Vested interests spar over what's best for super
Here's a handy tip for those of you on higher incomes. Squirrel as much as you can into super this year, while you can still take advantage of those generous tax concessions.
Here's a handy tip for those of you on higher incomes. Squirrel as much as you can into super this year, while you can still take advantage of those generous tax concessions.It is no secret that the tax treatment of super favours the better off. Pre-tax super contributions - such as those made by employers or the self-employed - are taxed at just 15 per cent. If you're on the top marginal tax rate of 45 per cent, that's a tax saving of 30 cents in each dollar (more if you include the Medicare and flood levies) compared to taking the money as income and paying tax at your marginal rate.But because that 15 per cent contributions tax applies whether you earn $50,000 or $500,000, the savings aren't so high further down the income chain. On the most common tax rate of 30 per cent, the saving is a more modest 15 cents in the dollar and if you earn less than $37,000 your marginal tax rate is 15 per cent, the same as you'd pay on those super contributions.A new rebate of the contributions tax up to $500 will address part of that imbalance for lower earners but there is still a widely held view, and probably a justified one, that the bulk of super tax concessions go to those who least need it.There have been numerous calls over the years for the super tax concessions to be amended. The idea that keeps cropping up, and which was recommended by the Henry Review of the tax system, is to tax contributions at marginal rates and offer a standard tax rebate so that everyone gets the same tax benefit.But the combination of a government hell-bent on getting back into surplus and the announcement of yet another talkfest on super - this time in the form of a "round table" of 16 industry experts convened to chat with employment and workplace minister, Bill Shorten - has increased the chance those concessions may finally be tightened up.In announcing the round table, Treasurer Wayne Swan, says its first job would be to "examine better ways to target and deliver certain concessions". "The round table will need to consider offsetting savings from within the superannuation system for any proposals that have a budget cost."Typical political non-speak but a call by the ACTU earlier this year for an overhaul of super tax concessions, along with ongoing lobbying from the Greens, has put the question firmly on the round table's agenda. Of course, there is a strong argument that super should be concessionally taxed. By saving for the future, we are forgoing the ability to spend today and most of us need an incentive to do that.The recent annual caps on super contributions have also nobbled the ability of the rich to put vast amounts of money into super to take advantage of those tax concessions. If you're under 50, you're now limited to total concessional contributions (including compulsory super) of $25,000 a year. The plan is to impose the same limit on the over-50s with more than $500,000 in super, though the industry reckons that it going to be an administrative nightmare and it is one of the more urgent matters to be addressed by the round table.Other issues on the drawing board include retirement incomes and how products such as annuities work with the tax and pension systems. While the group is yet to meet, leading industry groups represented on the round table have already indicated they will fight any moves to scale back tax concessions. But in the interests of equity, it would be surprising if they remain fully intact.As if this wasn't enough, super is also under the spotlight with the government asking the Productivity Commission to inquire into default funds in industrial awards.There has been another long-held perception that the nomination of default funds in awards (they're the funds that your employer automatically pays your super into if you don't choose your own fund) has been a "closed shop" benefiting "union-controlled" industry funds. (I use "union controlled" in quotation marks, because in reality industry funds have equal employer and union representation on their boards and are required by law to be run in the interests of members. But that is still the perception.)The Commission's brief is to come up with a transparent and objective set of criteria that can be used to choose and monitor these funds to ensure members get the benefits of competition.This might sound a bit esoteric but the big retail funds, in particular, have been salivating at the prospect of getting their hands on this business. And industry funds, which have largely been the beneficiaries of award nominations, will not be giving ground lightly.In some ways it is like the argument for fund choice, waged under the Howard government.The retail funds managers argued long and hard that allowing us to choose our own super funds would free us from the tyranny of "union controlled" industry funds. And it was hard to argue that fund members shouldn't be able to choose where their own money was invested.But in practice, choice has been a bit of a fizzer. Rather than generating a stampede of members wanting to switch funds, only a small proportion of members have exercised their right to choose. And many of those have done so when changing jobs to ensure all their super savings are with the same fund, rather than opening a new fund each time they started with a new employer.There is no guarantee at all that an objective set of criteria would result in a move away from well-run industry funds. But like choice, it is hard to argue that members shouldn't benefit from competition.Twitter: @sampsonsmh