If you’ve been keeping up with the current tax reform debate, you’ll know there has been a lot of flip-flopping over what is on the table and what isn’t, but as to be expected, the good old chestnut of superannuation seems well and truly in the firing line.
Throughout recent weeks several different options as to what changes the government might make to superannuation have been contemplated.
One was to apply a 15 per cent rebate across the board against an individual’s marginal tax rate. Another was to apply a 15 per cent tax rate to contributions, earnings and drawdowns. According to a discussion paper, a third was to reduce concessional contributions caps from $30,000 to $20,000 and reduce the non-concessional contributions caps at the same time.
Some of these proposals seem completely absurd and lacking in logic and to me there can only be one reason why – they smack of people making up rules that won’t apply to them or will have minimal impact on their situation.
And when you have a look at the retirement savings arrangements the folk in Canberra have, it becomes pretty obvious this is the case.
First of all, senators or members of the lower house who were elected before 9 October 2004 qualify for the old Parliamentary Contributory Superannuation Scheme. This is a defined benefits scheme, meaning at the end of their working life as an elected official they receive a predetermined amount of retirement savings based on a percentage of their parliamentary allowance. Under this scheme the liability of funding the final benefit rests solely with the government – a great arrangement if you can get it.
And of course this is where the first misalignment of super goals has its genesis. Once the compulsory superannuation guarantee levy (SG) was introduced in 1992 by Paul Keating, we all have been subject to a defined contributions scheme as opposed to a defined benefits scheme. In short, that means we are all responsible for making sure our own retirement savings levels are adequate.
The superannuation scheme for senators or House of Representatives members elected after 9 October 2004 is an accumulation scheme established under the Parliamentary Superannuation Act 2004. Under this arrangement, parliamentarians make regular contributions to a super fund of their choice.
So yes these individuals are subject to a defined benefits scheme just like us, but don’t be fooled into thinking they play under the same rules we do.
A point of difference is the amount of contributions made on our behalf. Under the current SG rules, employers must contribute 9.5 per cent of our wages to the super fund of our choice. Politicians, on the other hand, have 15.4 per cent of their salary contributed to their fund of choice.
So when the adequacy debate comes around, their current compulsory contribution levels have already exceeded the 15 per cent they want the SG to reach to ensure we can all fund our own retirement.
Moreover, these more recently elected officials are not allowed to have their super contributions made to an SMSF, creating an even bigger chasm for a sector that continues to be the fastest growing one across the superannuation landscape.
So if you think some of the suggestions around changing the rules and laws governing our retirement savings seem a little harebrained, perhaps you now know why.
It stands to reason sensible change to the super system cannot be expected until there is a proper alignment of interests.
