Government Should Limit Super Withdrawals for Retirees

Australia has an interesting system of retirement savings system, called superannuation or super for short. The idea is that while person works, the company they work for pays part of their salary into a super fund. Super fund is managed by a professional investment company that earns interest on these money and pays some of it back into the super account of the recipient as interest. A beneficiary of the account could always check how much money their account has accumulated but could not withdraw any until their retirement age.

In the past constant salary contribution to the super account together with interest easily allowed an average worker to save up millions for their retirement. Current boomer generation is the first generation that majorly benefited from that scheme. Many of them now have millions to spend on various stuff. Luxurious retirement home is proof of how lucky boomers were with this scheme that ensured such high class living for no particular effort or merit of their own.

Benefits of superannuation are not limited to retirees alone, however. Until the beneficiary retires, the money is in the hands of the professional investment company to use as their see fit. In the past these companies used these money to finance various development projects that made Australia bigger and better. Money in super was the fuel, that propelled the economy into stratosphere and made life better for everyone.

However, the superannuation system Australia uses had and still has a major flaw. This flaw is the reason why the country struggles with money ever since the Financial Crisis of the 2008 and have not recovered from it.

The problem is that beneficiary of super fund can withdraw the entire amount of their super, the moment their reach their retirement age.

Until first generation of beneficiaries retired, total amount of money in super funds only grew more and more. That meant that investment companies had more and more money to invest into the economy.

However, after first generation has retired, the investment funds suddenly shrank by a very large amount. Since boomers are more numerous than younger generations, it meant that contributions from people still in workforce did not cover the shortfall. 

Suddenly investment companies had less money to work with. Since that that got worse and worse as more and more people have retired, shrinking investment pool further and further.

Almost two decades later government still have not found a solution to this problem. Government tried to raise retirement age several times, but all it did was only postpone the inevitable payment, giving investment funds only temporary relief.

Meanwhile due to shortage of money, everything gets more and more dilapidated. New businesses that require significant investment could not get capital to start, preventing new jobs from being created. Real salaries shrink more and more as non-retirees struggle to afford even food and rent. All while retirees' dwell in their luxurious retirement homes.

In short, it's a disaster that made Australia from a lucky country into a misery land.

It does not have to be this way however, A solution to a problem not only exist, its already practiced by pretty much every other country with a similar superannuation program.

All government needs to do is to limit how much money retirees can withdraw from a fund even after they retire. 

In most other countries, similar systems do not allow beneficiaries to withdraw the whole amount at once in a single day. In most of such systems government just pays retirees an extra supplement to the regular minimum pension. The supplement amount depends on the level or number of contributions; the person made to the fund.

Australia does not have to make any complicated changes to existing system. All we need is to limit the withdrawals from super to something like 1% or principle per month or a certain fixed amount like $3000 per month or $1500 per fortnight.

This will keep most of the money in the hands of the super funds and will allow them to use these money to invest in Australian economy. That will benefit everyone in the country. 

Such change will benefit retirees as well. When the entire amount is immediately available to them, they become a lucrative target for all forms of fraud. Crooks know that fleecing just one of them can net them a jackpot that will set them for live. In the news we keep hearing more and more stories about retirees losing all their money, as banks and other institutions struggle to inform the public about basic fraud vigilance.

In contrast if super withdrawals will be limited, then retirees will stop being such a lucrative target for fraudsters. Even if they end up being conned by someone, it will not be as much of a problem as most of their super will still be safe and sound in the super fund and will be available to them next fortnight.

Limiting super withdrawals to $1500 per fortnight will not only save Australian economy and make everyone's lives better, but it will also protect retirees from fraud and save their money. The sooner government adopts this policy the better.