Government fiddling undermines superannuation

While the Government has made genuine improvements to superannuation, those achievements have been undermined by incessant fiddling around Federal Budget time.

With around 15 to 18 months to go before the next federal election, the Government will – save a loss of its majority – get to deliver one more budget during its present term.

It is to be hoped that it resists the temptation to meddle further with the nation’s superannuation taxation and policy settings.

Indeed, once the Government’s Stronger Super measures are in place, about the only things that need to be addressed in the superannuation policy sphere are the gaping anomalies which continue to exist around excess contributions.

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However, the simple facts of the matter are that while the Rudd and Gillard Governments have succeeded in driving some genuine improvements to superannuation policy (including eventually lifting the superannuation guarantee to 12 per cent), those achievements have been significantly undermined by its incessant fiddling around budget time.

The Government’s most recent exhibition of fiddling – the virtual reintroduction the superannuation surcharge via a removal of the superannuation tax concessions for those earning over $300,000 a year – smacks of policy short-sightedness.

As the Association of Superannuation Funds of Australia (ASFA) has pointed out, there exist real doubts about whether the Budget measure will generate the necessary revenues capable of justifying its implementation.

Indeed, ASFA is so doubtful that the Budget measure would pass the test of a cost/benefit analysis, that it is suggesting that it be entirely administered via the auspices of the Australian Taxation Office (ATO) rather than being imposed as a further administrative obligation on superannuation funds.

The meddling with respect to the tax concessions available to higher income earners also needs to be weighed against the ongoing fiddling with respect to concessional contribution caps – something which has seen the Government adopt two different positions inside an 18-month period.

While those advising the Government might point to some budget time expediency around altering the settings with respect to concessional contributions and levels of taxation, they appear to forget the long-run implications for superannuation funds and superannuation administrators.

At a succession of roundtables conducted by Super Review this year, administrators such as Pillar Administration and Australian Administration Services have pointed to the technical and administrative challenges involved in trying to keep pace with continually changing rules.

The superannuation funds and administrators have already been confronted by the changes flowing from the Stronger Super regime including SuperStream and MySuper and, in between times, have had to sort through changes to concessional contribution tax, the co-contribution regime, and now what amounts to a reintroduction of the superannuation surcharge.

The Government should also take heed of research released by the ATO revealing continuing high levels of confusion around superannuation and other, privately commissioned, research which confirms superannuation fund members have begun to doubt the reliability of superannuation as an investment vehicle.

Simply put, that research shows that superannuation fund members are beginning to exhibit sentiments not seen since the early 2000s, when they cited a reluctance to heavily commit to superannuation because they believed it could too readily be changed at the whim of the Government.

While there can be no denying that the Gillard Government has faced some significant challenges in terms of returning the Budget to surplus, there is little evidence that the changes it has imposed on superannuation make a genuine and significant contribution to that objective.

Furthermore, there is abundant evidence that the changes not only undermine investor confidence, but also run counter to all the evidence presented to the Government in a succession of intergenerational reports.

Indeed, there is little evidence that Australia is any better prepared to meet the demands of an ageing population than it was a decade ago.

It remains to be seen how superannuation policy will evolve in the event that a Coalition government takes office at the next Federal Election, but the Opposition spokesman on Financial Services, Senator Mathias Cormann, has signalled he would put an end to policy fiddling and deliver more clarity with respect to concessional contributions.

The industry should seek to hold him to that promise.