Given the array of other issues confronting the Australian electorate, superannuation policy may struggle to get on the agenda despite the Budget changes.
Mike Taylor, editor, Super Review: What is going to make super an election issue? Because at the moment that’s what looks likely to happen, that they are going to come up with something in the Budget that is going to offend the industry, and as Alex rightly points out, it’s not common to have every group, FSC, ASFA, AIST, everyone pretty much singing off the same hymn sheet so-
Paul Kessell, CEO, Kinetic Super: Is that relevant to the voters though who are primarily disengaged from superannuation? We’re inside, so it’s a big issue for us and we pontificate about it. But for the members who are voting, it may just be a passing interest, as any other election issue is going to be, and so it may not have the impact.
Tom Garca, CEO, AIST: So [among] the things that would make it a voting issue, my suspicions would be, the LISC [Low Income Super Contribution] maybe, although we don’t seem to be able to generate the sort of the ground roots concerns reflecting the 350,000 people it affects.
But I think it’s an emotive issue within the Parliament because it’s such an obvious thing that we are making people pay more money in super than in their take-home pay.
The other thing that I think will become an election issue is the assets test. The hollowing out of that assets test taper rate has really hammered middle Australia, and I would imagine Labor will focus on that. But if they really want to make it an election issue, they’d take away the tax-free status after 60. They will never do that. That would wake up every retiree in Australia. So they won’t do that. But if you want to wake it up, that would be...
MT: Alex, you’ve got a pretty good ear for politics, what do you think?
Alex Hutchison, CEO, EIS Super: I think TTR [transition to retirement], that’s already been said but that’s exactly right. This is something which was already thought bubbled as you say Tom.
But I also think a lot of Australians do understand superannuation and they do jealously guard it. And in particular, anyone who is aged 40 and above. So what do we all know, we all know this – when you’re younger no matter how hard the industry tries, younger people don’t engage with you. But when the kids are older, the mortgage is under control, when you hit your 40s that’s when people go ‘gee now I’ve got to hurry up and save for my retirement’. And most people do want to be self-funded.
So I argue anyone 40 and above, is looking at this and going, well there’s only two ways I can get ahead, I can put money in the super and I can negative gear. And both those two things are hot issues. And the word for the Prime Minister – if you want to encourage something, you don’t tax it, and if you want to stop something you tax it. So that’s a choice people will make I think in this election, they’ll be choosing between those types of issues, because that’s how people get ahead.
Nick Callil, head of retirement income solutions, Willis Towers Watson: I think those of us inside the industry maybe we overestimate the degree to which the punters will actually understand the policies on either side in detail. I mean Labor has come out with two ideas one being the return of the LISC and then some extra tax at the higher end. I’m assuming that the Government will come out with changes in the Budget which won’t be the same as those, but will also change tax and possibly make it a little less attractive for higher income earners. And I think when you take that into an election campaign, to the extent it’s an issue, both sides are going to be saying well ours is better than yours, but for the punter it’s just sort of background noise. So I think it cancels that.
PK: I think many of the younger ones under 40, they see superannuation as a tax. It’s taken out of your take-home pay and they don’t get to see it.
Peter Brook, CEO, Pillar Administration: Yeah I think it’s all around the higher income earners, because I think the Government will try to neutralise the argument that the opposition might raise about concessions to the rich and well-off. I don’t think they’ve got much appetite to do much else other than that. So I think you’ll see different caps coming in.
TG: Some of the stuff we have done with our tool shows that [altering the concessional super caps] does virtually nothing. Dropping a cap down to $11,000.
One of the other arguments coming from Treasury is, very few people hit the $35,000. So you’ve sort of got the limits there. I guess there’s two ways of looking at it, if no one’s hitting the $35,000 well we may as well drop it, but if no one’s hitting the $35,000 it will depend on which way you want to do it, [so] just let it happen. It’s a matter of who has got the ability to make the most of that $35,000 or $50,000 whatever the number is at whatever particular time in life.
I get the sense that it’s right that they’ll do something for the rich. There’s been a lot of talk about marginal tax rate less X, whatever the number might be, and everyone’s got different numbers and to be honest I don’t get fixated on the number, Treasury work out the number. It’s a very elegant solution, but it’s very, very difficult, it’s more difficult for the funds, so it’s critical that the ATO [Australian Taxation Office]would be part of that play. But you also then are going to be waiting 18 months potentially for the money to come in because it’s dependent on tax return.
So there are all sorts of implementation issues with some of these solutions that need to be taken into account from the fund’s point of view, and similarly with the Labor policy of taxing up above a certain threshold is very difficult for a trust to allocate the tax accurately for members, because people dip in and out, it’s not your money, it’s a pooled amount. It’s very difficult from what I understand from many CEOs and CFOs and CIs.
AH: Contribution cap system works...
PB: I think also what’s been lost in all the thought bubble this time is the stuff about a lifetime contribution cap. That seems to be lost in the current debate, and that really would help us get somewhere, especially the over 40s and you don’t have the ability to contribute 9.5 per cent plus for your whole working life.
So I think some focus on what is a lifetime cap would be an important thing. I’m not sure the cap might not be broken, but I certainly think it warrants review.
I know from the members’ point of view, I’ve had three periods of unemployment, broken employment, and I can’t catch up. So it’s difficult. I mean I can’t contribute higher than a net, and when I come back and I can afford it, I can’t do it. Now put me aside, there’s a whole lot of people called women who aren’t getting the opportunity, cannot make that. So they take whatever it is, ten, five years off – that’s a lot of money to try and catch up and that cap system doesn’t let that happen.
AH: All of a sudden you get a lifetime cap.
PB: I don’t have a problem with that. I’m saying that still needs to happen.
NC: Lifetime makes a lot of sense. I think the barriers around being, the government would see okay lifetime cap which allows people to make very high contributions in a given year.
PB: When they can.
NC: When they can, as a catch up, still attracts this sort of tense, someone’s dropped in $300,000, now they could only do that if they made nothing for whatever reason for a number of years, but the optics of that aren’t good, they don’t want to be seen to be allowing people with money...
PB: You know how you solve that? The total benefit cap and you make everybody take it as a pension.
TG: It’s amazing. There’s a desire to go back to the future, everyone was so excited when it was simpler super or whatever it came out to be, because it got changed a couple of times didn’t it. And this is a revelation, it actually hasn’t helped us at all in the long term.
PB: But you think about when there was retirement benefit limits in place, the system was so much smaller. So much smaller.
TG: The ATO didn’t have the capacity it has now.
PB: No, that’s right.
TG: You can do some amazing things.
PB: So there’s a lot that’s happened for the system that’s made that more workable. And of course the government had the whole, the amount of money in the system of course makes it more interesting.