Capacity to make Contributions
Many people would argue that the indexed contribution caps and compulsory SG contributions provide ample scope for people to fund a comfortable standard of living in retirement.
As mentioned earlier, it is believed that a contribution rate of close to 15 per cent throughout a working life is required to do that.
This means that people will, inevitably, have to make additional contributions to the superannuation system.
In the real world, people pass through various stages in their lives and do not have the financial capacity during most of their working lives to make additional contributions.
In no particular order, people may:
• spend a number of years getting an education; • wish to travel overseas, for short or extended periods; • get married; • buy a home, with the resultant 25 to 30 year mortgage; and • have children, with the resultant broken work patterns and expenses for 25 years or more. In practice, therefore, I believe that most people will not be able to contribute additional amounts during large parts of their working lives.
It will be natural for these people to want to top up their superannuation later in their lives, at times and in amounts that are suitable to them, not at times and in amounts dictated to them by Government.
Superannuation, by its very nature, is a long-term investment and needs to be carefully planned if people are to achieve a comfortable standard of living in retirement.
The rules governing the operation of superannuation in Australia have been changed many, many times over the years. This paper has already illustrated how some of the rules in respect of contributions have changed, sometimes significantly, over recent years.
In order to plan for the future, people need to have some certainty about the rules that will apply to them during three phases, namely:
1. Getting money into the superannuation system; 2. Accumulating money in the system; and 3. Accessing benefits from the system. The only way to engender confidence in the superannuation system is to have a bi-partisan approach to retirement funding. This will ensure that any changes that need to be made along the way are relatively minor in nature and should not detract from the nation’s overall ambition for Australians to fund a comfortable standard of living for themselves in retirement.
NOTES: 1. For the final report on Australia’s Future Tax System Review, and the Labor Government’s response, see: http://taxreview.treasury.gov.au/Content/ Content.aspx?doc=html/home.htm, accessed August 25, 2010. 2. Joint Media Release from the Hon Chris Bowen MP and the Hon Wayne Swan MP Treasurer, Stronger, Fairer, Simpler Superannuation Banking the Benefits of the Boom, May 2, 2010, http:// mfsscl.treasurer.gov.au/DisplayDocs. aspx?doc=pressreleases/2010/038.htm&p ageID=003&min=ceba&Year=&DocType=0, accessed August 26, 2010.
Neil Howard is Senior Manager, Superannuation, HLB Mann Judd.
