Industry pushes for reforms but pollies on tight deadline
The superannuation industry's peak body wants a 15 per cent tax applied to lump-sum superannuation withdrawals, rising to 30 per cent for withdrawals over a certain, yet-to-be-defined, limit. Yes, we are a long way from a stable and settled super system, despite all the talk about needing "certainty".
The Association of Super Funds of Australia, representing all super funds, suggests fundamental changes to the system, such as the inclusion of the self-employed, contractors and domestic carers in compulsory super, a limit of $2.5 million on the amount eligible for tax concessions, an increase in the age at which super can be accessed and a default option upon retirement of an account-based income stream with maximum and minimum payment levels.
Unfortunately overshadowed by last week's budget noise, ASFA launched a white paper on what it calls "super evolution" but what would be billed as outrageous revolution if proposed by any politician in the present climate.
The paper is an attempt to get beyond the politics. A five-month discussion period for members aims to develop proposals to improve the system, so it can cope with Australia's changing demographic and economic realities.
"The core of the [present] system was designed when the proportion of older people in the Australian community was not very high and the average life expectancy was much lower than it is today," the paper's preamble states.
"In essence the system was designed to provide a retirement income for people who lived into their 70s, not into their 90s. Now is the time to relook at the system and to modernise it."
ASFA hopes the process will provide it with a comprehensive policy to present to a new federal government. The Coalition was happy to make whatever political capital it could out of Labor's minor changes to superannuation for a relatively few well-off individuals, but the relevant shadow minister, right-winger Mathias Cormann, is known in the industry as saying super is socialism.
Coalition super policy effectively penalises anyone whose taxable income falls below $18,200 and offers only a 5 per cent contribution and earnings incentive for the 3.6 million people on a 19 per cent marginal tax rate (plus Medicare levy).
A comprehensive tax white paper, promised by the Coalition within two years, would also need to include a fundamental review of the role of superannuation.
ASFA's review aims for better retirement incomes as well as coping with an ageing population: "The system should be designed with a focus on the needs of the great bulk of Australians, say, 80 per cent or more of the adult population, to save for retirement by way of both compulsory and voluntary contributions which mostly receive tax concessions. While the aim is for an inclusive system, it might be necessary to accept that at the very low end of the income scale superannuation may not be very relevant, while at the very top of the income scale the provision of substantial tax incentives is not necessary."
At first, it might seem a very brave decision for the super industry to want a tax on lump-sum withdrawals; a cynical soul might suggest it is self-interest at work for the big funds wanting to keep their hands on individuals savings and thus continue to clip a bigger ticket. ASFA argues that it is necessary to encourage individuals not to run down their retirement savings.
While the case is strong, it doesn't mean ASFA will be able to convince nervous politicians that its proposed changes are worth the short-term political effort for national longer-term gain - particularly if superannuation is a form of socialism anyway.