Quick Concept

Quick Concept: Opt-Out Old-Age Pension

Quick Concept is a recurring set of posts, each of which is effectively a raw idea for something – be it social policy, a business concept, a game, or something entirely random. The basic idea is to set out the raw concept in a short piece with minimal research and not a lot of consideration of the wider impacts it might have. Hopefully, it’ll get a few arguments going. And hell, you never know, maybe a halfway decent idea will come out of it one day.

Today’s Quick Concept is the ability to opt-out of a portion of the old-age pension in exchange for having a portion of your compulsory superannuation paid to you as general income instead.

How would it work?
Basically, you could choose to reduce the amount of the old-age pension that you will receive (to a minimum of say 50%) and instead of having your employer pay your 9% superannuation to a fund, they would pay up to say 4.5% of it to you and the remainder to your fund. Some limits on this to ensure that the overwhelming majority of people still have sufficient retirement funds may be to require you to already have a certain amount of superannuation (precise amount increasing with age) in super.
You could change the amount that went to super or general income whenever you wanted to, and it’s the proportion paid in to super over your working life that would impact the amount of the aged pension that you would be eligible for (assuming that you meet all other eligibility requirements of course).

Why would we want to do this?
People who are struggling on their current budget but for whom a 3 or 4% rise would solve a lot of issues (like a lot of new home owners and recent graduates), but who are likely to have a strong long-term financial position (and thus be unlikely to rely on the old-age pension at all) could be helped by this. Given that people will have the ability to use this additional income to reduce their long-term debts (HECS / home loans and the like) it may actually feature a greater rate of return than their super would. Thus meaning they’ll be better suited for retirement than without this offer. It also provides greater freedom of choice to those who want it. Making it an opt-out situation means a lot of people will simply stay in it, and requiring a minimum amount to be in the person’s super fund each year to access the opt-out helps to ensure that the person opting-out will be unlikely to need to use the old-age pension anyway.

What do people think? Is this a crazy concept? Is there a better idea out there? Are their glaring flaws in this one?

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