Super policy: back-to-front and inside out

Changes to the current superannuation policy are due to take effect on 1 July 2012, but have the Government got it right? Richard Shermon doesn’t think so, do you agree?

We will all have experienced as a child our parents at one time or another letting us know that we were wearing our sweater either back-to-front or inside out and sometimes both! However, we don’t expect our political leaders to get their policies both back-to-front and inside out, but when it comes to the possible superannuation changes that have been leaked, it looks like they have.

Yet again the government of the day can’t resist making changes to the superannuation rules to generate a short term gain and give little regard to the longer term consequences. It is my view that by increasing the tax rate super funds apply to concessional contributions from 15 per cent to 30 per cent for high income earners will have the unintended consequence of further undermining confidence in superannuation as a way for saving for retirement. This will result in fewer self funded retirees in the future and therefore more people relying on the public purse to fund their living expenses in retirement. Couple this with the long term trend of improved longevity and future governments will have no choice but to increase further the retirement age (as they are in the UK), tighten further the means test and reduce the actual value of the Age Pension in real terms. I have many clients who already do not make the most of the existing superannuation tax concessions for the very reason that successive governments keep meddling with the system and they therefore instil a lack of confidence in using super as their preferred retirement planning vehicle.

Another change expected to be introduced from July is a reduction in the concessional contribution limit for people aged over 50 from $50,000 to $25,000, unless they have less than $500,000 in their superannuation. This is yet again a back-to-front policy. At the very time when, with hopefully the mortgage paid off and the kids having left home, people have finally some disposable income that they could save for their retirement, the concessional limit is being halved. I am afraid this will also lead to less self-funded retirees and more pressure on the public purse in years to come.

If the Government really wants to move into surplus next year (and I am not convinced that this is sensible economic policy either given the state of the economy) then surely it makes more sense to increase direct income tax rates for the wealthy, or increase GST, rather than further undermine the superannuation system. Alternatively, it should look at reducing government spending by removing some of the inefficient tax rebates and offsets that are in place, such as the health insurance rebate on Extras policies for example.

Richard Shermon, Reserve Financial Consulting

www.reservefc.com.au