A move to increase tax on superannuation contributions in the upcoming Federal Budget would have a negative impact on Australia's retirement savings by distorting asset allocations of members who are overweight in growth assets, according to PIMCO.
The fund manager said raising the tax on fund earnings may encourage super fund members to increase their exposure to high yielding shares in attempt to reduce the impact of higher tax, which could in turn make retirement savings more volatile.
"We have an aging population with a compulsory superannuation system that already has an overwhelming bias to Australian equities thanks largely to the dividend imputation system that offers domestic equities an extremely high advantage over other asset classes," PIMCO head of global wealth management Peter Dorrian said.
"We should be encouraging a more balanced approach to retirement savings by providing a level playing field across all asset classes, allowing investors to select a mix of growth and income producing investments based on their individual investment objectives, not on tax benefits."
The changes would go against the government's recent comments of looking to develop a larger local debt market, he said.
"This is potentially a short-sighted policy approach which could be detrimental to the long term goal of compulsory superannuation to effectively manage the retirement savings of all Australians," Dorrian said.
Last week, four industry bodies also released a joint statement voicing strong opposition to the potential tax increase.
The Financial Services Council, the Self-Managed Super Funds Professionals' Association of Australia, the Australian Institute of Superannuation Trustees, and the Association of Superannuation Funds of Australia called on the government to rule out the tax changes.
They said the government's relentless changes to super were eroding confidence in the system and were short-sighted.
The government has announced a raft of super reforms in recent times, including increasing the superannuation guarantee rate from 9 per cent to 12 per cent over the next eight years.
