Politicians must steel themselves to fix a mess that will keep growing.
HAVE you noticed? Our guardians in the superannuation industry have come out swinging to defend us against the changes to super announced in the budget. Mark Payne, a partner in the legal firm Hall & Wilcox, says: "Anyone that has turned 50 can feel dudded."
The changes "will be costly to administer, bring little revenue for the federal government and are a real disappointment for the over 50s, who will need to reassess their retirement strategies", he says.
According to John Brazzale, managing partner of the accountants Pitcher Partners, "There's now less incentive to put money into super, particularly [for] those earning more than $300,000. They would be looking at how to get a better tax return by investing outside of super in, for example, businesses and managed funds."
One of his partners, Brad Twentyman, agrees. "Superannuation at higher incomes has become very marginal, and there is nothing compelling to drive self-sufficiency in retirement," he says. "This is not the system we should be aiming for. We need to be encouraging higher-income earners to save for their retirement as well as lower-income earners."
David Anderson, the managing director of financial services provider Mercer, warns that "continual changes to superannuation will create a wave of uncertainty, confirming the commonly held view that superannuation is an irresistible honey pot".
He says there "is a risk that further complicating and continually changing the rules in superannuation will reduce investor confidence in super and that would be a most unfortunate outcome".
Sorry, but most of all that is self-serving tosh. For someone who has turned 50 to feel "dudded", they also need to be earning more than $300,000 a year (putting them into the top 1 per cent of taxpayers) or to have a super account balance of less than $500,000 and have been in a position to sacrifice salary of up to $25,000 a year.
The two decisions they're complaining about are to reduce the tax concession on super contributions by people on more than $300,000 from 31.5? in the dollar to 16.5?, and to defer for two years the promise to raise the limit on concessional contributions from $25,000 a year to $50,000 for people aged over 50 with balances of less than $500,000. Few people on middle incomes could have afforded to take advantage of the higher limit.
The media have a tendency to quote uncritically business spokesmen who want to have a crack at the government, but most are wolves in sheep's clothing. They claim to be speaking in the interests of their customers, but for the most part they are, in the money market phrase, "talking their book" offering advice that serves their own interests.
Even when measures have been carefully targeted to hit only the well-off, they'll be shedding bitter tears and predicting dire consequences. Why? Partly because they're very highly paid themselves, but mainly because they make more money out of the rich than the poor.
The guys who run super funds are in the ticket-clipping business. They take a tiny nick out of every dollar that passes through their hands, and since our super savings total $1.3 trillion, those tiny nicks add up to very big bucks.
The super industry which includes not just the fund managers but also the (often union) trustees and the myriad outfits providing advice to them is among the most lucrative in the country. These guys pay themselves extraordinary salaries.
And it's not just that clipping tickets is such a deceptively cheap way to make a fortune. It's also that, by compelling all employees to save 9 per cent of their wages, the government has delivered them a huge captive market.
Not content with that, however, after years of agitating they've finally persuaded the Labor government to phase up their monopoly from 9 per cent to 12 per cent at a huge and ever-growing cost to the budget in tax revenue forgone.
When this and other favourable changes were announced in 2010, no one in the industry was claiming continual changes to super were discouraging people from saving. They trot out this old favourite only when governments make changes that hit the industry's revenue.
Contrary to the claims we've heard, few people will need to "reassess their retirement strategies".
The proposition that the highly paid need to be bribed by tax concessions to put money aside for their retirements is laughable. Why would they be planning to live only on the age pension? And even if they do turn away from super to other ways of saving, why is that a problem for anyone but the super ticket-clippers?
When you combine this government's plan to ramp up super with the changes Peter Costello announced in 2006 to make super payouts tax free for those 60 and over, to sanctify the salary-sacrifice loophole and to ease the assets test on the age pension you see it's not adding up.
The annual cost of super tax concessions is now growing so fast it's projected to equal the annual cost of the age pension by 2015-16. Such growth is simply unsustainable.
Now add the fact that the concessions go disproportionately to high-income earners, as well as advantaging the retired generation over the working young. The old don't pay income tax, but the young do.
Unless the pollies are brave enough to fix the whole mess, they will go on fiddling at the edges of the super arrangements in most of their budgets.
Frequently Asked Questions about this Article…
What were the main superannuation changes announced in the budget?
The budget cut the tax concession on super contributions for people earning more than $300,000 from 31.5% to 16.5%, and deferred for two years the planned increase in the concessional contributions cap (from $25,000 to $50,000) for people over 50 with super balances under $500,000. The article also notes earlier policy moves to phase up compulsory super contributions from 9% toward 12%.
Who has criticised the budget superannuation changes and why?
Industry figures quoted in the article — including Mark Payne (Hall & Wilcox), John Brazzale and Brad Twentyman (Pitcher Partners), and David Anderson (Mercer) — criticised the changes as costly to administer, discouraging saving for high earners, and creating uncertainty that could hurt investor confidence.
How will the reduced tax concession affect high-income earners and their use of super?
According to accounting advisers in the article, reducing the concession for people earning more than $300,000 makes super less attractive for high-income earners. They may look to invest outside super (for example in businesses or managed funds) to seek better after-tax returns.
Do most middle-income and typical investors need to reassess their retirement strategies because of these changes?
The article argues that few middle-income people will be directly affected. The deferred higher concessional cap was mainly aimed at those who could afford large salary-sacrifice contributions, so most everyday investors are unlikely to need major changes to their retirement plans.
Why does the article say the super industry’s complaints may be self-interested?
The piece argues the super industry benefits from large fee income ('ticket-clipping') on the pool of compulsory savings and from tax concessions that favour higher balances. It suggests some industry warnings are motivated by protecting revenue and high executive pay rather than broad public interest.
Could continual changes to superannuation rules harm investor confidence?
Yes — David Anderson of Mercer warns in the article that continual and complicated changes could create a wave of uncertainty and reduce investor confidence in superannuation, which would be an unfortunate outcome for long-term savers.
How large are super tax concessions and are they sustainable?
The article says the annual cost of super tax concessions is growing quickly and was projected to equal the annual cost of the age pension by 2015–16, a pace the author describes as unsustainable. It also notes concessions tend to flow disproportionately to higher-income earners and retirees.
What practical takeaway should everyday investors get from the budget changes to super?
For most everyday investors the direct impact should be limited — the changes mainly target very high earners and specific over‑50 salary-sacrifice arrangements. If you earn under $300,000 and don’t make large concessional contributions, you’re less likely to be affected. Those directly impacted may want to review options with a trusted adviser, while remembering the article’s point that some industry reactions reflect self-interest.
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