngnw1-wpengine.netdna-ssl.com/wp-content/uploads/2021/09/working-out-bills-on-laptop-GettyImages-1150533155-770.jpg" alt="Good savers prioritise saving" data-src="https://3erc1e4bvanrdzas82cngnw1-wpengine.netdna-ssl.com/wp-content/uploads/2021/09/working-out-bills-on-laptop-GettyImages-1150533155-770.jpg" data-portal-copyright="Getty Images" /></p> <div class="slide-image"> <div id="page7" class="slide-show"> <div id="test" class="slide listicle-slide"> <div class="slide-description"> <p>It sounds simple, but one of the best money-saving tips is simply making saving a priority in your life, says Andrea Woroch, a consumer-finance expert. “Before spending on anything else, they pay themselves first by putting savings into a retirement account or other self-directed savings account,” she says.</p> </div> </div> </div> <div id="page8" class="slide-show"> <div id="test" class="slide listicle-slide"> <h2 class="slide-title">Good savers keep track of the little things</h2> <div class="slide-image"> <p>What’s a cup of coffee here or a $2 app there? Little things can add up to big expenses quickly, Garrett says, often before you even realise what’s happening. Good savers will write down, in their ledger or budget, all their expenses, even the tiniest ones. Doing this can also help you track down hidden fees you had no idea you were paying.</p> </div> </div> </div> </div> </div> </div> </div> </div> </div> <div class="slide-image"> <h2 class="slide-title">Good savers look for deals</h2> <div class="slide-image"> <div id="page9" class="slide-show"> <div id="test" class="slide listicle-slide"> <div class="slide-description"> <p>Being frugal is a big part of saving money. And good savers are not too proud to use coupons, hunt down the best deals, or research all possible options before buying. “Good savers think through each purchase and research alternatives like used options, compare competitor prices, look for coupons, and read reviews in detail to make the best buying decision,” Woroch says.</p> <div class="at-below-post addthis_tool" data-url="https://www.readersdigest.com.au/food-home-garden/money/17-habits-of-people-who-are-great-at-saving-money"> <h2 class="slide-title">Good savers adjust for life changes</h2> <div class="slide-image"> <div id="page10" class="slide-show"> <div id="test" class="slide listicle-slide"> <div class="slide-description"> <p>“You’d be amazed at how many people get divorced but keep living their married lifestyle,” Stanzak says. Big life changes, like job layoffs, divorce and illness, inevitably affect our budgets. Good savers amend their spending to reflect their new earning or income status regardless of how painful it is to acknowledge.</p> <div class="at-below-post addthis_tool" data-url="https://www.readersdigest.com.au/food-home-garden/money/17-habits-of-people-who-are-great-at-saving-money"> <h2 class="slide-title">Good savers take free money</h2> <div class="slide-image"> <div id="page1" class="slide-show"> <div id="test" class="slide listicle-slide"> <div class="slide-description"> <p>Does your employer give you a discount on your health insurance for getting an annual check-up? Does your company have employee stock options or offer to match your retirement savings? Do you have flight miles or hotel points accrued that you’re not using? Many people leave this so-called ‘free money’ on the table, Woroch says. It may take a little extra effort to fill out the paperwork, but it’s worth the time.</p> </div> </div> </div> <div id="page2" class="slide-show"> <div id="test" class="slide listicle-slide"> <h2 class="slide-title">Good savers have three to six months of expenses saved</h2> <div class="slide-image"> <div id="page2" class="slide-show"> <div id="test" class="slide listicle-slide"> <div class="slide-description"> <p>Many people live pay to pay, which means millions of people are just one bad car accident or layoff away from financial ruin. It may sound obvious, but good savers save. How much savings you need depends entirely on your lifestyle, but Garrett and Stanzak recommend having enough money to cover at least three to six months of basic expenses like mortgage, insurance, utilities and food.