The art of the pickpocket, when it’s good, is that you never know until long after you’ve been robbed.
They might crash into you on a crowded bus, politely apologize, and disappear into the crowd, laughing as they count your money. You are not wiser until you reach for your wallet.
If you have walked the streets of Rome, or many other European cities, it is very possible that you have been approached by gangs of street urchins whose method of distraction is to approach you in a group, offering to sell you a seedy-looking newspaper, while her partners in crime quickly get their hands on her purse and leave with her vacation spending money.
But don’t be fooled. He’s about to have his pocket pulled out.
The beauty of this is that you will never see their hands move and you may not know for years that they have plucked you.
Yesterday he published a review of Australia’s retirement income system. At 600 pages, it’s detailed and wide-ranging, examining the entire complex web of rules and conventions that determine how much money you make when your weekly pay package finally stops and enters its golden years.
As the Treasurer said, the review looked at all three pillars of our retirement income system: the age pension, mandatory retirement, and voluntary savings, including home ownership.
It was conducted by three highly eminent and independent experts in the field.
Overall, they found the system to be robust and sustainable, and while they did not make specific recommendations, they made a number of observations.
For example, they observed that the old-age pension helps reduce inequality because those with lower incomes receive a higher pension rate.
They also observed that the pension system helps act as a buffer against economic recessions because as retirees deplete their savings, they always have the pension as a safety net.
Additionally, the review panel noted that there is room in the system for more efficient use of assets to boost income during retirement. That is, it should be easier to use some of your home’s equity and turn it into cash. Obviously that means less from home to drop off your kids, but for many people it’s an option that is at least worth considering and, one could argue, the overall system should cut down on obstacles along the way.
The review also looked at the very serious issues of gender inequality in retirement income, how women invariably end up with much lower income in retirement than men because they are more likely to take time out of their careers to focus on the family. That includes raising children and caring for the elderly.
All of these observations are reasonable and legitimate and deserve consideration when governments and others make decisions about the future of the retirement income landscape.
But there is also a small nugget in that report that will have important political and pocket-sized implications.
It’s being taken advantage of by thousands of employers across the country and it’s the review panel’s comments on the retirement guarantee rate.
Most of us would rather have our teeth pulled out than delve into the complexities of your retirement. So you may not know that, by law, your boss must pay 9.5 percent of your salary into your retirement plan.
You may also not know that a law has been passed in federal parliament that will ensure that the rate will gradually increase to 12 percent.
That means you will have more money to spend when you retire.
It’s cheap for dummies – the retirement guarantee rate goes up, you’ve got more money in your pocket when you’re old, and the more you need it.
So here’s the thing. In the 600-page report on the retirement income system, there is an observation that an increase in your income in the future could come at the cost of a lower income at this time.
“A mandatory retirement rate that would lead to an increase in the standard of living of people during retirement may imply an unacceptable reduction in the standard of living before retirement, especially for low-income people,” the report says.
For some in government, that sentence is a very valuable hand grenade that they hope will help exploit their best guaranteed life in retirement.
Several MPs from the Supporting Coalition are pushing for the government to remove the retirement guarantee tax increase, arguing that the Covid recession has made it unaffordable.
Josh Frydenberg has not revealed all his thoughts on the matter, but today he laid the groundwork for such a decision to eliminate the May budget increase next year.
While he said a decision has yet to be made, he took note of the views of the retirement income report, while noting that the governor of the Reserve Bank has noted that there is a “trade-off between a person’s current wages and the retirement guarantee “. and mentioned that the Grattan Institute expresses a similar opinion.
The Treasurer also raised the current climate.
“The key point to underline here is that we live in a very different economic environment than we were at this time last year. We have been subject, as a nation and as a global economy, to an economic shock that occurs once in a century with Covid-19, “he said.
So don’t be surprised if we find out next May that the legislated increase in your retirement income will evaporate before it gets closer to your retirement account.
The argument that an increase in future income is not justified due to the current crisis is all very well, if the cut in future income meets an equivalent wage increase at this time.
There is a very obvious case that can be argued that a general rise in wages will stimulate the economy and help pull it out of recession.
But unsurprisingly, those arguing to eliminate the retirement guarantee rate hike are not proposing such compensation.
Removing the rate hike will not encourage spontaneous generosity on the part of Australia’s employers, with pay increases for all.
Those who are against raising the retirement guarantee rate are simply suggesting that employers are less likely to offer pay raises if they have to fund a grocery store.
Therefore, they tell you to give up your income increase for retirement because it could discourage your boss from increasing your salary. They don’t actually give you anything in return.
It’s not a big sale. It’s no wonder he’s hiding behind the sleight of hand from a 600-page review of the retirement system – a complicated and complicated cover for a money theft.
It will be a six month process, but it is still a matter of your pocket being stolen.
Being mugged is less offensive. At least one robber is frank.