For Julia Gillard the story so far on superannuation reform is routine: a meek attempt to float reform possibilities through ‘leaks’, a widespread backlash from interested parties and a partial backdown before the event. But hopefully the prime minister will persevere – not because money is needed elsewhere, but because the system is urgently in need of renovation.
Of course there are arguments that superannuation should be ‘left alone’ but that reasoning is flawed. It’s a ‘live’ system and many of the troubles emerging now were never envisaged by its creators.
At their worst Paul Keating introduced a compulsory system that left the gates wide open for industry manipulation, while Peter Costello added elaborations that moved the system towards a complexity that was often only useful to financial planners and sophisticated investors.
Indeed with a powerful switch towards internet-enabled direct investing where superannuants make more choices for themselves, and with the rise of DIY super (now representing one in three dollars held in superannuation) more people than ever are at risk in an imperfect system.
What might be done? It would be reasonable for the Gillard regime to cancel the co-contribution scheme (where high earners can improve household tax bills by ‘helping’ lower income spouses). That concession is an anomaly. Separately, there could be a review of the ‘re-contribution’ strategies allowed under the current system, which at their very worst line the pockets of adult children of wealthy superannuants.
Further, as the Financial Services Council has suggested this week – with regard to the ever growing longevity risk in this country – superannuation access should be lifted to the age of 62 from 60 at present.
Meanwhile, a twice-postponed promise to restore tax concessions for those over 50 to $50,000 a year should be finally introduced, while the current general ‘cap’ of $25,000 should be confirmed beyond doubt.
But what is essential is that the Gillard regime tackles the superannuation system to reform and refinance it, rather than to raid it.
The list of potentially rewarding progressive reforms is considerable but three stand out:
1. Superannuation savers need reliable choices for ‘yield’ investments, but infrastructure plans remain hidebound with an immature infrastructure market. Superannuants – especially DIY super operators –should be encouraged to bridge the gap.
2. Though the government has now allowed superannuation investors to buy residential property, the procedures are difficult and financing expensive. A DIY super fund can buy hedge funds and other derivative based products with ease but to buy a house is exceptionally difficult... simplify the process.
3. A comprehensive regulation of the finance company sector must be introduced (that is, companies that are not Authorised Deposit-Taking Institutions). With each successive finance company failure – Fincorp, Storm, Banksia – superannuation savers are caught out.
Gillard may have cooled debate around the most sensitive issue within the system by promising to leave the tax free status of those over 60 in place, but the superannuation debate is only beginning. Of course there are vested interests at every turn but the system, flawed though it may be, basically works. Now there is a chance to make it really successful – not just for the wealthy but for all.
James Kirby is managing editor of Eureka Report. For more information on superannuation go to saveoursuper.com.au