</p> <div class="at-below-post addthis_tool" data-url="https://www.readersdigest.com.au/food-home-garden/money/17-habits-of-people-who-are-great-at-saving-money"> <h2 class="slide-title">Good savers are honest with themselves</h2> <div class="slide-image"> <div id="page3" class="slide-show"> <div id="test" class="slide listicle-slide"> <div class="slide-description"> <p>None of us are getting any younger. Yet so many people live in denial of this fact, Stanzak says. The truth is that each of us has risk factors that could affect financial security. Good savers are honest about their particular risks – advancing age, tenuous job security, chronic health problems, family issues,  – and plan their savings to account for them.</p> <div class="at-below-post addthis_tool" data-url="https://www.readersdigest.com.au/food-home-garden/money/17-habits-of-people-who-are-great-at-saving-money"> <h2 class="slide-title">Good savers do not feel entitled</h2> <div class="slide-image"> <div id="page4" class="slide-show"> <div id="test" class="slide listicle-slide"> <div class="slide-description"> <p>“Too many people have this attitude of entitlement,” Stanzak says. “They get caught up in ‘I work hard, so I should have this because I earned it’.” But if you can’t afford a nice car or a day at the spa, you shouldn’t buy it, no matter how hard you work or how strongly you feel you deserve it.</p> </div> </div> </div> <div id="page5" class="slide-show"> <div id="test" class="slide listicle-slide"> <h2 class="slide-title">Good savers live below their means</h2> <div class="slide-image"><img class="size-full wp-image lazyloaded" src="https://3erc1e4bvanrdzas82cngnw1-wpengine.netdna-ssl.com/wp-content/uploads/2021/09/woman-checking-price-tag-on-clothing-GettyImages-1174172845-770.jpg" alt="Good savers live below their means" data-src="https://3erc1e4bvanrdzas82cngnw1-wpengine.netdna-ssl.com/wp-content/uploads/2021/09/woman-checking-price-tag-on-clothing-GettyImages-1174172845-770.jpg" data-portal-copyright="Getty Images" /></div> <div class="slide-description"> <p>Just because you have money to spend doesn’t mean you should spend it. Good savers know that living below their means can help them save more for the future. For instance, just because you can afford a new car doesn’t necessarily mean you should buy one. If your car is in good shape, use it for as long as you can. Another way to live below your means may be to downsize your home.</p> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> <div id="page3" class="slide-show"> <div id="test" class="slide listicle-slide"> <h2 class="slide-title">Good savers know when it’s time to pick up a side gig</h2> <div class="slide-image"> <div id="page6" class="slide-show"> <div id="test" class="slide listicle-slide"> <div class="slide-description"> <p>Good savers are brutally honest about their income. They know how much they can afford to put away each month, and if they need to make more money to reach their savings goals. If need be, they pick up side gigs to help them meet their goals.</p> </div> </div> </div> <div class="ad-slug text-center"> <h2 class="slide-title">Good savers start small</h2> <div class="slide-image"> <p style="text-align: left;">It can be easy to read lists of money-saving tips like this and feel completely overwhelmed and throw in the towel. But saving doesn’t have to be a huge change, Woroch says. “If you’re new to saving, start small. It’s easier to adapt to a small change than a complete life overhaul,” she explains. “So begin by automating a small amount each week and when you become accustomed to saving that amount and living off what you have left, increase it by a little. You’ll continue creating a better savings habit each time.”</p> <p style="text-align: left;"><em>This article was originally published on Reader's Digest. Click <a href="https://www.readersdigest.com.au/food-home-garden/money/17-habits-of-people-who-are-great-at-saving-money">here</a> to read the original article.</em></p> <p style="text-align: left;"><em>Image: Getty Images</em></p> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div> </div>

