Super – Still Under Attack

Ask the average Australian what they think of superannuation, and they will give you a worried look and make a comment like, “I don’t trust it – they keep changing the rules!”

Given this undeniable truth, one would think a major goal of all political parties would be to minimise changes to superannuation in the foreseeable future. Hopefully that would restore trust in the system, and encourage people to use superannuation for its original purpose: funding their retirement so as not to be a burden on the welfare system.

But it looks like the politicians can’t keep their hands off it. I was dismayed to hear that, during a recent speech to the Financial Services Council, Senator Kristina Keneally made the following comments on behalf of the Shadow Treasurer, Chris Bowen.

“We oppose the Government’s measures to allow catch-up concessional contributions and tax deductibility on personal superannuation concessional contributions. We will also lower the annual non-concessional contributions cap to $75,000 and further lower the high income super contribution threshold to $200,000. We believe in increasing the superannuation guarantee to 12% when fiscal circumstances allow, which will greatly assist in maximising people’s retirement incomes in the future.”

I will discuss all these issues in future columns, but today I will focus on just one: the proposal to remove tax deductibility for personal concessional superannuation contributions.

For many years the superannuation regulations have prevented a person claiming a tax deduction for additional personal concessional contributions if an employer was contributing for them. There was no logic to it, and nobody has ever been able to tell me the reasoning behind it.

This rule created two classes of employees. A sole trader could make additional personal contributions and claim a tax deduction, but an employee of a company could not. Well, they could if their employer was prepared to offer salary sacrifice, in which the employer agrees that the employee may contribute part of their gross pay as an additional superannuation contribution.

Even if you were one of the lucky employees with access to salary sacrifice, you could still find yourself with problems. Some unscrupulous employers took the opportunity to treat the extra salary sacrifice contributions as part of their 9.5% compulsory superannuation obligation, conning their employees by reducing their compulsory contribution.

But generally, the outcome was that employees of companies that offered salary sacrifice were better off than those working for businesses where it was not offered.

Finally, in the latest raft of changes by the Turnbull government, all taxpayers were given equality. This is the kind of change that super needs: small improvements to the system. Everybody now has the opportunity to make additional superannuation contributions (up to the concessional limit of $25,000 a year including employer contributions) and claim a tax deduction, not just those who can salary sacrifice.

Now Labor, who have been rattling on about inequality for months, is threatening to reverse this long overdue change in the rules. Where is the logic in that?

Many employees are cash poor and cannot afford to have their fortnightly pay reduced by additional contributions even if the employer does offer salary sacrifice. But they may well be able to save a bit here and there and make an extra contribution at the end of the financial year. One major benefit of doing so would be to get a tax refund, which could be used as a contribution to superannuation in the following year.

So why would a political party that claims to be working for the underdog advocate a policy which is particularly unfair to lower paid workers? Maybe there’s a hint on the Labor website, which points out that only 2.3% of taxpayers made $25,000 or more of concessional contributions in 2012–13.

That’s not relevant. The new rules allowing all employees to make concessional contributions only took effect last July. Before then, most employees were prohibited from making additional tax-deductible contributions – so of course there were very few extra deductible contributions!

Labor should also ask themselves why people would want to put large contributions into super when the system changes every year. The more politicians tinker with it, the less attractive it becomes to lock money away in super.