Australia’s superannuation system is expected to refocus on lifting the retirement incomes of workers and funding national priorities after the federal government unveiled a renewed philosophy for the industry.
Funds and analysts on Monday welcomed a speech by Treasurer Jim Chalmers laying out a fresh purpose for the $3 trillion super sector, including plans to use retirement savings to fund national projects, and hints the government will crack down on generous super tax breaks.
Dr Chalmers said that he wants to create a “true north” for super to promote equity, sustainability and prevent any future early access schemes from eroding nest eggs.
He said delivering a comfortable retirement for members should be the top priority, rather than schemes such as the Morrison government’s COVID-19 policy that allowed millions to draw down on their super.
“We’ll move to end the super wars once and for all, and make sure that future changes to the system are compatible with its very objective,” Dr Chalmers told a Conexus Financial event.
“Some of the most disastrous policy proposals we’ve seen in recent years – like allowing billions to be withdrawn from balances during the pandemic – have come about, in part, because our predecessors were navigating the super landscape without a compass.”
New legislated goal proposed
A consultation paper on Monday proposed a new legislated goal for the super industry that funds and future governments would be bound to.
“The objective of superannuation is to preserve savings and deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way,” it read.
It has been designed to enshrine priorities, such as ending the gap in women’s super compared to men, but it may also be used to crack down on generous tax concessions.
Dr Chalmers said he doubted if the $52 billion a year worth of tax breaks in Australia’s retirement system is consistent with the goal.
“We’re on track to spend more on super tax concessions than the age pension by around 2050,” Dr Chalmers said on Monday.
“I’m not convinced that’s a sustainable way to get to our destination – good retirement incomes for more Australians, now and into the future.”
‘Refocusing and recalibrating’
Super funds and industry experts welcomed the new goal on Monday, suggesting it will focus the industry on delivering comfortable retirements, rather than merely wealth building.
“It safeguards the future of working people and reflects what they already understand as super’s purpose – savings solely for their retirement,” Industry Super Australia boss Bernie Dean said on Monday.
“It should help avoid another disaster of allowing people to tap into super early for any reason, which hurts everyone.”
Helen Hodgson, a superannuation expert and associate professor at Curtin University, said Labor are looking at “refocusing and recalibrating” the super system, setting the stage for reforms.
In the decades since the Howard government – when super tax concessions became much more generous – the retirement system has gradually become more about building wealth, she said.
“Even though super is regarded as an asset, it is in fact intended to be drawn down in retirement,” Dr Hodgson said.
“It’s seen as a wealth asset regarded as something for inheritance.
“You need to start changing the narrative … it is intended to support people in retirement.”
Crackdown on tax breaks?
Current rules allow many Australians to obtain considerable tax breaks when withdrawing and depositing money into their super accounts, including high net-worth individuals.
Analysis published by progressive think tank The Australia Institute earlier this month found that the breadth of super tax concessions cost the federal budget $52.6 billion a year – close to the entire value of the age pension program at $55.3 billion.
For example, retirees with more than $1.7 million in their super accounts are allowed to leave their excess money in their accumulation accounts and receive a concessional tax rate of 15 per cent on their earnings and contributions – well below the 45 per cent top income tax rate.
Dr Hodgson said the sustainability of the tax concession system improved after the Turnbull government introduced new caps in 2017, but that it’s “still not enough”.
“”If you get back to basic principles we are very unsustainable,” she said.
“[There are] tax concessions when [money] goes in, tax concessions on what [savings] earn and it’s also tax free when it comes out.
“In most countries it’s just tax free when it comes in, but taxed at the marginal rate when it goes out.”
One suggestion is a $5 million cap on super accounts, which has been backed by most major super funds, which Dr Hodgson also supports.
The government has yet to outline what changes it might make to tax concessions in the super system, but Assistant Treasurer Stephen Jones last year highlighted the “real costs”.
“We have 32 self-managed super funds with more than $100 million in assets – the largest self-managed super fund has over $400 million in assets,” he said.
“I celebrate success, but the concessional taxation of funds like these has a real cost to the budget which needs to be considered.”
The New Daily is owned by Industry Super Holdings
