The sorry state of Australian superannuation

Published: December 4, 2016

The sorry state of Australia’s superannuation debate is rapidly approaching the boiling point. What changes lie ahead?

Both high and low income earners are expressing immense dissatisfaction with the extreme legislative volatility of superannuation, particularly in regards to Self-Managed Super Funds (SMSFs).

Successive federal governments, both red and blue, bear responsibility for the fetid mess that the Australian people now find themselves in.

The mass drive towards superannuation, and to a further extent SMSFs, was driven by a desire to see the public become independent in retirement. The argument made across the board was that successful implementation of a national mandatory superannuation program would see significant cost savings when it came to retirement.

However, for a superannuation program to be effective, it must have stability. Australia’s superannuation landscape is plagued by volatility, political showmanship and poor strategic direction.

In 2013, both the Coalition and the ALP went to the federal election on the back of a promise to avoid meddling with superannuation. Three years later, both parties have torn away the mask and are now champions for reform.

Of course, situations change, and change brings with it a requirement for adaptation. However, if that change is a direct result of poor management in the initial implementation of superannuation legislation, an individual may be forgiven for their immense frustration.

Saving for retirement is important. It’s a critical aspect of a successful and stable life. However, when successive governments promote an atmosphere of volatility and change, people rapidly begin to lose faith.

There are very strong arguments for superannuation reform, however any changes must be deeply seated in logic, fairness and with a strong emphasis on an equitable outcome.

The cap on non-concessional (after-tax) contributions is a shining example of the legislative farce that surrounds superannuation reform. In September this year, Treasurer Scott Morrison and Minister for Revenue and Financial Services Kelly Dwyer announced that the existing proposal for a $500,000 lifetime cap would be scrapped in favour of an annual cap of $100,000.

Superannuation reform is unduly influenced by other considerations, particularly that of taxation. The ultimate goal of superannuation is often lost in the debate around these sideline issues, much to the chagrin of low to middle-income earners.

The existing low-income concessional cap of $500 is, frankly, a joke. Even over the most generous of lifetimes, it is unlikely to create the impact on retirement savings that additional contributions should have.

Worse, the middle class is virtually ignored. Long viewed as the bread and butter of the nation, Australia’s middle class has received an impressively raw deal throughout the history of superannuation vacillations.

There are essentially no concessions or incentives for the middle class. This may be due in part to the nature of the political debate, whereby the wealthy are repeatedly lambasted for not “pulling their weight”. There is a strong emphasis in the public discourse on high income earners not paying their fair share.

Rhetoric from both parties aside, the numbers firmly disagree. According to the ABS, 80% of Australian income earners receive the sum of their tax dollars back via concessions and social support programs. That leaves a tiny 20% of income earners who are actually net taxpayers.

For many of these high earners, an SMSF is their choice for retirement planning. However, constant tinkering with SMSF-related legislation casts a strong shadow of doubt over the security of SMSFs.

Considering that high income earners are almost solely responsible for net national tax contributions, it is only fair that they are given an opportunity to plan for a secure retirement.

While many decry the concept of true equity in superannuation planning, it stands to reason that those who earn more, and pay more tax, should be granted the right to save more money for their future.

The fact of the matter is, superannuation is not a zero-sum game. It is entirely within the realm of possibilities to develop a system whereby low-income earners are able to make a genuine effort to contribute to their superannuation, without punishing high-income earners for their success.

It is high time that Australia’s leaders make a serious effort to implement long-lasting, genuine reform that maintains a strong focus on the true goal of superannuation – saving for retirement.

First published on The CEO Magazine