Editorial - More protection needed for the super system


By Sarah Kendell

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There was much discussion at last week’s Self-Managed Superannuation Fund Association conference about the future of super, and whether the system should be protected from changes by future governments.

In an election year and with the Budget announcement not far away, this is likely to be a topic of conversation in the industry, media and government for months to come.

Changes to tax concessions for super haven’t been attempted since Julia Gillard government’s wildly unpopular attempt to introduce a tax on earnings above $100,000, which was floated and quickly squashed before the 2013 Budget.

When Tony Abbott was elected prime minister later that year, he promised no further changes to super to give the industry and fund members some security, but since Malcolm Turnbull’s ascension to the role, there has been much talk of structural problems that must be addressed in the nation’s finances, and that the Australian people are ‘mature enough’ to accept the rolling back of some concessions if they are for the greater good of budget repair.

While Treasurer Scott Morrison has done a successful job of talking about the issue without releasing much policy detail, it’s believed the government will look to wind back some concessions in the accumulation phase, potentially tapering the rate of tax paid on super depending on members’ income.

On the other side of the fence, Labor is looking at reducing preferential treatment of super in the pension phase, by taxing annual earnings above $75,000 (essentially a Gillard 2.0 policy) and lowering the threshold on the high income super charge to $250,000 a year.

While the opposition claims its policies will only affect 60,000 members with balances above $1.5 million, and while any changes to the tax treatment of the accumulation phase will affect millions, it’s arguable that alterations at either end of the spectrum will dent public trust in the system.

This may potentially lead to members storing their excess cash in less efficient vehicles where the money could be spent well before retirement.

The major industry associations, as well as much of the advice community, have expressed their fears over this, emphasising that even a small fall in annual contributions to super accounts could lead to members being significantly worse off in retirement, costing future governments more in the long term through more reliance on the pension.

At the same time, given the structural issues the Budget faces, given the ageing population and lower tax income owing to plummeting commodity prices, it’s understandable the government is casting its eyes over the glimmering pool of revenue in the super sector, where concessions cost around $30 billion a year according to Treasury estimates.

There’s also an issue around the effectiveness of the super system as it currently stands, and whether it is truly decreasing the reliance of the majority of working people on the public purse later in life, or simply providing an efficient vehicle for higher income earners to escape the tax man.

I would argue that it’s not necessarily change itself that dents faith in the system, but the constant prospect of it. In every Budget lead-up for the last few years, the prospect of winding down super concessions has been raised, if not officially, then via Parliament’s efficient leaking channels to test the public’s reaction (which is essentially always panic).

If the media and the industry were given longer cycles between which they could be assured there would be no changes to the system, it could reduce the impact of the 24-hour news cycle and ensure any proposed changes were genuinely well thought out.

The proposal by SMSF Association policy head Jordan George last week to link reviews of super to the five-year Intergenerational Report is one idea that may have merit, in that it doesn’t rule out sensible tweaks to the system but ensures more order and less Canberra hysteria in the whole process.

Additionally, changes shouldn’t look to simply grab the maximum revenue to fill government coffers, but to better preserve the purpose of the system, which is to allow the vast majority of Australians to independently fund their own retirement.

In this regard at least, the tweaks proposed on each side of politics – allowing faster accumulation for lower wage earners, and tapering the extent to which higher income members can access their funds tax-free – are heading in a reasonable direction.

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