Treasurer Scott Morrison needs to tread warily in evaluating Treasury's proposals for superannuation tax reform to avoid throwing the baby out with the bathwater.
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Already speculation about tax and rule changes is deterring voluntary super contributions by younger and middle-aged Australians uncertain about what the rules will be when they need to access their savings. What young person would want to tie money up in super untouchable until at least age 60 when they have a mortgage to service and other pressing financial commitments?
Without substantial tax concessions, the investment returns and financial security offered by paying off a mortgage will far exceed the benefits of making voluntary contributions to super.
Yet now that compulsory employer contributions have increased the overall budgetary costs dramatically, the Treasury is focusing on reducing the available super tax concessions.
Already, compared with negative gearing, making voluntary super contributions is unattractive for high income earners who face a penalty 15 per cent contributions surcharge and an annual contributions cap inadequate to fund a comfortable replacement retirement income.
The large self-employed community not covered by the compulsory super arrangements have been voting with their feet, with their total voluntary super contributions falling sharply since 2008.
Without the special concession allowing SMSF borrowing to purchase real property for use as a business premise, the sector's voluntary super contributions would be even lower.
Superannuation assets are now largely untouchable until the preservation age, currently 60 for most people, creating major problems for small business and workers becoming unemployed before that age.
Having money tied up untouchable in super when there's a mortgage and other commitments to meet just adds to their financial problems.
This risk can only be reduced by minimising super contributions and saving by paying off a mortgage or business debts.
The attractions of voluntary super contributions will be reduced even further if the Treasurer accepts advice to change the special transition to retirement pension arrangements.
Far from being a tax rort, transition to retirement pensions allow taxpayers to gain access to between 4 and 10 per cent of their super annually once they reach preservation age.
Without transition to retirement pensions, retirement as soon as possible after reaching age 60 would be a much more attractive proposition for those wanting to access part or their entire super after age 60.
A government concerned about encouraging superannuation savings could even extend transitional pension arrangements to people needing to access their super while they are unemployed even before they reach their preservation age.
Such a change would be a marked improvement on the current arrangement allowing access to a maximum of $10,000 on compassionate grounds.
Daryl Dixon is the executive chairman of Dixon Advisory. comments@dixon.com.au
