The Sorry State of Australia's Superannuation Debate


When it comes to fiscal policy there is little that unites the income spectrum but here in Australia, citizens of all incomes are growing tired of the extreme legislative volatility of superannuation, especially Self-Managed Super Funds (SMSFs).

Successive federal governments have galloped towards independently financed retirement via superannuation and SMSFs with the argument that a successful implementation of a national mandatory superannuation program would see significant cost savings. In principle it is a merited idea but for such a programme to work it requires political stability but 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 promising not to mess with superannuation but three short years later and both parties are championing reform. Of course, such promises cannot always be kept and situations, both global and national, can force change and governments need to adapt. However, if reform is required a result of poor management in the initial implementation of superannuation legislation, it is little wonder the public debate has reached boiling point.

Public opinion on government can seem a fickle thing; we prefer the idea of self-reliance and self-determination yet expect our governments to step up to the plate when needed. The failure of successive governments is that instead of finding that balance between laissez-faire and interventionist policies they’ve promoted an atmosphere of volatility and change.

Is Superannuation Reform Required?

Saving for retirement is important. It’s a critical aspect of a successful and stable life and the idea of superannuation and SMSFs is popular but the implementation has been poor. For that reason there are compelling arguments for reform, however changes must follow a logical path designed to achieve more equitable outcomes not farcical legislative moves like the cap on non-concessional (after-tax) contributions.

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 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 risible and unlikely to create the impact on retirement savings that additional contributions should have even for the most longevous. And to make matters worse the middle class is virtually ignored. Australia’s middle class, the bread and butter of the nation, 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.

Superannuation for all Australians.

Political events across the globe this year tells us there is deep-rooted dissatisfaction among low earners who feel the system is rigged against them, medium earners who feel their aspirations are being pulled further away and high earners who feel the burden they’re being asked to shoulder is a disincentive to wealth creation. Australia needs to learn from this before it becomes our own issue.

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 genuine reform that maintains a strong focus on the true goal of superannuation – saving for an independent retirement.

Peter Khalil

at Perris Knightsbridge Chartered Accountants