A lack of coordination exists between superannuation policy and social security policy, and the poor alignment between the age pension and superannuation is an example of this, according to the SMSF Association.
In its pre-budget submission to Treasury on the 2018/19 federal budget, the SMSF industry body argued for a more coordinated retirement income policy approach and said policies were being implemented without taking into account the government’s proposed objective of superannuation.
“A siloed approach to policymaking in these areas has created policy settings in superannuation and social security that conflict and do not support each other to provide retirement income for Australians,” the submission said.
“They also result in perverse outcomes for many Australians in retirement, which we believe may be an unintended consequence from this siloed approach. In many cases this can create significant disincentives for saving for retirement, which we believe would not be the government’s intention.”
The association said it believed changes to the asset test rules for the age pension, which took effect from 1 January 2017, and changes to the means test taper rate and thresholds deterred middle-income earners from saving for a self-sufficient retirement, while it affected those with average-sized superannuation balances who benefited from a part age pension.
“For home-owning couples that have a superannuation balance between $500,000 and $800,000, the increased taper rate creates a ‘black hole’ where their assets above the asset test free amount causes them to be worse off in terms of income,” the submission said.
“This is caused by the taper rate of the equivalent of 7.8 per cent per annum reducing their pension entitlement at a rate in excess of the income they earn from their superannuation balance above the asset-free area,” it said, adding that was particularly an issue in a low interest rate and low investment return environment.
The submission called for a simpler mechanism to align superannuation and age pension means testing by moving to a single means test that applied a deeming rate to financial and non-financial assets, removing the assets test.
Elsewhere in the submission, the association argued a holistic policymaking approach to the retirement income system would be undermined by not having a legislated objective of superannuation.
It noted the use of the age pension is high in Australia, with 70 per cent of retirees accessing some form of the age pension and 60 per cent on a full age pension. This is because most current pensioners have not had a full career of compulsory superannuation contributions, it said.
“Legislating an objective for superannuation should play a role in clarifying and distinguishing the roles of superannuation and the age pension. This would help remove the possibility that the objective of superannuation could be interpreted so that any income provided by superannuation above age pension level is a sign of overly generous tax concession support for superannuation,” it said.