Federal Treasurer Jim Chalmers has announced some potential changes to our $3.3 trillion, world-class superannuation system. He said, “So the fundamentals won’t change – the tax concessionality will still be there, but we do need to consider whether we can afford the degree of tax concessionality for people who’ve got very big balances”. Importantly, he has proposed a new definition for superannuation which goes to the core of our compulsory retirement savings system. It is, “The objective of superannuation is to preserve savings and deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.
Let’s look at the key words, “preservation”, “equity”, “sustainability” and “dignity”.
“Preservation” means that super money is for one purpose only – retirement income! It is locked away until a worker reaches a certain age and meets certain criteria. It is not the government’s money and not a slush fund for governments to use because they have not provided adequate, affordable housing for example.
It is not a slush fund for pandemic emergencies although there is a provision for the release of super if serious illness and/or financial hardship can be established by the applicant. Under the previous government this principle was breached when the LNP allowed the withdrawal of up to $20,000 during the corona virus pandemic and their proposed desperate attempt to woo voters with a $50,000 withdrawal for the purchase of property before the last election. Based on modelling of Industry Super Australia, a 30-year-old who took out $20,000 during the pandemic would have up to $80,000 less in retirement. The proposed definition will cement the idea of “preservation” into law and would serve to hinder any future governments from using super as their personal slush fund.
“Equity” is embedded in Aussie industrial law and goes to the principle of all superannuants being treated equally. Currently there is a glaring inequity based on gender as women on average retire with a much lower retirement benefit than their male counterparts. Measures such as attaching super to paid maternity leave and equal pay for equal work would help fix this clearly inequitable arrangement. And is it equitable that a wealthy individual with a multi-million Self-Managed Super Fund (SMSF) should enjoy the same tax benefits that lower balances attract?
“Sustainability”, like equity, aims to ensure that the Aussie retirement system can grow and last well into the future. And to do this it must provide tax incentives for individuals to save for their retirement, but at the same time ensure that superannuation is not being used for wealth building, tax avoidance and family legacies for the very wealthy. Building large inheritances is not the purpose of superannuation and if the tax arrangements tilt too much in this direction it can affect the sustainability of super in the future.
“Dignity” in retirement is something all workers aspire to. It goes to adequacy and security in knowing that after a lifetime of contribution to the workforce, society and super, the retirement balance is enough to produce an income to allow an individual or couple to live well. And as the super account is drawn down, government support is available via the age pension. A glorious retirement to you!
So the proposed structural reforms are reasonable, responsible and long-overdue. A three-million-dollar cap for tax concessions which should apply to each member of a married couple seems reasonable to me. Let’s hope our world-class retirement system continues to grow and prosper along with its millions of members!