Retirement Income

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Indigenous Australians retire with 27% less savings

<p>Indigenous people will retire with 27% less income than non-Indigenous Australians, according to new research by Griffith Centre for Personal Finance and Superannuation. *</p> <p>People who identify as being of Aboriginal and Torres Strait Islander (ATSI) origin make up <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/3238.0.55.001">2.5% of Australia’s population</a>. Australia’s indigenous people have a younger age distribution compared to non-indigenous Australians, with a median age of 21 years compared to 38 years for the non-indigenous population.</p> <p>Superannuation is a highly researched area - however, very little attention has been given to understanding the retirement outcomes associated with indigenous Australians.</p> <p>Researchers at the Griffith Centre for Personal Finance and Superannuation (GCPFS) have examined the retirement gap between the “typical” worker and other disadvantaged socio-economic segments (such as indigenous Australians) given the effects of time, asset returns and contribution rates.</p> <p><a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/2076.0main+features602011">The median indigenous income</a> (for an employed person) is approximately 23% lower than the non-indigenous income per week.</p> <p>A possible explanation for the income gap between Indigenous and non-Indigenous Australians is the level of education of the two populations. <a href="http://www.pc.gov.au/research/ongoing/overcoming-indigenous-disadvantage/key-indicators-2014/key-indicators-2014-report.pdf">The evidence</a> shows that Indigenous Australians have a substantially lower level of education than their non-Indigenous counterparts.</p> <p>Around 59% of ATSI people aged 20-24 in 2012-2013 have completed year 12 or equivalent. For the non-Indigenous population aged 20-24 in 2010-2012 the proportion was 86-88%.</p> <p><a href="http://www.pc.gov.au/research/ongoing/overcoming-indigenous-disadvantage/key-indicators-2014/key-indicators-2014-report.pdf">Reports</a> show strong correlations between lower educational attainments, low incomes, unemployment and income support across both groups. Studies by <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1759-3441.2008.tb01040.x/epdf0">Leigh 2008</a> show that non-completers earn lower wages, by as much as 8-11% for each year of non-attainment among other disadvantages.</p> <p>This evidence can be seen in the <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/2076.0main+features802011">distribution of occupations</a>. At the low end of the pay scale, about 18% of employed indigenous Australians work as labourers and 17% as community and personal service workers compared to 9% and 10% for non-indigenous employees, respectively.</p> <p>On the other hand, professionals and managers make up close to 20% of the indigenous workforce while the non-indigenous workforce comprises around 34% in these occupations. <a href="http://www.lsay.edu.au/publications/2308.html">Improving literacy and numeracy levels and increasing year 12 completion rates</a> could significantly improve education and employment outcomes for ATSI Australians. This is important as the level of income directly impacts on superannuation contributions and retirement savings.</p> <p>Our study simulates the retirement outcomes of two individuals, an indigenous and non-indigenous Australian, both aged 25 years and in some form of full-time employment, under similar contribution and returns assumptions. The two full-time workers are assumed to contribute 9.5% of their pre-tax annual income into their superannuation fund.</p> <p>This fund is invested in different strategies and we report the results based on a balanced 70/30 superannuation fund (that is, a fund has 70% invested in assets such as domestic and international shares, infrastructure and property and 30% in cash).</p> <p>Our findings show that the non-indigenous full-time worker accumulates approximately 30% more superannuation wealth, on average, than the indigenous worker across all percentiles. This translates to about $165,000 (in today’s dollars) in extra superannuation savings, on average. Is this level of savings able to generate income to support a comfortable retirement?</p> <p>We estimate how much guaranteed income one is able to derive from their superannuation at retirement and compare it to the <a href="http://www.superannuation.asn.au/resources/retirement-standard">Association of Superannuation Funds of Australia (ASFA) estimates</a> for a comfortable retirement.</p> <p>While the presence of the age pension complements the superannuation balance and may propel one to reach the comfortable retirement estimates, we investigate how close retirees are to being self-sufficient - that is, attaining comfortable income levels in the absence of pensions.</p> <h2>Increase contributions or work longer?</h2> <p>For these two populations, we find that for one to be self-sufficient in retirement, the non-indigenous worker will require an 11 per cent annual contribution rate into superannuation to reach the ASFA comfortable retirement income estimate. For the indigenous worker, a superannuation contribution of 14.3% will enable him to attain this retirement estimate.</p> <p>While the ASFA estimate may not be a silver bullet in determining what makes a comfortable retirement, we believe it is a good anchor to inform and compare income levels in retirement.</p> <p>If superannuation contributions remain at the current rate of 9.5 percent, both populations will need to delay retirement in order to accumulate wealth to sustain a comfortable income level in retirement. The non-indigenous Australian is able to retire with an adequate income at age 68 years.</p> <p>The indigenous Australian who wants to retire comfortably on a 9.5% annual contribution must work until age 71.5 years, 6 and half years more than the current retirement age.</p> <h2>Lifetime impact of the difference in incomes</h2> <p><img src="https://images.theconversation.com/files/110931/original/image-20160210-12185-136andj.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /> <span class="caption"></span> <span class="attribution"><span class="license">Author provided</span></span></p> <p>In summary, differences in current incomes have a significant impact on retirement outcomes. For about a $300 gap in weekly income (pre-tax), the male indigenous worker has a mean retirement outcome which is 27% lower than the male non-indigenous Australian over 40 years. This translates into a difference of approximately $250,000 in today’s dollars.</p> <p>The average retirement balance of the non-indigenous female sits at 1% lower than the indigenous male. We use optimistic assumptions for non-indigenous women including no career break or other disturbances to their working pattern. The inclusion of these real-life parameters will further reduce these retirement outcomes. The mean superannuation balance of female indigenous workers is 64 percent lower than non-indigenous males.</p> <p>This difference equates to approximately $350,000 in today’s dollars. There is significant variation in retirement outcomes from the “typical” Australian and while we consider ways to improve the gender balance, the story for indigenous Australians is equally important. <!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/50840/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><span><a href="https://theconversation.com/profiles/osei-k-wiafe-160104">Osei K. Wiafe</a>, Research Fellow, Griffith Centre for Personal Finance and Superannuation (GCPFS), <em><a href="https://theconversation.com/institutions/griffith-university-828">Griffith University</a></em></span></p> <p>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/indigenous-australians-retire-with-27-less-savings-50840">original article</a>.</p> <p><em>Image: <span class="attribution"><span class="source">Flickr/Michael Coghlan</span></span></em></p>

Retirement Income

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I chose the electricity retailer offering the best deal for my home. That’s not what I got

