As political debate over superannuation rages, a number of stakeholders have publicly defended the Australian super system, spurred on by the latest research from Mercer.
Despite both sides of federal politics having claimed in the past that superannuation should not be used as a political football, the super system – and potential changes to it – have been a core issue in the weeks since Prime Minister Julia Gillard called the general election.
Tax concessions have been a hot issue in particular, with the Australian Greens calling for a “fairer super tax concession” system – which would include super being taxed at an individual’s marginal rate – and the Financial Services Council (FSC) reacting strongly.
“We want both sides [of politics] to leave super alone,” FSC CEO John Brogden said in a statement accompanying the organisation’s federal Budget submission. “If superannuation becomes a political issue, no one wins,” he added.
“The government must rule out tax changes and the Coalition must rule out abolishing the low income earners’ concession.”
In its Budget submission, the FSC rejected the notion that super tax concessions are unsustainable, noting that superannuation taxes will grow by 200 per cent over the next eight years.
“The $14 billion concession on contributions is modest in the context of $82.5 billion in total mandatory superannuation contributions in 2011/2012 – a concession of 18 per cent,” the submission states. “This is a modest level of support for a mandatory savings system that requires all working Australians to lock away 9 per cent of their income for up to 40 years.”
According to research released this week by Mercer, the Australian super tax concession system is also modest in the context of global standards.
“Our research reveals that when the Australian approach is compared to countries with world-class retirement income systems, the after-tax retirement benefits provided to Australians are lower than five of the eight countries,” wrote Mercer senior partner David Knox, author of the report Tax & Superannuation: Benchmarking Australia against the world’s best retirement savings systems.
“The taxation treatment of superannuation may be controversial, as the greatest benefits are inevitably received by those who participate to the greatest extent: primarily the higher income earners,” Dr Knox conceded.
“However, it’s also important to look at our retirement savings system in its entirety and the impact altering the tax model could have on the future costs of funding the age pension,” he added.
Rather than reducing super tax concessions, Mercer proposes that the federal government increase concessional caps, particularly for those over 45.
“Australia has the lowest caps of all nine countries studied,” the report states.
“The existing cap of $25,000 per annum falls significantly short of any country when expressed as a percentage of average earnings.”
Meanwhile, HLB Mann Judd’s wealth management team has said the heated debate over superannuation – and potential changes to the system – will turn people away and into the arms of self-managed super advisers.
“The discussion around superannuation changes is likely to encourage more people to consider SMSFs because of the flexibility they offer and the ability they give to members and trustees to react to any changes that may be introduced,” he said.
“I think SMSFs are more nimble and better able to adapt to, and make the most of, any changes that may be announced.”
Mr Hutton predicted that Australia would for the most part see small changes, such as removal of the spouse rebate and application of the already-announced surcharge tax on contributions for high-income earners.
“Both the major parties appear to recognise the growing electoral clout of retirees and would be concerned about bringing in changes across the board that affect retirees too much,” he said.
“The recent debate has also made it clear that to change the current superannuation system radically would dent confidence in the system and impact retirement plans of both aspirational and current self-funded retirees.”
