SUPERANNUATION CHANGES?

super-changes

For the last six months, the papers have been flagging changes to superannuation.  Most of the comments have been sheer speculation, and this includes the latest interpretations about the speech by Treasurer, Scott Morrison to the Association of Superannuation Funds conference in Brisbane last Friday morning.  I was present for the speech and hold a copy of it.  What follows are direct quotes from that speech.

“This government knows it’s important for us to have a conversation about superannuation, and about the principles that will guide further policy…  The objectives of super, when devised by Paul Keating and John Dawkins, can be distilled into three clear aims.  

1. To promote better standards of living in retirement by supplementing or replacing the age pension. 

2. To curb the rising cost of the age pension.  In 2013/14, around 70% of people of age pension age were receiving the age pension, and of these, 60% received the full pension. The proportion of full rate pensioners relative to part-rate pensioners is expected to decrease, but the overall proportion of retirees receiving some age pension is not projected to decline.  Superannuation assets now total about $2 trillion, which highlights that the system has grown and matured significantly.

3. To improve the national savings pool.

A super system for the future needs to deliver:

  • greater choice
  • stronger governance
  • better information
  • more targeted incentives.

These are the government’s core superannuation principles that will shape delivery of real outcomes for Australians who are saving for their retirement.

Greater choice means downward pressure on fees – a good outcome for consumers.  If funds are governed better, risk is reduced.   When consumers have better information they make better choices, and will achieve better outcomes for their retirement.”

The Treasurer then went on to tell us that the government was keen to give employees the ability to choose the fund that receives their employer contributions (right now there are two million employees with no choice).

He then turned to tax reform, and introduced it with the following statement.

“Above all else, we must remember superannuation belongs to those who earned it over their working life.  It is not my money, nor the government’s money; it is your money.”

We can all take some comfort in that statement, but he then went on to remind us that the primary objective of superannuation should be “to provide income in retirement to substitute or supplement the age pension”.  To do this, superannuation tax concessions should be “appropriately targeted to secure an adequate retirement income for Australians”.  The problem is defining “adequate”, and he mentioned one way of doing this would be to set a goal for retirement income as being a proportion of pre-retirement earnings.

He then mentioned that Treasury modelling was based on 80% of the median wage, which is now $52,000 a year, which amounts to just $41,600 a year for a couple.  As Henry Ergas pointed out in yesterday’s Australian, this is a ridiculously low number – the average wage is over $70,000 a year, and even 80% of this, or $56,000, is not a huge sum for anybody who is retired.

He also pointed out “we need to recognise there is no straightforward answer to the question of adequacy”.  But it is important to note that “superannuation should not be seen as an open-ended vehicle for wealthy people to accumulate huge sums in retirement”.

So there is nothing specific in the pipeline right now but keep in mind that next year we have a White Paper on tax, and Retirement Incomes Recommendation Paper both due for publication in 2016.  They are obviously interlinked, and will both generate a lot of media attention when they’re published.  The government has promised to take any proposed changes to the next election so I certainly wouldn’t be overly concerned about any negative changes to superannuation in the near future. Most of the  stuff you see in the media never makes it to  to law.  For example, the front page of the Australian today talks about including the family home for age pension eligibility. Best of luck with that one!

 

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