(03) 9020 2905PORTFOLIO POINT: With the election now set for September 7, let’s look at the super chasm.
It’s rare that superannuation is such a high priority on the list of political promises during a federal election.
But this time around, it is front and centre. (Obviously, where I, at least, believe it deserves to be.)
It’s not the “splash” or even on the front page – boat people, economic management, carbon pricing, the NBN and Gonski take the honours – but the treatment it has received in recent weeks suggests it’s just outside of the top vote-catching items.
It is fair to say that Australians have never been more disillusioned with super than they are right now.
Statistics on contributions, surveys of attitudes and anecdotal evidence point to Australians turning off super like they never have before.
Contributions outside of the compulsory Superannuation Guarantee contributions from employers have plummetted. And an even bigger indicator of confidence is that non-concessional contributions have also slumped.
Certainly, super has never been through a period of such constant significant change as it has been through in the last six-and-a-bit years. Change fatigue is the obvious, and unarged, culprit.
The changes started with “Simpler Super” from the Howard/Costello government that came into force on 1 July, 2013, and finished … well, they still haven’t finished, as there is plenty of major changes that have been announced, but not yet legislated.
Now the fate of some of those changes will depend on the outcome of the 7 September election.
So what are the issues? Where do Labor and the Coalition differ on policy? If super is something that could impact on your vote, here is what you should be weighing up.
What’s the same?
Both sides of politics believe in super’s importance to Australia’s three-pronged retirement incomes strategy (the other two being private savings/investment and the government age pension).
Where’s the fundamental political difference?
Where they differ is in what constitutes their version of what’s fair within the super context.
Interestingly, what both sides believes is fair have undergone their own reformations in recent years, decidedly impacted by the impact on the Australian economy and budget since the onset of the Global Financial Crisis.
Contributions limits are no longer a major point of differentiation (see next), but it has literally come down to fractions of a per cent here and who super tax cuts go to there.
Concessional contribution limits
The Coalition certainly screamed and moaned when the contribution limits introduced by the Howard government ($100,000 for five years for the over-50s, to be followed by $50,000 ongoing limits for everyone) were axed.
As the GFC descended, cutting those limits was one of the first things the Labor Government did to stop people getting too much money into super where it would face lower tax rates.
But there has been sweet nothing from the Coalition in regards to increasing concessional contribution limits. Don’t hold your breath waiting for any promises there. They are possible, but unlikely, to be a pre-election promise.
The fact is that superannuation is a short-term cost to Treasury. They are waiving up to 31.5 cents in every dollar in short-term revenue to allow people to put extra money into super.
Quietly, the Coalition accepts Costello’s larger contribution limits were okay in the economic euphoria prior to the GFC, but were an acceptable budgetary target afterwards.
Labor lifted the CC limit from $25,000 to $35,000 for the over-60s for this financial year, which will be widened to the over-50s for FY15. The Coalition have not said they would dismantle that plan.
Superannuation Guarantee Levy
On 1 July this year, the first limit increase in Labor’s plan to lift the SG rate from 9% to 12% was implemented with an increase to 9.25%. It is now due to go to 12% on 1 July 2019.
The Coalition has said it will delay the process by two years. The 9.25% will stay at that level for FY15 and FY16, before the rises continue and 12% would be hit two years later on 1 July 2021 because of the impost on business during tough economic times expected.
Low-income earners government contribution
This is the amount of up to $500 that will be paid into the super accounts of those earning up to $37,000 a year. The basis of this policy is that most people earning less than $37,000 get penalised by putting money into super.
That is, if they earn $18,000, they pay 0% in tax at their marginal tax rate. However, the money that employers put into super for them is taxed at 15%.
The Coalition has vowed to scrap this initiative, claiming it was funded by the Minerals Resource Rent Tax, which hasn’t raised anywhere near expectations.
No changes to super …
Well, there’s a laugh. Not in modern superannuation history has a government managed to go one year without significant change to superannuation law. Five years? Even three years? You’re pulling my leg – an election promise that has next to no chance being kept.
As likely as me being selected to help resurrect Australia’s chances in the fourth Ashes test.
But what have they promised?
The Coalition has repeatedly promised “no unexpected negative changes to superannuation” in their first term. The major concern with that wording is what is “unexpected”? Certainly any policy announcements that they have on the table (including deferral of the SG rise and ditching the $500 contribution for low-income earners).
But plenty of other changes could be passed off as “expected”.
Labor hit back with it’s own “no change” promise last week. Labor promised no changes for five years, including the advent of a Superannuation Council. But their wording was “no major change to superannuation tax policy”.
Does that leave the door open on a few fronts? First, what’s “major”? Arguably, a lot of changes could be made and all of them could be classified as “minor”.
Second, is there a distinction between “superannuation tax policy” and other parts of superannuation policy? Could changes be made that weren’t considered to be tax changes? I find the choice of words interesting. The words “major” and “tax” would appear to leave reasonable wriggle room.
New pensions tax
Labor’s pre-Budget warning that super pension funds that earn more than $100,000 in a year would be taxed at 15% has not actually been rescinded (see 10/4/13).
It was picked apart from the other legislation that was rushed through Parliament in its last sitting days in June, to get bi-partisan support for measures including the lifting of the CC limit to $35,000 for the over-60s.
However, as outlined in this column (20/5/13), the industry claims the legislation is simply too complex to work (similar to the in-specie transfer rules, which have been officially dropped).
Excess contributions tax
Despite major improvements by Labor recently to this tax, which in the most part hits people who have made small, accidental errors, the Coalition says they want to make further changes to make them fairer.
*****
Superannuation is unlikely to be front page news during this election campaign.
But, constant badgering (across the industry, but my moaning has been pretty constant), there is at least now lip service being paid by both parties that the mindless constant changes to superannuation is undermining confidence in the system and turning people away.
If we get nothing else in regards to superannuation post this election, a full term where superannuation doesn’t continue to go backwards in appeal would be a great starting point to rebuild confidence.
*****
The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.
Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking. E: bruce@castellanfinancial.com.au