Time to re-evaluate true purpose of retirement funding

Not so many years ago, my father decided to drop out of the superannuation system. Well not entirely, he just decided back in the early 1980s with the then Labor government bringing in a raft of changes to superannuation, in my opinion for the better, he’d rather have control of his own destiny, so he defaulted to putting away the minimum and investing the rest the way he wanted unencumbered by superannuation’s rules and limits.

He’s a very simple investor. He’s what you would call conservative and prudent. On a modest income as a journalist, he stuck to what he knew best, being blue-chip shares and residential property. At the time, I was starting out as a financial adviser and I did my best to try and persuade him to stick entirely with the growing superannuation system. I mean what could go wrong? Here was the government of the day, with a progressive treasurer in Paul Keating, improving and widening the super system for the benefit of many more working people. You couldn’t do better tax-wise than the new super system. And that was entirely his point. Having been a journalist all his life, and at the time having recently finished a stint as a Canberra political correspondent, he told me: “If superannuation becomes as big a financial part of the system as Keating is claiming it will, the pollies won’t be able to keep their hands off it.” He could not have been more prophetic.

And nowhere has any area been more affected by recent change than the SMSF segment. How is it that anyone can plan for the long term when governments of any persuasion practise continual tinkering and short-term policy changes? The recent House of Representatives Standing Committee on Economics public hearings around the country on the proposed changes to franking credits demonstrate the growing loss of faith by those funding for retirement or now retired who acted in good faith in line with the rules of the day, only to find they may be punished financially in the future for doing so. The certainty needed for long-term planning is being eroded with every change.

Labor says it doesn’t intend to introduce any more taxes, which is a blessing I guess when you consider their planned policies already include:

  • stripping franking credit refunds eligibility for most SMSFs,
  • dropping the $100,000 non-concessional contribution to $75,000,
  • abolishing the $25,000 unused concessional contribution five-year roll-forward rule,
  • removing the deductibility of top-up personal contributions for employees within the $25,000 cap each year, and
  • reducing the Division 293 tax threshold from $250,000 to $200,000, introducing an additional 15 per cent super tax for more taxpayers.

All of these planned policies will have a negative impact on those affected. This of course is on top of the ALP’s clear political dislike for SMSFs by previously stating its intention to shut limited recourse borrowing arrangements down and blocking the proposal in parliament to increase the maximum SMSF membership size from four to six.

The Self-managed Independent Superannuation Funds Association (SISFA) calls on both parties to follow a moratorium path to allow cool heads to properly assess the role of superannuation, tax, retirement and public welfare policy outside of the election framework. The current debate risks turning retirement savers off superannuation even further rather than strengthening the system and encouraging self-provision in retirement – not the public purse.

Super savings should not exist to be cherry-picked for other budget (spending) measures. Further, SMSFs should not be subject to discriminatory policies, such as the proposed franking credit changes, relative to other types of super funds with any future changes. In other words, the debate should not just be about so-called tax benefits. Any benefits provided through the tax system for superannuation exist to encourage long-term savings behaviours. The trade-off is locking away funds for future self-provision within a highly regulated savings environment that controls how and when funds are spent. This is hardly a tax rort.

SISFA believes our superannuation system should promote and achieve self-reliance of taxpayers throughout their retirement/senior years by delivering sufficient income attained through a combination of compulsory and voluntary saving.

Australians funding for or currently enjoying the benefits of their own funded retirement should carefully evaluate the retirement policies of each party as we run up to the election. The wrong choice will have a lasting impact on those who have played by the rules in saving for a self-funded future.

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