<p>Households in most of Australia have been able to choose between electricity retailers for more than a decade. The main reason is to <a href="https://www.accc.gov.au/publications/restoring-electricity-affordability-australias-competitive-advantage">reduce their bills</a>.</p> <p>But past research by the <a href="https://www.vepc.org.au/">Victoria Energy Policy Centre</a> (at Victoria University) has found only marginal benefits in switching retailers. Our study of more than 48,000 bills from Victorian households in 2018, for example, found households typically saved <a href="https://theconversation.com/victorians-who-switched-energy-retailers-only-save-45-a-year-leaving-hundreds-on-the-table-122786">less than A$50 a year</a> by switching energy providers.</p> <p>Has anything improved since then? A few weeks ago I decided to test the market for my own household supply. To guide my choice, I evaluated 357 competing offers from 30 retailers using my half-hourly consumption and solar export data for the last year.</p> <p>The 357 offers came from the Victorian government’s price comparison <a href="https://compare.energy.vic.gov.au/">website</a>, the only comprehensive source of all commonly available offers. After having found the deal I wanted, it was a painless and quick online process to switch to the new retailer.</p> <p>Two weeks later I checked what had actually happened.</p> <p>I discovered my new retailer had not switched me to its cheapest offer, but to one of its most expensive. I estimate I’ll still save about $143 for the year. But I would have saved about $100 more if the company had put me on its cheapest advertised offer (which, after all, was the reason I chose this retailer).</p> <p>These numbers might not be large, but I have a small bill because I have solar panels and consume much less electricity than typical customers. For the typical customer, the differences would be bigger.</p> <p>I have asked my new retailer to explain, but am yet to receive a reply.</p> <h2>How I worked out my (lack of) savings</h2> <p>My electricity bill has several elements: a daily charge, two consumption rates and a solar feed-in rate. You might note such elements in the offer you choose and then compare them to the offer the retailer actually puts you on. But you’d need to be highly motivated with time on your hands to do so.</p> <p>To do my sums I used special software to scrape and price all competing offers. This software, developed over several years and used in our previous research, is not publicly available.</p> <p>The outcome of my test is broadly consistent with the findings of our previously mentioned research.</p> <p>That analysis – <a href="https://link.springer.com/article/10.1007%2Fs11149-020-09418-9">using more than 48,000 bills</a> voluntarily uploaded to the Victorian government’s price comparison website in 2018 – found typical households could theoretically save A$281 a year, or about 20% of their bill, by switching to the best possible advertised deal.</p> <p>In reality, however, customers who switched retailers saved only A$45 a year – or about 3% of their annual bill.</p> <p><img src="https://images.theconversation.com/files/431880/original/file-20211115-13-1wdrcv4.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="Child using light switch" /> <span class="caption">In theory customers who switch electricity retailers should be able cut their annual bill by 20%. In reality it turns out to be about 3%.</span> <span class="attribution"><span class="source">Shutterstock</span></span></p> <p>I cannot be sure my recent experience is typical. But I think it likely other switchers will have had a similar experience. My study of the 357 competing offers available to me suggests many retailers seem to use “bait and switch” – or “tease and squeeze” – marketing strategies to attract new customers.</p> <h2>What should be made of this?</h2> <p>Choice can be valuable. Competition can lead to innovations – such as solar and battery packages with zero upfront payment that are now appearing in the the market. But the benefit of reforms making it easier to choose and switch between electricity retailers are not being fully realised.</p> <p>The more complex the market becomes as electricity generation is progressively decentralised and electricity buyers also become sellers, the harder it becomes to assess the merits of the complicated offers from energy retailers. Or even to know if what you signed up for is what you are actually getting.</p> <p>Had I known my new retailer would not switch me to its best offer (the one that attracted me in the first place), I wouldn’t have switched.</p> <p>This underlines the need for governments and regulators to look at how the market is working in practice, not just in theory.</p> <p>Examples of this approach are the 2017 independent review of Victoria’s electricity and gas retail markets <a href="https://www.energy.vic.gov.au/about-energy/policy-and-strategy">chaired by former deputy premier John Thwaites</a> and the Australian Competition and Consumer Commission’s <a href="https://www.accc.gov.au/publications/restoring-electricity-affordability-australias-competitive-advantage">2018 inquiry into electricity affordability</a>. But these are exceptions.</p> <p>The devil lies in the detail of how customers search for better offers and then switch to retailers in pursuit of those better offers. Regulations to clean up possibly misleading advertising and “sharp” business practices should flow from that.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/171676/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><span><a href="https://theconversation.com/profiles/bruce-mountain-141253">Bruce Mountain</a>, Director, Victoria Energy Policy Centre, <em><a href="https://theconversation.com/institutions/victoria-university-1175">Victoria University</a></em></span></p> <p>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/i-chose-the-electricity-retailer-offering-the-best-deal-for-my-home-thats-not-what-i-got-171676">original article</a>.</p> <p><em>Image: Shutterstock</em></p>

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