Drawing the line on super

The Government and the industry need to draw a line in the and on superannuation policy because continual speculation risks deterring younger people from the benefits of super, according to Chris Kennedy.

Federal Labor's plans to crackdown on superannuation tax concessions for the rich, announced last week as part of its 'Fairer Super Plan', are significant for one important reason.  

While the changes are unlikely to be enacted anytime soon (in fact the plan may never see the light of day) they are the first clear signal from either of the major political parties that superannuation is unlikely to remain unchanged for much longer.   

As it currently stands, superannuation is potentially a massive source of untapped revenue for the Federal Government – a fact that both sides of politics are very aware of.  

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Currently, the enormous asset base held in superannuation generates income that is only taxed concessionally – as low as zero percent for those funds paying a pension. This is clearly not a sustainable system in a time where the nation is facing bleak deficits and budget uncertainty.  

It is no surprise then that both sides of Government would like to get a slice of the income pie. However, until now, both parties have played coy on super changes, hemmed in by past election promises and an underlying fear of voter backlash.   

But with last week's announcement by Labor that it would target high-income earners or those with significant superannuation earnings from 2017 with its 'Fairer Super Plan', the door to super change was unlocked. Now only time will tell whether the current Government will take the opportunity to match this play or raise the stakes.

Predictably, the focus of Labor's plan was squarely on the big end of town - high-income earners and those with millions in superannuation savings.

Specifically, the two measures proposed by Labor were taxing retirees 15 per cent on superannuation earnings above $75,000 per year (instead of the current zero tax) and taxing workers earning more than $250,000 a year at 30 per cent on superannuation contributions instead of the current rate of 15 per cent.

The simple fact is most Australians would never feel the burden of the tax reforms proposed by Labor. The opposition itself estimated the changes would only affect 180,000 Australians.  

But accompanying Labor's announcements was the normal amount of fear-mongering from industry groups cautioning legislators to stay away from people's hard-earned retirement savings, and warning of a potential shift in behaviour from the general public who would re-think putting their money into super.

While the proposed changes may take some of the gloss off super, it remains the preferred vehicle to hold assets for retirement for the majority of Australians.

If there was to be any potential damage caused by Labor's announcement, or more specifically, the constant and ongoing speculation about changes to super, it would be in the minds of young people who are still 20-30 years away from retirement.  

For this group, continual innuendo and hearsay about changes to superannuation may lead to real doubts about what the retirement vehicle may look like in the future, and for this reason, there is the potential for them to look elsewhere to secure their future.  

Continual innuendo and hearsay about changes to superannuation may lead to real doubts about what the retirement vehicle may look like in the future, and for this reason, there is the potential for them to look elsewhere to secure their future.

So it is time to remind ourselves of a few simple truths about superannuation. The first is, superannuation has been an unbelievably good retirement vehicle for a long time - too good some might say.

This leads to the second truth, and one that we all need to accept. At some point in the near future, superannuation will be more heavily taxed. Governments cannot continue to forgo this potential income when the country is facing significant economic uncertainty.  

The time has come to draw a line in the sand, introduce changes to super for the future, and leave it that way for an extended period of time.  

This is the only way to provide young people with certainty that putting money into super is always going to be more attractive than having money outside superannuation - and that hard earned cash will be secure against the whims of future governments.  

Chris Kennedy is Wealth Advisory Director with William Buck Chartered Accountants and Advisors