That the federal government took some tough decisions in its 2009 budget with regard to superannuation can hardly be denied. Although the $32 a week increase to the single age pension was politically palatable – as well as being socially just – there were other measures in the budget that will have some political sting in the tail for the government.
As expected, the cap on concessional superannuation contributions will be cut from $50,000 to $25,000, and the transitional cap for those aged 50 and over reduced from $100,000 to $50,000. This will take effect from 1 July, so this year’s contributions won’t be affected.
By 1 July 2012, the transitional cap will expire when the lower, indexed cap of $25,000 will apply across the board.
The government also clawed back some more revenue when it decided to cut its matching contributions from $1.50 to $1 for workers who are earning less than $60,342 a year and have been salary sacrificing into superannuation. The government stressed this was a temporary measure for three years, but the suspicion must remain that its temporary status will be very much linked to the health of future budget bottom lines.
Remember, too, that this contribution is means tested, and the full benefit drops out after an annual salary exceeds $30,342 – hardly a princely sum.
On reflection, it is hardly surprising the government is dipping into the superannuation honey pot at a time when massive economic uncertainly is going hand in glove with such a massive fall in revenue. The government was always going to look into every nook and cranny to find extra revenue.
That said, the government has got some hard decisions to make about Australia’s retirement savings policy and they have to be made sooner rather than later.
The simple fact is people are living longer; healthier lifestyles and improving medical treatment are prolonging both life and the quality of it.
In fairness to the government, it has recognised this. The decision to implement a change to the age pension by lifting the eligibility age from 65 to 67 is an explicit acknowledgment of this demographic reality.
But the government has moved too slowly on this necessary change. The decision to only begin lifting the age limit from 65 in 2017 at the rate of six months every two years until it reaches 67 in 2023 is far too timid. The move to 67 should be introduced quicker and there’s solid argument to suggest the new limit should be stretched to 70.
Perhaps that’s on the government’s agenda and it’s simply waiting for a more favourable economic climate to make the necessary changes. After all, it does have an interim report from the Henry review into the retirement income system that recommends, in part, gradually aligning the age at which people can access their superannuation with the increased aged pension age.
Certainly this recommendation by the Henry review has to become policy. However, it should be accompanied by a gradual increase in the superannuation guarantee levy from 9 per cent to 15 per cent. (The review, in my opinion wrongly, says the levy should remain at 9 per cent.)
It’s worth noting that on figures compiled by the Association of Superannuation Funds of Australia (ASFA) the average retirement balances in accumulation schemes for men are $140,000, for women a niggardly $70,000, and about 50 per cent of retirees have less than $56,000 in their account. They’re hardly nest eggs for a comfortable retirement.
Admittedly, all governments advocate the three-pillar approach to retirement income – compulsory superannuation, the aged pension and voluntary savings. But on the ASFA figures, when coupled with what’s happened to people’s superannuation savings in the past 18 months, the aged pension remains the dominant pillar.
But this wasn’t the intention when compulsory superannuation was introduced by Labor and maintained by the Howard government. Retirees’ accumulated savings were to become the key component of their retirement income, not a handy add-on to the aged pension.
At that time it was envisaged by many analysts that the levy would increase to 15 per cent, achieved by various possible combinations involving employer, employee and government contributions/rebates.
Significantly, that policy debate seems to have slipped off the radar screen. It’s vitally imperative that as Australia comes to grips with an ageing population, it quickly becomes a part of the debate again. Otherwise it will be tomorrow’s taxpayers who face an increasing burden of meeting the cost of the aged pension.
Frank Gullone is Centre for Investment Education managing director.
