Concerned for a fairer superannuation system based on realistic expectations of what the system can deliver, Tom Garcia, chief executive of the Australian Institute of Superannuation Trustees says rebalancing tax concessions must primarily improve the retirement outlook for low- to middle-income earners.
There has been a welcome shift in the tenor of the debate about superannuation tax reform. Super is back on the table as a key component of the government’s inquiry into tax, and there is a growing consensus among industry stakeholders that at least some tax changes will have to be made.
The term “fairness” is now a core part of the narrative and there is far less media hysteria over calls to rein in generous tax concessions to high-income earners. More people are coming forward to say that super wasn’t set up to be an estate planning vehicle, and there is a far greater appreciation of the need to improve the retirement outlook for low- to middle income earners, especially with the recent age pension asset test changes. The senate inquiry into women’s retirement outcomes has sharpened the focus on the impact of super taxes on the gender gap in retirement savings; and there is near-universal support for clearly articulated objectives of super to be defined in legislation.
But the extent to which this calmer, more reasoned narrative is eventually matched by good superannuation tax policy remains to be seen. The government is still vague on how and when the objectives of super will be defined and there is still plenty of commentary on super that sends a confusing message to the public.
While it will always be important for Australia’s retirement income system to be structured in such a way that it encourages self-sufficiency, we also need to be realistic about how achievable this is for most working Australians.
Treasurer Scott Morrison was recently quoted as describing self-funded retirees as heroes. Not only is this insulting to the majority of hard-working retired Australians who currently receive the age pension or a part age pension, it ignores the reality of our superannuation system and most other pension systems around the developed world that work in tandem with a taxpayer-funded safety net.
It’s not rocket science to work out that for every working Australian to be a “hero” in Morrison’s eyes, there would need to be a massive rise in the superannuation guarantee charge, currently at 9.5 per cent.
Even when most Australians receive 12 per cent for their working life, a typical super payout is estimated at $500,000 in today’s dollars. That’s not enough to be self-sufficient in retirement if you reach your life expectancy.
Scott Morrison’s desire to see more people self-sufficient is also at odds with the Coalition’s move to delay – by a significant six years – the lifting of the SGC to 12 per cent, while at the same time phasing out the low income super contribution scheme in 2017.
As the peak representative body for the not-for-profit super funds whose members are mostly ordinary wage earners, the AIST has long called for a fairer super system based on realistic expectations of what super can deliver and recognition of the fundamental role of the age pension as an income supplement for most retirees.
We recently developed the AIST-Mercer Super Tracker tool to examine the outcome of various super tax proposals within a robust evidence based framework. Our analysis found many of the tax reform proposals put forward by industry stakeholders that might be seen to be good and fair actually do very little, if anything, to improve fairness.
There has been a lot of focus about the need for more incentives – such as flexible concessional caps – to make it easier for people to top up their super. But our analysis points to very few people contributing up to their cap limit and raises doubts on the extent to which new measures based around voluntary contributions will improve the fairness of the system.
If we are going to rebalance the super tax concessions and make the system fairer, this means improving the system for low- to middle income earners, as well as the next generation of taxpayers who face the challenge of having to pay for an ageing population that collectively pays very little tax.
Effective tax reform will produce losers, as well as winners. It will require political leaders who are not only committed to fairness in super but who also have the ability to sell complex policies. It’s worth doing, but it must be done well.