The financial-planning industry has voiced its concern over last night’s federal budget, accusing the government of excessive tinkering and using superannuation as a political tool.
Industry bodies were generally in agreement that some of the changes could significantly undermine Australians’ trust in the super system
The budget announced that the start date of the higher concessional contributions cap measure would be deferred by two years, from 1 July 2012 to 1 July 2014, drew fire from the Financial Planning Association (FPA).
The two-year deferral means that Australians will only be able to make concessional contributions of up to $25,000 per year.
The original proposal would have allowed individuals aged 50 and over, with an account balance less than $500,000, to contribute up to $50,000 in concessional contributions.
“The deferral of the higher concessional contributions cap is a huge disadvantage to Australians over 50 who are trying to save for retirement,” says Dante De Gori, FPA general manager of policy and government relations.
“The FPA feels that this announcement is counter-productive to the Australian Government’s retirement-policy objectives and counter-productive to the growth of the superannuation system and current savings culture in Australia.
“We do not support the $500,000 account-balance eligibility threshold for concessional contributions and believe it should be scrapped altogether.”
The government also announced that from July 1, 2012, the tax on superannuation contributions by individuals with income greater than $300,000 will double from 15 per cent to 30 per cent, excluding the Medicare levy.
“The introduction of a quasi-surcharge on high-income earners further complicates and acts as a disincentive for Australians saving for retirement with superannuation – this is not the message we what to send to the public,” says De Gori.
“The introduction of a new surcharge-style arrangement for high-income earners is taking a step backwards. It did not work the last time and created inefficiencies in the superannuation system. We cannot see from this announcement how the administration of this measure will be any different.”
However, the FPA welcomed the news that ASIC will receive $180.2 million over four years, of which $23.9 million will be to facilitate the implementation and enforcement of the Future of Financial Advice (FoFA) reforms.
Super is not a cash cow
The Association of Financial Advisers (AFA) said it was a robbing-Peter-to-pay-Paul budget.
“Overall, last night’s federal budget was a solid effort, with the focus on getting the country to live within its means by cutting $34 billion and returning to surplus,” commented AFA chief executive, Richard Klipin.
“However, if you’re in small business, or big business, or approaching retirement, you have been slugged.
“Government revenue is down and confidence is down and the last thing the government should be doing is tinkering with the superannuation system, leading to further loss of confidence and trust.
“Superannuation is not a cash cow to be milked to meet deficits. And the notion of robbing Peter to pay Paul is short-term thinking, leading to an environment that is not conducive to enabling the average superannuation investor to understand, and take an active role, in their retirement planning.
“Superannuation is a long-term strategy and the system needs to be stable and consistent – not a moving feast in response to budget and political pressures.”
The Financial Services Council (FSC) warned against taking $2.4 billion out of the retirement savings of working Australians and making changes that will significantly undermine their trust in the super system.
Martin Codina, director of policy at the FSC, said the budget would hit every saver over 50.
“Cutting the concessional contribution caps from $50,000 to $25,000 for two years undermines all Australians’ planning for retirement,” he says.
“The government has again confirmed that it is willing to use retirement savings to pay for other political objectives. This is the ninth time since 2008 the government has changed the rules, equating to $7.8 billion less in retirement savings.
“These are shortsighted measures that will push the cost of providing for an ageing population onto future generations. These measures are a short-term budget fix in return for long-term budget pain.
“They also send a message that super savings are at risk from constant government tinkering.”
According to RaboDirect, the lack of a tax break, coupled with the fact that deposit rates are falling, could act as a disincentive for Australians to save.
RaboDirect’s executive general manager of Australia and New Zealand, Greg McAweeney, said he was very disappointed that the government had failed to deliver on the promise of a tax break for savers.
“The 5.7 million depositors that were set to benefit from the discount have been shortchanged,” he said.
“Australians have been doing the right thing by reducing their personal indebtedness in times of economic uncertainty and let’s not forget the losses people suffered in their superannuation holdings.”
Russell Mason, national superannuation leader at Deloitte, said the only real surprise in the budget announcement was that the increase in the concessional cap for the over-50 age group with superannuation balances of less than $500,000 has been deferred for two years.
The industry expected this reform to be introduced before that date.
“This is disappointing,” he said, “but understandable based on the administrative complexities of introducing this new cap in the original time frame.
“It is however, another impediment for those who are planning to maximise their savings for retirement.
“The government has estimated that this saving is worth $1.46 billion over two years, which equates to approximately $8.5 billion less in savings for retiring Australians.
“This is a significant loss of superannuation savings for those approaching retirement.”
The other superannuation changes were the increase in the Superannuation Guarantee (SG) to 12 per cent, an increase in the age limits for SG contribution, an increase in the tax on concessional contributions for high-income earners, and the Low-Income Superannuation Contribution, which will effectively rebate the contributions tax up to an amount of $500 for those earning less than $37,000 per annum.
Talk about the treasurers’ swan song, I reckon it’s Waterloo for him and the rest of the plunderers
Why should the govt care about contribution caps?…concessional contribution caps don’t apply to the SA Govt super fund, known as SuperSA…they can contribute whatever they like…while we have a miserly $25k limit….stinks of hypocracy doesn’t it..??