(03) 9020 2905PORTFOLIO POINT: Like none before it, superannuation will be a hot button for this year’s federal election. Many Australians might choose to vote on super itself.
There comes a point in most people’s lives – and it tends to be some time after turning 50 or 55 – that superannuation becomes the most important financial asset.
Partly this is because it’s the one over which the most control can be exerted. It’s partly because the house is paid off, but will never provide an income stream. In many cases, the share or property portfolio might be worth more, but that part of your investing life has become less important, because of other concerns, including tax. And, in any case, that portfolio is in danger of being sold off to pump into super anyway!
At whatever age that is, super becomes personally important. It could go one step further and become politically important. That is, the importance of that big lump of your life savings could potentially change a lifelong party allegiance.
Ridiculous? Well, no. While superannuation has rarely been an issue of political importance come election time – certainly not one that changed votes – 2010 could be the year that super is a make or break voting issue.
The last four weeks has proved that superannuation will be front and centre as an election issue this year. The primary, front-page, election issues will be the resources super profits tax (RSPT), the government funding of schools and health, pink batts, etc. But the future of superannuation will, for the first time, be inextricably linked to the division on which the election is fought.
Let me spell it out.
If Labor wins the next election – and gets its RSPT across the line and into law – then Australian workers will likely also get extra super. The Rudd government has tied the rise in the Superannuation Guarantee from 9% to 12% to the RSPT (as it also has also done for cuts in the corporate tax rate).
While the increase would be phased in over many years, employees are likely to cheer this. Many Eureka Report readers will owe a good portion of their super balances to the SG levy as employees. While they might have a choice to salary sacrifice extra into super, a bonus few per cent, even for a decade, would be appreciated.
Many will still have plenty more time in the workforce to make use of higher SG employer contributions. (Others may simply approve because of how it will help their kids create greater retirement nesteggs).
But it’s unlikely to be a vote winner amongst employers, who are arguably the higher users of SMSFs. A higher SG limit is, in essence, a tax increase. The corporate tax rate comes down by 2%, the SG contribution goes up 3%. One’s on profits, the other’s on payroll. Two steps forward … three steps back?
The government has also squarely nailed the remainder of its super policy belief system to the mast and it’s largely not an attractive one for Eureka Report readers.
Labor has declared how much super it believes is “enough”. That figure is $500,000 (see last week’s column on the “50-50-500 rule”). If you’ve got more than that, the government doesn’t believe you have a right to put more than $25,000 a year into super (once the current higher limits for the over-50s run out at the end of the 2011-12 financial year).
It believes that $25,000 is enough to put into super each year through concessional contribution arrangements. It had to be dragged into allowing older Australians with lower balances to be allowed to put more into super.
In the other corner, the increase in the SG levy would be scrapped by a Tony Abbott government, who has said it would have to go, part and parcel with the scrapping of the RSPT.
But the Coalition’s policies on superannuation, like most other areas, are being kept under wraps. Powder is being kept dry. There’s precious little solid policy available yet. Super has, unarguably, been downgraded during this term of government. Contribution limits and cco-contributions have been cut severely, which have been dimunitions of the last Coalition government’s policies. How much would a Tony Abbott government want to reinstate some or all of those policies?
We do know that it has carped and criticised a number of government policies, including the reduction in the contribution caps. But government is a totally different proposition to opposition.
It has had to watch the Rudd Government recreate the class divide by dismantling the aspects of Peter Costello’s “Simpler Super” system that had got Australians focussed again on superannuation as a retirement savings vehicle. Costello removed tax on super for the over 60s, removed reasonable benefits limits, and created simple, but reasonably generous contribution limits.
No election has been called. It doesn’t seem like it’s imminent yet. But seriously large differences are now in place between the two parties. Super has never been a divisive issue come election time. This year it could be.
The Government’s release of the Henry Report was the line in the sand. The proposal for the resources super profits tax (RSPT) was the catalyst. But, even with an election still likely to be about six months away, the choice between Labor and the Coalition is stark.
*****
Some major super funds have come in for a serious dressing down from the Australian National Audit Office over their handling of their lack of promotion and reporting regarding the government co-contribution scheme.
The ANAO expressed concern that only 15% of possiible recipients of the co-contribution actually put their hand up to receive it by contributing to their super funds. They did, however, praise the effective administration of the scheme by the Australian Taxation Office.
About 25% of large APRA funds had not submitted member statements in recentyears, which had led to large numbers of members not getting their entitlements.
Bruce Brammall is director of Castellan Financial Consulting and author of Debt Man Walking.