A more tax-effective approach is to make after-tax contributions, which are classified as part of the tax-free component. Clearly this is not a problem with the compulsory super
system, so much as with the general knowledge of how all the different bits of the system fit together.
The Government should think about allowing higher-income earners to opt out of employer contributions that exceed their concessional contribution cap.
INCREASING THE SG RATE The Government has a plan to increase the SG rate to 12 per cent of salary by July 2019.
Many people have welcomed these changes but, ideally, the above issues need to be addressed at the same time.
The need for the higher rate to provide retirement income would also be lessened if employees were discouraged from retiring too early and there were more employment opportunities for willing and able older jobseekers.
The policy focus of the SG system is funding income during retirement. But according to Treasury modelling, the much bigger issue from a government budgetary perspective is funding health care for older people. The super system is a good place to enable retirees to save for these unfunded future costs.
The Cooper Review’s MySuper suggestion will see the level of fees and charges on super investments fall.
More than 10 years ago some people predicted the internet would change the way Australians shopped. Some naysayers, especially those with a business model not well suited to internet shopping, thought this was rubbish.
Australians have realised that they can buy items for a lot less online. I’m hoping that Australian employees will soon realise that they have been paying too much for their super funds and that these high costs are reducing their retirement future. I’m also hoping they will demand a better deal with their super because recent research has suggested that many people paying adviser commissions on their SG contributions may not be receiving any advice.
In reality most consumers are disengaged from compulsory super. We could spend considerable amounts of time trying to work out why. Part of the attitude stems from the fact that they know it will be years before they can access the money.
CONSTITUTIONAL ARRANGEMENTS My final point involves the Constitutional arrangements that underpin the SG itself. If an employer fails to contribute the 9 per cent of an employee’s salary, then a tax – called the Super Guarantee Charge – is raised by the ATO. The ATO then take that tax penalty and put it into a nominated employee’s super fund. In short, the SG is made possible by the Commonwealth’s taxation power.
The Constitutional arrangements of the SG are currently being challenged before the full bench of the High Court by the Roy Morgan research company.
I have no knowledge as to when the High Court will hand down its judgment – but suppose for one moment that the Super Guarantee was deemed to be unconstitutional. Would the Government be able to find a way to make the SG work again constitutionally? Some people have predicted that they would be able to do this, but I’m yet to see what type of revised law would be used.
How many large super funds would survive if the SG ceased to exist as we know it and a long-term solution couldn’t be found to start it up again?
Tony Negline is general manager, corporate strategy at SUPERCentral – www.supercentral.com.au. He is also the author of A How-To Book of Self Managed Superannuation Funds. Details about the book are available at www.atcbiz.com.au/smsfstore.php
SG Super has not completely solved the problem of under funded retirement but it has certainly assisted. For many it started too late. If they can do a super surcharge for high income earners than the can do a super tax rebate for low income earners. The reality is people need at least 20 times the income they want in retirement in income producing assets by retirement. This won’t happen with 9% or 12%. It really needs about 20% like most public servants get, this does require a salary sacrifice component by staff but should be available to all employees.