Potentially controversial changes to Australia‘s superannuation legislation proposed by Labor before the leadership change have scarcely drawn a mention yet.
Australia’s immigration policy in the face of a growing flood of asylum seeks has monopolized media attention to date with the Liberal-Country Party determined to make political mileage out of this sensitive humanitarian issue, and Rudd adopting a hard-line stance to staunch the flow of illegal immigrants into the country.
Much as I would like immigration to be bipartisan, this is not going to happen. It will continue to dominate debate ahead of the election. Let’s hope however, that important issues such as superannuation still receive the public scrutiny they deserve.
At present superannuation savings are tax-free in the pension phase. This will change under the changes announced by Labor when Julia Gillard was still Prime Minister. The changes have been carefully thought through to reduce public outcry before the election, but one should not be misled by the argument that the changes will only affect the wealthy few.
Under the changes, the government tax-grab will grow with time, as inflation results in more retirees qualifying to pay the tax. Australia’s superannuation nest-egg is likely to reach $3 trillion in the next decade. This tax will make sure that a significant proportion returns to government coffers. Not only do retirees have to contend with high management and compliance costs, they are at the mercy of poor/negligent financial advice and super fund management.
Retirees, many with their own self-managed super funds, expect that the changes will increase the complexity of administration, and that this change will likely be the thin edge of the wedge, eroding their savings, and forcing them pre-maturely onto the pension,
To refresh our memory the major changes are:
- A 15% tax on pension earnings in excess of $100,000 effective 1 July 2014
- A concessional contributions cap of $35,000 for those over 50 from 1 July 2014
- Deeming rules for the Aged Pension to also apply to Superannuation Pensions as from 1 January 2015.
- From 1 July 2013, inactive accounts of $2000 or less (increasing to $2500 and then $3000) to be transferred to the ATO.
- To set up a Council of Superannuation Guardians to check superannuation adequacy and sustainability. It will assess future policy and report to the government.
- In addition the employer paid superannuation guarantee levy is increasing over the next few years from 9 to 12%.
- Another continuing provision to aid low-income earners (less than $37,000) is a cash co-contribution from the government for additional contributions to their super, with a cap of $500 benefit. This recognises that tax concessions provide little benefit to low-income earners, not many of whom can afford to make extra payments anyway. This initiative costs the government an estimated $2 billion per annum.
One would hope that a Council of Superannuation Guardians would not just create another level of expensive beaurocracy, but would halt the predatory erosion of retiree savings, and set up perhaps some form of government guarantee. I believe such a council would enjoy bipartisan support.
- Do major parties address women’s super disadvantage? (abc.net.au)
- Young workers disadvantaged (news.com.au)