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34 Charter I August 2011
BEEFING UP SUPER
In December 2010, the government responded to the review
of Australia’s super system with its Stronger Super reforms.
These include a low cost default superannuation product called
MySuper, a package of measures designed to streamline the back
office of superannuation called SuperStream and changes to the
governance, integrity and regulatory settings of the superannuation
system, including in relation to self-managed super funds.
In conjunction with raising the SGC, the package of reforms is
intended to propel retirement incomes for Australians past adequate
and into the comfortable zone.
Many in the superannuation industry applauded the move to
12 per cent SGC, despite it being at odds with the recommendations
in the Henry tax review report.
But Westover points out that the government has made no
comment on the detailed analysis put forward by the Henry report on
the retirement income system and that further debate is required.
“While the Stronger Super reforms are addressing the
governance and administration inefficiencies in the super system,
we have yet to see a full assessment of the tax treatment of super,
as laid out in the Henry report. Henry deemed the tax attributes of
the superannuation system to be inefficient so why keep feeding
the system? Increasing the SGC to 12 per cent in isolation will only
result in Australians putting more and more money into super with
little change to the returns.
“We need to dust off the Henry report and consider retirement
incomes in the context of the wider tax-transfer system if we are
to achieve the appropriate regulatory settings that will deliver
comfortable retirement incomes for the majority of Australians,”
HOLES IN THE SYSTEM
The preferential treatment of super savings has led to much
government tinkering of the rules to keep the cost of concessions
Industry experts agree this has left holes in the system, such as
too-low caps on contributions (the amount people can contribute
to super as taxable contributions was halved to $50,000 for
people aged over 50 and to $25,000 for younger workers in the
2009-10 Budget) and heavy tax penalties for breaches of those
caps – both of which act as disincentives for people to top up
Richard Rassi FCA, partner-assurance & advisory at Deloitte, says
the government is forced into a balancing act.
“As more people put more money into super, it comes at a greater
cost to the federal government because of the concessional tax
treatment of superannuation savings. With the tax revenue base
under threat in a tough economic environment, the government is
under pressure to protect the tax revenue base rather than promoting
adequacy of retirement incomes,” he says.
Which begs the question: who will pay? If the current government
commits to funding the super concessions to encourage people to
save, then it will fall to future governments to fund the age pension –
the cost of which will increase with the ageing population and rising
average life expectancy and lead to increased taxes for working
O’Neill says that while the Stronger Super reforms are a considerable
opportunity for efficiencies in the system, more attention needs to be
paid to what people do with their retirement savings.
“People are ultimately responsible for their own decisions. They
HOW MUCH IS ENOUGH?
How much money an individual will have access to under
the retirement income system depends on a broad range of
factors, including taxation of super contributions, taxation
of earnings during accumulation and during retirement,
government super co-contributions, access to the age
pension (including means testing), caps on super guarantee
contributions and caps on concessional contributions and
non-concessional voluntary contributions.
An individual’s retirement income will also be influenced by
factors such as access to other concessions in retirement
including health, transport and utilities concessions – and
access to subsidised aged care and health services.
The Westpac ASFA Retirement Standard, a commonly
used benchmark of budgetary adequacy defines two levels
of retirement income:
> A modest lifestyle is defined as being better than the age
pension but still only allowing for fairly basic activities
> A comfortable lifestyle is measured as enabling a retiree
to be involved in a broad range of leisure activities and to be
able to afford private health insurance, a reasonable car, good
clothes and occasionally international holiday travel.
The latest Westpac ASFA Retirement Standard Index
says a couple looking for a comfortable retirement need
$54,562 a year, while those seeking a modest lifestyle need
$31,263 a year.
THE “VALUE-ADD” SMSF AUDIT EXPERTS
SMS1642_CPA_HalfPag.pdf Page 1 7/11/11, 4:46 PM
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