The former Labor government brought in some half-hearted measures to crimp the growth of superannuation tax concessions.
Those earning more than $300,000 a year pay 30 per cent tax on their salary sacrifice and on their compulsory contributions instead of the 15 per cent that applies to everybody else. That has survived with the Abbott government.
Changes in retirement and super coming?
What is the government up to with the upcoming May 13th budget? John Collett and David Potts investigate.
But there was also to be a 15 per cent tax on retirees' super earnings of more than $100,000 a year. The 15 per cent was only on the earnings in excess of $100,000, not the full earnings. It was a feeble attempt to make the super system a bit fairer. This second measure would have been difficult and expensive to administer, and was dropped. Which leaves the real problem still to be fixed.
There is just too much in tax concessions being given to those who already have enough saved for a comfortable retirement. While the government may well tighten wealthy retirees' access to the age pension in the May 13 budget, it's all but certain the government will lift the pension age to 70. This would be phased in to a date beyond 2023 when the pension age will be 67, from 65 for most people now.
A higher pension age is bad news for workers in physical jobs. But workers could be hit even further if the age at which super can be accessed - the preservation age - is also raised. The preservation age is heading to age 60 anyway, but could rise to 62 or higher when the government hands down the budget. Again, this would be phased in.
But it would mean that those in physical jobs will be even more vulnerable to illness and unemployment before they are able to access their retirement savings and, eventually, the age pension.
It is often said that the $35 billion a year in superannuation tax concessions is money well spent because it encourages more retirement saving and less reliance on the age pension. But an Australia Institute report says every $1 billion extra spent on tax concessions for super saves less than $200 million from the costs of the age pension. And the outlays for the super tax concessions are growing more quickly than the costs of the age pension.
About 30 per cent of the benefit of those tax concessions goes to the top 5 per cent of income earners. The tax on earnings in super for those working is 15 per cent and zero for retirees.
Michael Rice of actuaries Rice Warner has suggested there be one rate of earnings tax for everyone. It would be lower than 15 per cent. As the number of retirees increases and money held in superannuation increases, the government would collect higher taxes.