superannuants aged 60 and over, and they can be accessed as a lump sum,
drawn down, annuitized, or some combination thereof. Scope to take super-
annuation benefits as lump sums has been subject to consistent criticism. But
the Productivity Commission (PC) has found only 16 per cent of Australian
superannuation benefits by value were taken as lump sums in 2012 and‘little
evidence to suggest they were being squandered’. And the median size of lump
sums was $20,000, reflecting an overwhelming preference for income streams
among superannuants with sizeable savings (PC 2015).^14
Most superannuation savings convert to account-based pension products,
where retirees draw regular incomes from their accumulated savings. Assets
attributable to DB members—who by definition receive an indexed income
stream—have dwindled to only 11 per cent of super assets. To stop funds
being used as tax shelters, the government stipulates annual minimum‘draw
down’rates, rising from 4 per cent for under 65s to 14 per cent for retirees aged
95 and over. Superannuation monies bequeathed to non-dependents are
taxed at aflat rate of 17 per cent, otherwise they are tax free. Around 31 per
cent of all superannuation assets in 2014 were in account-based pensions—a
share due to rise to 38 per cent by 2030 as the population ages—and of these
around 95 per cent were in account-based pensions. Annuities, which would
provide insurance against individuals outliving their savings, are not popular.
Australia’s annuity assets amount to about 0.3 per cent of annual GDP com-
pared with 28.8 per cent in Japan, 15.4 per cent in the USA, and more than
40 per cent in some European countries.
10.3.2Taxation
Australia is also distinguished by the unique, and unfortunate, way it taxes
superannuation: contributions and earnings are taxed at 15 per cent while
most benefits accessed after age 60 are tax free. No other OECD country
follows this approach; instead, governments typically exempt contributions
and earnings from tax, and later tax withdrawal of benefits at ordinary income
tax rates. This is the better approach. It diminishes the incentive to take tax-
concessional lump sums (as a means of avoiding the progressive taxation of
income), provides a psychological benefit to up-front contributions, and
maximizes the ultimate accumulation.‘There may [also] be social benefit
from government sharing the investment risk of individual contributors
under a DC scheme’, argue Bateman et al. (2001).
(^14) It found 90% of retirees with superannuation balances up to $10,000 took a lump sum, but
only 10% of retirees with super assets between $200,000 and $300,000, and barely any thereafter.
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