The Association of Superannuation Funds of Australia (ASFA) has called on industry and policy makers to separate fact from fiction when it comes to the superannuation debate.
Australia’s superannuation system is shaping up as a major election issue, with Senator Mathias Cormann this week accusing Labor of being in chaos over superannuation.
“The Gillard government continues to be in complete chaos. Their complete dysfunction and incompetence should not be allowed to hurt hard-working Australians saving for their retirements,” he said.
“Labor must join the coalition in a bipartisan way in our firm commitment not to make any negative unexpected changes to superannuation during the next term of Parliament.”
Debunking the myths
However, ASFA chief executive Pauline Vamos said it was time to take a step back and consider the facts, given that the shared goal of all stakeholders must be ensuring a sustainable superannuation system.
“With growing account balances and an ageing population, there’s no doubt this may involve some changes to the system in the future, but it’s important these decisions are made based on facts and not fiction, particularly given they have the potential to impact many Australians,” she said.
ASFA highlighted three myths it believes are clouding the national debate.
Myth 1: Tax concessions cost the budget $32 billion last year alone
“There has been a lot of discussion regarding the budget cost of the various superannuation tax concessions, which based on last year’s figures, was estimated at around $32 billion,” said Vamos.
“Once you take into account that the government is currently saving $7 billion annually in Age Pension expenditures as a result of super, this figure drops substantially.
“When you also deduct the leakage of savings into other tax-advantaged areas such as negative gearing, which would occur with any decrease in tax concessions, a true estimate of the aggregate tax concession for superannuation on an ongoing basis would be around $16 billion.”
Myth 2: The majority of government support for retirement goes to high income earners
ASFA disputes this, stating that the amount of assistance for retirement provided by the government is broadly comparable across the personal income tax brackets.
“Not only has the amount of government assistance provided to individuals on very high income levels been substantially decreased by lower caps for concessional contributions, but when you take into account the Age Pension, tax concessions and rebates, the present value of government assistance is around $300,000 over a person’s lifetime across the range of tax brackets,” said Vamos.
“A lower income person will receive this mostly in the form of the Age Pension, concessionally taxed contributions and the low-income superannuation contribution, while a person in the top income tax bracket will receive it as tax concessions for super.”
Myth 3: Government funds spent on super tax concessions are better directed at other areas of the economy
“Superannuation does and will continue to play an important role in providing the foundations for economic activity and prosperity,” said Vamos.
“It currently lifts household savings by around two percentage points of GDP and with the upcoming increases in the compulsory Superannuation Guarantee, this is expected to rise to 2.5 percentage points of GDP.
“This helps Australian businesses and government to finance investment and infrastructure without having to rely unduly on foreign savings and investment.”
Massive failure
However, national property, business tax accounting and wealth advisory group Chan and Naylor, said the government’s intention to revisit the option of introducing new taxes on superannuation payouts for Australian retirees could potentially set up Australia’s retirement infrastructure for a massive failure of epic proportions in years to come.
“During recent weeks of political tax-grab barracking, the government has successfully managed to stigmatise Australian retirees who have managed to set aside their own monies for independent retirement while simultaneously eroding the public’s confidence in super as a mechanism to plan for the future,” says Ken Raiss, a director at Chan and Naylor.
In particular, Raiss suggests that the government’s recent plan to tax super funds with over $1 million as creating an unhelpful “us and them” perception that is likely to lull future retirees into a false sense of security of what constitutes a comfortable retirement.
As usual it is the lack of detail in the Labour plans that is causing a growing lack of confidence in the superannuation system by the public. Is it any surprise they many are rushing to SMSFs to have some perceived control of their retirement savings. SMSFs will not be immune from Swanny dipping in to the honey pot and may in fact be a prime target unless people make it clear that they are sick and tired of tinkering with their future while Politicians own super seems protected.