Opinions

SISFA

Abandoning the equitable retirement contract

Recently there has been a lot of press on Labor’s proposed superannuation tax changes and its policy on removing refundable franking credits for certain individuals. I don’t propose to go over the changes in detail here, but, apart from the well-documented impact on over 1 million Australians saving for retirement or now drawing an income from their retirement savings, there is a very real danger of a long-term effect on the savings psychology of our society.

This year we face a federal election and it would be fair to say the average Australian is probably pretty battle weary from the many political changes, not just from more recent events, but over the past 12 years. Since the aspirational Kevin07 campaign, after which we watched the Labor Party implode in government through internal bickering and in short order, we’ve seen similar behaviour with the replacement of Malcolm Turnbull as prime minister via Liberal Party putsch and a fractured organisation more focused on their own internal achievements than serving the electorate. Our country has had more prime ministers in the same period of time than countries who are usually the butt of jokes about political stability. Pretty hard to throw rocks from inside our own glasshouse at what we might think are dysfunctional leaders in overseas western trading partners when our own political system looks anything but stable.

With the many changes in political leadership have come a raft of changes to our retirement savings system from parties of both persuasions. When superannuation was extended to most working people in Australia in 1992 under then-treasurer Paul Keating, we were told these changes would benefit the long-term nature of accruing retirement savings. This was a goal that, prior to the 1980s, was largely the privilege of those in the employ of the government and larger corporations, while the rest of the nation accepted the view from the Menzies era that if you paid your taxes, you’d be looked after through a pension. However, it was a pension that became too large a burden for the government and, following the trend in other developed economies, it moved the responsibility for generating income in retirement to the employee. That promise of a long-term commitment to help Australians provide for their own retirement has been broken repeatedly by successive governments as the retirement savings pot became an attractive sector to tax for other purposes.

Having studied the retirement savings systems of countries that are recognised internationally for more progressive policies, such as Singapore and Hong Kong, the key difference is the long-term mutual benefit to both the citizens and their governments. The system provides a comfortable income as a basis of retirement while alleviating the government of the cost to the wider society of the provision of a universal pension. Sure, there have been changes made, but they have been relatively minor and many have been to improve the end benefit. Citizens of these countries have come to rely on the long-term commitment of the government to their own long-term savings goals.

While there are many aspects to each Australian political party’s platform, after coping with the changes to the super system implemented by the current government in 2017 and 2018, the proposals by Labor should be a huge concern for self-funded retirees in particular.

The Self-managed Independent Superannuation Funds Association (SISFA) has joined a new united group of like-minded professional bodies to form the Alliance for a Fairer Retirement System to respond to Parliament on any party’s proposals that impact on the retirement benefits of the self-funded sector of superannuation.

In its submission to the House of Representatives Standing Committee on Economics inquiry into the implications of removing refundable franking credits, SISFA highlighted, in addition to the alliance’s analysis, under Labor’s proposal:

a high-income earner on a 27.5 per cent to 30 per cent or more tax rate will receive the full benefit of a franking credit, while a self-funded retiree or worker on a modest income and tax rate of less than 25.5 per cent to 30 per cent will not, and

a high-balance member of an Australian Prudential Regulation Authority-regulated super fund will receive the full benefit of a franking credit, while a modest balance member in an SMSF will not.

You can find the alliance’s submissions at www.fairerretirement.com.au/news.

Australians deserve a fair and equitable long-term commitment to their own retirement goals by governments of any political persuasion.

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