Sustainability at heart of super reform

Australia's retirement system needs to be sustainable, argues Treasurer Scott Morrison.

03-May-2016

By Daniel Paperny

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Treasurer Scott Morrison has announced a string of changes to tax concessions on superannuation contributions in a move to make the Australian super system “more fiscally sustainable” and reduce reliance on the age pension.

In his maiden budget address in Canberra tonight, Morrison said the annual cap on concessional superannuation contributions for individuals would be reduced to $25,000 from 1 July 2017 – instead of $20,000 as initially expected – and the government would introduce a lifetime cap of $500,000 on non-concessional contributions.

He also said the government would reduce the income threshold above which individuals would be required to pay an additional 15 per cent tax on their concessional contributions from the current threshold of $300,000 to $250,000.

“We need to ensure that our superannuation system is focused on sustainably supporting those most at risk of being dependent on an age pension in their retirement, which is the purpose of these concessions,” he said.

“We must fix the problems in our tax system so we can cover our responsibilities for the next generation and ensure the government lives within its means, just like Australians are doing in their homes and in their businesses.”

The government would also introduce a low-income superannuation tax offset to replace the low-income superannuation contribution when it ended on 30 June 2017, in a bid to “effectively reduce” the tax rate on superannuation contributions to zero for low-income earners.

In addition, a cap of $1.6 million on pension phase balances would be introduced, while those who left the workforce for a time would be permitted to roll over unused contributions from previous years if their superannuation balance was under $500,000.

Morrison underlined the government’s focus on fairness in its changes to the super system, stipulating that just 4 per cent of superannuants would be worse off under the changes, which raised $6 billion in savings measures.

However, the Financial Services Council (FSC) said the changes were largely at odds with the government’s stated purpose of super, as recommended by the Financial System Inquiry, which was to “provide income to supplement or substitute the age pension”.

“The test for this budget is whether Australia will have more pensioners or more self-funded retirees,” FSC chief executive Sally Loane said.

“Australia needs more self-funded retirees. Many of these proposals appear counterproductive and we urge consultation to align budget measures with the objective of super.”

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