Chair of Retirement Income Review, Mike Callaghan, on reforming superannuation

Treasurer Jim Chalmers sparked a political row when he announced a tax hike on superannuation concessions for accounts with balances over $3 million, from 15% to 30%, to begin in 2025. Polling indicates the move has broad support from the public, although any change to super is always controversial. Opposition leader Peter Dutton has promised the change would be reversed by a Coalition government.

Mike Callaghan, a former treasury official, chaired the Retirement Income Review that was handed to the Morrison government in 2020.

Callaghan sees the Chalmers’ change to super as “an important step”.

“I think one of the most encouraging things is the fact that this issue regarding equity and sustainability of superannuation, and the measure, has taken place now because it’s a very controversial topic […] The fact that we have seen movement is very encouraging.”

“There’s a lot more that needs to be done in terms of improving the equity and sustainability of the retirement income system and superannuation in particular.

"The unfortunate thing is, given the controversy around it, it might kerb enthusiasm […] towards some more significant changes for some time. That could be the downside of this.”

The superannuation tax concessions are skewed heavily towards higher income earners. Observers have noted that superannuation has become an inheritance vehicle in many cases. Ageing Australians are passing their assets to family rather than using the “nest egg” for their retirement. Callaghan sees this as a “significant issue”.

“It’s fine if people want to leave an inheritance to their children, but what we’re seeing now is that’s not generally a conscious decision of people. We’re seeing across the system now, people not drawing [superannuation savings] down to use them for the intended purpose, which was to support the standard of living in retirement.

"The problem is […] that people don’t know what to do to make the best use of the assets they have in retirement. A lot of it is ignorance, a lot of it is confusion, a lot of it is that having a savings mentality has been drummed into them. Build up your nest egg. Don’t spend your nest egg.”

People need advice to navigate the system “and they’re not getting the advice. The biggest deficiency we’ve seen that’s leading to this outcome, I think, is that people don’t get advice. I think it’s about only 10% of retirees actually get advice entering retirement.

"They need a positive push that they do need advice. When you see the surveys of why people don’t get advice, they say ‘it’s too costly’ and they say, ‘but I don’t have that big financial asset, so I’m not one that has that need for financial advice’. There’s the other one of lack of trust.”

Home ownership is a major factor in what life will be like for retirees. “If you own your own house, you don’t have to pay rent and you have a substantial asset […] that you can draw on to support your retirement.”

But Callaghan doesn’t think younger people should be able to access their super for a house deposit. “While [having a home is] important, solving the problem of helping first home owners get into housing is not going to be solved by tweaks to the superannuation system. It’s not going to achieve its objective at all, as many people say, it’s likely to just add extra pressure to house prices and there is a cost, this very significant cost to the individual of letting them access superannuation.”