It is clear to everyone the bold move of abolishing all tax on final benefits will lead to extra voluntary contributions. It may also lead to increased efforts by some unions in assisting their members to negotiate for employer contributions above the compulsory 9 per cent.
In general, those earning middle or higher salaries in stable long-term employment are the ones most likely to increase their super.
Leaving aside for the moment the equity concerns raised by the way the new arrangements favour higher earners, it seems likely trustees will be handling even larger funds, growing even faster than over the past few amazing years.
It is not only because those retiring with more than $129,000 will gain from the tax abolition and thus contribute more. Just as important is the dramatic simplification of the pension and post-retirement age contributions rules. Expect to see more Australians working well into their 70s, living on a tax-free pension combined with low tax on earnings, and still contributing to super.
While some predict the tax-free lump sums will be frittered away so their owners can qualify for the full age pension, there is no official data to support this fear. Trustees of larger funds will, however, give more thought to pension products for those members who want to stay with their fund through their retirement years.
But as well as more assets, the changes will create new tasks for funds. Trustees are keen to hear more about their responsibility for policing the proposed $50,000 annual limit on pre-tax contributions, and the $150,000 annual limit on post-tax contributions. Industry consultations with Treasury are addressing transitional and implementation aspects of the new rules, but wherever the rules end up, funds will have more work to do.
The new requirement for the tax file number (TFN) of a member making post-tax contributions may assist revenue integrity, but what are the administration consequences for the trustee when the TFN does not arrive along with the money? By August, when the legislation is to appear, all of this we hope will be clearer.
Having improved and simplified the benefit end of super, public policy needs to turn to the shortcomings of the accumulation arrangements for the low paid and those in and out of the workforce.
It is clear that 9 per cent of low and erratic earnings won?t produce an adequate final benefit. The co-contribution should be extended to assist many more low earners. Perhaps government could look at one-off payments into the super of those out of paid work caring for young children or disabled family members. If super is intended, over the decades to come, to provide the main source of income for the ever-growing population of retired Australians, then we need more initiatives to get the bulk of the workforce up to an adequate final accumulation. The age pension, 25 per cent of average weekly earnings, will continue as a safety net. Currently over 80 per cent of retired Australians draw full or part of the age pension. The long-term policy intention of superannuation is that fewer and fewer retired people will need to do this. The budget changes will assist this goal. But more needs to be done.
Some in the industry are already saying these budget changes are so big, and at an estimated cost of $6 billion over four years, so expensive, that we can’t expect any more big changes. My response is that until the super for all employees, including the lowest paid, can deliver, the work on super policy is only half done.
