Super unfair, says its creator
THE architect of Australia's compulsory superannuation scheme says it has become "inequitable" and should be changed to reduce its bias towards the better off.
THE architect of Australia's compulsory superannuation scheme says it has become "inequitable" and should be changed to reduce its bias towards the better off.Vince FitzGerald, whose advice underpinned federal Labor's dramatic retirement policy overhaul two decades ago, said tax breaks for those wealthy enough to make extra superannuation contributions skewed the system towards higher income earners.The superannuation system set to balloon with the forthcoming increase in compulsory contributions from 9 to 12 per cent is "not a terribly wonderful deal" for people on low incomes, said Dr FitzGerald, a director of the Allen Consulting Group.They could get barely any tax concessions by making extra contributions and they had more immediate needs than superannuation, such as paying for housing and their children's necessities, he said.Mike Rafferty, a senior research fellow at Sydney University's Workplace Research Centre, said superannuation was an extraordinary piece of social engineering, which had not attracted the dissent it deserved."There are two systems. One for the rich, who make use of the massive tax concessions and the punters who have 9 per cent taken out whether they like it or not," he said.Critics of the system say the rise in compulsory contributions will also tip the benefits of the scheme even further towards men."If the objective of the government was to close the gap between women's retirement income and men's, it would be hard to imagine a worse way of doing it than relying simply on a shift from 9 per cent to 12 per cent," said the executive director of the Australia Institute, Richard Denniss.The chief executive of the Australian Council of Social Service, Cassandra Goldie, said: "The superannuation system benefits people who are able to be in full-time paid work on a high income. And who would that be? That would be men."Dr FitzGerald said attempts to mitigate inequity in the system had been only partially successful."Women don't do well out of it, but it is not entirely due to the system. If a couple stay together throughout their family-raising life, presumably they share the superannuation if one has more than the other, but that is not the way everybody lives," he said.People earning $100,000 to $150,000 a year "are not Kerry Packer or his son James, or one of the Murdochs", but they had good reasons to save for retirement and could be taxed less generously, he said."The high income concession has been pegged back by putting limits on contributions you can make to superannuation and in one way you could say that addresses the issue, because the limits are pretty low for people on any substantial income. But in my opinion, it is the wrong way to go about it," Dr FitzGerald said."You should tax it properly, rather than put straight out restrictions on it."But Dr FitzGerald welcomed the rise in compulsory contributions, to be phased in over seven years from July next year, saying it would mean working people's incomes would not drop as dramatically in retirement as in the past.In about 20 years, through compulsory superannuation and the age pension, "life in retirement will be provided for", Dr FitzGerald said.But there were still drawbacks for certain groups, he said. Extra money flowing into superannuation would make it harder for younger workers to pay off study debts and mortgages. Australian superannuation funds' heavy reliance on share investments would mean they performed well in the long-term, but had adversely affected some, he said."If you retire when funds have been low on average for a few years, it's the last throw of the dice that goes against you. By the same token, if you are lucky and retired before the global financial crisis, when the sharemarket had been booming for a decade, you would have done well," he said.The chief executive officer of the Association of Superannuation Funds of Australia, Pauline Vamos, said that 90 per cent of tax concessions go to people below the highest tax bracket and people in the lowest tax bracket get half of all the concessions. "It is equitable because it allows most people on middle and low incomes to have retirement income," she said.