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Ad hoc changes to superannuation are damaging

The debate about superannuation tax reform is starting to look even more like a circus than Donald Trump's presidential campaign.

Barely a week goes by without the airing of yet another ill-considered proposal. Since the start of this year we've had calls for super to pay off university  debt, for an end to Super Guarantee (SG) rises and for low income earners to opt out of the system altogether.

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The tax debate continues

Malcolm Turnbull is still going slow and steady when it comes to tax policy while Anthony Albanese says the Government needs a long election campaign to have time to develop their policies. Courtesy ABC News 24.

All this against a background of a confused and unproductive super tax debate that lurches from one quick fix to another.

Meanwhile the much-needed discussion between industry and the government on the setting of super system objectives – as recommended by the Financial System Inquiry – has all but stalled.

Instead, all roads lead to the federal budget for yet another round of ad-hoc changes. Such changes can do a lot of damage both to confidence in super and the long-term sustainability of the system.

Last year's 11th hour Budget change to the age pension means test is just one example of the perils of ad hoc policy, though the impact won't be felt until next year. Left unchanged, the new asset test will significantly widen the equity gap in Australia's retirement income system – one of the very issues this current tax inquiry was set up to rectify.


The introduction of a more aggressive age pension taper rate undermines the incentive for middle Australia to save once their super balances reach around $400,000, after which increased savings are largely clawed back through lower pensions. In the first year alone, hundreds of thousands of part-pensioners will be affected, many of them losing their pension altogether.

Yet it is this very group of Australians – those in the 30th to 70th income percentile who typically rely on some pension support in their retirement – who currently receive the least Government support to save for their retirement.

Illustration: John Spooner.

Illustration: John Spooner.

AIST's research shows those at the top end of the income percentile receive as much as $660,000 of total government support to their retirement income over a working lifetime (mostly through super tax concessions). This compares to around $300,000 in government support to someone on the median wage of about $50,000 a year.

Talking on the radio earlier this year, Treasurer Scott Morrison described self-funded retirees as heroes and noted that it was his party's objective to see "as many Australians as possible be self-sufficient in their retirement".

Assistant Treasurer Kelly O'Dwyer shares a similar view, stating recently: "We need to be very clear on what the objectives of our superannuation system are and that is to make sure that those people who have superannuation don't need to rely on the age pension either in full or in part." 

An interesting perspective from members of a government that has delayed the timetable of SG increases to 12 per cent by six years and is set to axe the Low Income Super Contribution (LISC) scheme that currently benefits so many part-time workers and women.

Doubtless, there are very few Australians who wouldn't want to be self-sufficient in retirement. But, in reality – as Treasury intergenerational reports have repeatedly pointed out – most Australians will still draw some age pension at some point during their retirement.

A person entering the workforce on median wages (around $55,000 pa) can expect to retire with about $325,000 in super (in today's dollars). While this is a great deal more than today's median super retirement balance of around $100,000, it's not enough on its own to provide self-sufficiency for 20 or 30 years.

It's  hard to see how incentives – such as higher concessional caps above the current rates of $30,000 or $35,000 – are going to be of any real help for people earning a median income with mortgages and other living costs to contend with.

 Super is only part of the story. The age pension has an equally important, taxpayer-funded role to boost retirement income for middle Australia as well as provide a safety net for very low income earners.

Recognising the way super and the age pension work together in our retirement income system will be an important step towards setting the objective of super in legislation.

We must stop ad hoc policy tinkering and we must adopt a robust evidence-based framework with which to assess future super policy proposals. Unfortunately, it looks like Donald Trump has more chance of becoming US President than this happening any time soon.

Tom Garcia is chief executive of the Australian Institute of Superannuation Trustees (AIST).