An idea in response to the Intergenerational Report

The IGR released yesterday (available here) demonstrates clearly, if rather politically, that the country faces a number of significant challenges over coming decades. One of the main being the fact that our future population will be living a lot longer and therefore putting an every greater burden on retirement savings.

It would seem obvious that over coming years the retirement age will push higher and the age at which retirement benefits (either aged pension or access to super savings) are available will get later. Resistance to such moves will only ever be temporary as governments of both colours face up to the reality. If we don’t want the publicly funded aged pension to be ever more heavily relied upon then we need individuals to start retirement savings earlier.

So here’s one idea to perhaps address this need for far greater individual retirement savings.

Government, on the birth of a child, rather than paying a Baby Bonus opens a superannuation account in the child’s name and deposits the Baby Bonus into that account. If we accept that retirement age is likely to be (at least) 70 by the time this newborn gets to that point, and we assume superannuation growth rates remain at a long term average of 5% (not an optimistic assumption!), then the $5,000 Baby Bonus payment balloons to a massive $152,000 by the time the baby reaches 70. What if Family Tax Benefit payments also went into the super account? The potential nest egg for the bub at 70 becomes significant. Not only does this provide a powerful antidote to the looming retirement savings challenge but it also provides a huge extra boost to the availability of investment funds in the country via the super savings channel.

Of course new parents would be disadvantaged initially, but the state is still providing a very real benefit to the child (which is what FTB and the Baby Bonus were really supposed to be about anyway).

It’s just an idea……

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