Despite the salutations chorusing the 2006 Budget announcements on superannuation, Government retirement incomes policy continues to be found wanting.
The announcements fundamentally fail to address two major superannuation problems — getting the Superannuation Guarantee (SG) to a realistic proportion of salary and setting a policy course that increases the chances of superannuation going the distance in a typical retirement in an ageing population.
Shortly after the Budget announcement a Federal Parliament inquiry recommended that employees under age 40 be given an opportunity to make so called top-up superannuation contributions.
The irony of this should not be lost on those with an interest in retirement incomes policy.
For it was the current Government that, shortly after coming to office, repealed legislation that would have compelled employees to make contributions to superannuation at 3 per cent of salary. It repealed that legislation, which was passed by the previous Government, in deference to the ideological pursuit of superannuation choice legislation.
The pursuit of super choice took eight years to make its way through both houses of Parliament.Think for a moment at how much more secure the retirement plans of ordinary Australians might be if the Government had focused on the greater good of the need to increase the quantum of the SG rather than ‘choice’.
While choice of superannuation is important, it is not fundamental to the question of capital sufficiency in retirement.
How ironic then that media reports detail that the first year of choice has seen industry funds as the greater beneficiaries of new business superannuation inflows.
The recent recommendation for employees under age 40 to make top-up contributions of 3 per cent of their salary is firstly an acknowledgement by the House of Representatives, Economics, Finance and Public Administration Committee that the SG is insufficient at just 9 per cent of salary.
Secondly, on the question of should it be a ‘carrot or stick’ policy, the vegetable has clearly won out.
For if the recommendations become law, there will be no compulsion for employees to contribute the 3 per cent of salary.
On the question of voluntary contributions, the fact remains that too many Australians do not voluntarily contribute to superannuation; be that through lack of surplus income as a result of record levels of indebtedness; through fear of superannuation or through plain ignorance.
Not enough contribute now; they haven’t in the past and with increasing levels of household debt, are less likely to in the future.
Witness the fact that the previous Government applied sizeable tax incentives in the 1980s and early 1990s to entice voluntary contributions to superannuation, all of which were discarded when that Government passed legislation for the previously mentioned compulsory 3 per cent employee contribution.
By its own admission, in releasing new life expectancy tables the Government acknowledges that superannuation needs to last longer then previously believed. Yet it continues to fail to address the inadequacy of the SG.
In this year’s Budget statement, it would have been really pleasing to see the Government announce a lift in the SG from 9 per cent to 15 per cent of salary over, say, the next six years.
A manageable 1 per cent increase each year for six years would have had minimal impact on inflation but would have brought retirement savings to a realistic salary factor.
Couple the SG inadequacy with the Government’s proposal to remove the lump sum tax disincentive for those over age 60 and we can only wonder if the Government is truly serious about Australians accumulating and retaining sufficient retirement capital.
In the case of tax-free lump sums from superannuation it could well be argued that, to some extent, such taxes serve to protect superannuation capital from squander by members.
We can only wonder if, with no lump sum taxes, much of today’s superannuation assets will be transformed into even more large, caravan-towing, four wheel drives and motor homes as Mum and Dad retirees head out on ‘the Wallaby’ for a lap or two around Australia.
With no tax disincentive to hold them back, there seems to be an even stronger possibility of capital just four wheeling out the superannuation door, or being consumed in lifestyle thereby foisting a higher tax burden onto future taxpayers when the previously superannuation sufficient retirees revert to the age pension.
While the 2006 Budget superannuation announcements were lauded as a simplification of superannuation — yes if you’ve been around for a while in financial services you have heard that before — in removing the lump sum taxes for those over age 60, it’s almost as if the policy drafters have gone beyond what was required.
This then begs the question of when might we see a Government that is politically brave enough to propose the ultimate retirement income legislation that would remove, or at least limit, access to lump sum withdrawals.
Looking at the proposals from a fiscal perspective, assuming they are passed into law, the question that has to be asked is, in removing tax on all forms of payment from superannuation for those over age 60, for how long can future governments forego such tax revenue?
As for the Treasurer’s comment to the effect that financial planners will no longer be required due to the Government’s proposed changes to superannuation, frankly he could not have been more wrong.
I’m yet to meet any planner who is worried about business survival because of the proposals. The planners I have spoken to are simply delighted that a degree of sanity now appears to be resident in the superannuation policy makers’ minds.
If they are passed, the changes will mean that financial planners will no longer be trying to interpret the gross ridiculousness of the current superannuation legislation. They will no longer be spending countless hours coming to terms with a mishmash of legislative indigestion that the nation has endured for more than two decades.
Such a comment from one of the nation’s leaders fails a basic understanding of the multi-faceted role of financial planners in the lives of ordinary Australians.
Indeed, it also fails to acknowledge that one of the loudest voices in the call for reform of superannuation has been the financial planning industry itself. Financial planners are deserving of much greater respect from Australia’s most prominent financial professional, than to be disparagingly typecast as people who exist only because of legislation complexity.
The nation needs even more leadership on retirement savings. It needs a more distinct retirement savings vision that is mindful of those who, for whatever reason, will not make voluntary contributions to their retirement savings.
Such vision should not be clouded by the politics of the day and ideology. It’s time to do the right thing for the nation.
Removing Reasonable Benefit Limits is commendable; but why risk history recording that failing to address the inadequacy of the SG and making super lump sum withdrawals a free-for-all for those over age 60, leading to a leakage of retirement capital, bordered on a dereliction of duty.
Don’t stop now Mr Treasurer, the job of superannuation reform is not yet complete.
Ray Griffin is a Tamworth-based planner and former chairman of the Financial Planning Standards Board International CFP Council.
