7th Mar 2019
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Super changes to pile pressure on pension, PM warned
Author: Janelle Ward
Super changes to pile pressure on pension, PM warned

The Government’s rush to push through changes to the superannuation system in the wake of the financial services royal commission will create a generation of older Australians who will be unable to fund their retirement.

That’s the conclusion of specialist financial services consultancy Pitcher Partners, which voiced its concerns in a pre-Budget submission to the Federal Treasury.

The group said the Government had gone too far, that the changes combined to “significantly reduce the attractiveness of using the superannuation system to fund retirement” and that there were no incentives to encourage taxpayers to save above the voluntary contribution rate.

The long-term effect would be generations of retirees who would have to rely on the Age Pension in greater numbers than ever before. Combine that with a lower percentage of home-ownership post the baby boomer generation and a big jump in poverty levels would seem to be inevitable, given YourLifeChoices research that clearly shows retirees who rent struggle to make ends meet.

“We highlight that we believe the changes have gone too far and now there are no incentives left in the system to attract taxpayers to save above the compulsory contribution rate,” Pitcher Partners said in its submission, according to a report on moneymanagement.com.au. “Some of these policies include the reduced deductible contribution cap of $25,000 per year, the $1.6 million pension cap and the 30 per cent contribution tax rate applicable to individuals deriving more than $250,000 per annum.

“We are concerned that the outcome of these significant policy changes, which collectively eliminate most of the voluntary savings incentives from the super system, will be to discourage retirement savings from those taxpayers with the capacity to save.

“Over time, we believe that this will create a new class of taxpayer with insufficient savings to self-fund their retirement who will qualify for, and need to rely on, the Age Pension.”

The submission offered a partial solution, advocating that the Government reintroduce voluntary savings incentives in order to encourage middle income earners to self-fund their retirement.

It said policy changes could include:

  • increasing the deductible contribution cap from $25,000 to $50,000
  • providing flexibility by allowing individuals to determine their deductible contribution cap by taking into account unutilised amounts from prior years
  • pooling thresholds and limits within families (e.g. allowing couples two times the pension cap that can be used between the couple in any way they choose)
  • increasing both the total superannuation balance threshold where non-concessional contributions are prohibited, and the transfer balance cap amounts, from $1.6 million to double those amounts
  • increasing the threshold where the 30 per cent contributions tax rate applies to at least $300,000 and indexing that threshold to wages growth.

Meanwhile, former Reserve Bank board member and now chair of Australian Super Heather Ridout has cautioned the Government to keep superannuation out of politics.

Industry Super, which will have about $1 trillion in assets and shares by 2021, will reportedly use investment arm IFM Investors to push climate change priorities within corporations, according to a report in Fairfax Media. And union and employer-backed funds have been under pressure from the Australian Council of Trade Unions to use their shareholdings in BHP and BlueScope to save jobs.

In response, Federal Treasurer Josh Frydenberg has asked regulators to investigate whether they can stop super funds wielding influence over companies.

Speaking at an Australian Institute for Company Directors conference, Ms Ridout said: “The Government doesn't like the trade union movement. It's antithetical to everything that they believe, in that the union movement would have some influence over a very sizeable trillion dollars in assets.

“But you have to trust the governance model, you have to trust the ethics and integrity, you have to trust the regulators. We shouldn't be dragged into political debates.”

ANZ chairman David Gonski said industry funds had a right to attempt to influence commercial decisions and that shareholders were right to consider long-term issues such as the environment.

Regulation expert Andrew Schmulow from Wollongong University said financial pressure from industry funds would likely fall within the regulator's powers to investigate, but if it did, it had its priorities wrong.

“It is a molehill in comparison to that vast glittering edifice of 'shysterdom' that is the retail superannuation industry,” he said.

Are you closely following changes to the superannuation industry? Are you concerned that some may hurt your retirement? Do you agree with the recommendations from Pitcher Partners?

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    COMMENTS

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    maelcolium
    7th Mar 2019
    11:10am
    Wrong question.
    The question should be how the politicians and bureaucrats can have a defined benefits pension system which was purchased with the proceeds of selling off infrastructure assets such as the CBA and Telstra while the rest of the populace are stuck with this ridiculous restricted scheme which benefits no one except the already wealthy and financial industry parasites. Then ask why defined benefits are not permitted? Why are the rules are so restrictive? Why are retirement benefits not the same as the Future Fund system where politicians can draw a pension for life and yet are still able to work in million dollar gigs post politics.
    Searching for the answer? It's simple. The Australian community has been completely blindsided by an ideological idea formulated by Keating to force ….. that's right, force Australians to sacrifice current consumption for some vague future benefit. By demonising the age pension, the Government abrogated the rights of all Australians to receive a public pension upon reaching a certain age. Their own Future Fund Pension System was created to provide the excuse that ALL citizens were funding their retirement as prior to that time their fund was bankrolled by Government monies. But of course they see themselves as a special case and so have added the generous extra payments and benefits to suit their greedy purpose.
    This is not the first time Australian Governments have dudded citizens over their right to Government payments in retirement. Post World War 2 a system was set up by increasing taxes and reaching fully funded status when it was dumped by Menzies and never adjusted or given back to people who paid and are continuing to pay for the now defunct scheme. The only difference this time is that the system was privatised, so it's not so easy to dump the whole thing without stealing private wealth.
    The whole premise of super is wrong. Both systems need to be drawn back to a public system run just like the Future Fund (except sack the board) so that every Australian, irrespective of their income or their status receives the same payment for life while they reside in Australia upon reaching a certain age whether or not they continue to work. The amount would be based on the average living wage and funded entirely by Government payments. Tax on the first dollar they receive irrespective of the source and regulate to prevent payments being transferred out of the country. Australia is a sovereign currency issuer and as such is not restricted by budgetary restraints as long as monies are contained within the domestic economy. To do this would be no more complicated than the current mess and a damn sight fairer. Write it into the Constitution so it can never again be politicised.
    Cowboy Jim
    7th Mar 2019
    11:40am
    All you really want is the Universal Age Pension restored, the way it still operates in most western countries including New Zealand. Everyone gets the age pension after 65 but then all income and some assets are taxed. Most of us would be better off I suppose but then again those who never saved a bean on the full pension now would become taxpayers again. My mum died last month at 96 and she still paid tax every year but also got the full pension of $A3200 a month. Here her assets would have excluded her.
    Certainly your idea has merit for consideration; whether it could be written into the Constitution I have some doubts.
    Travellersjoy
    7th Mar 2019
    12:17pm
    Sounds good to me.

    I would like a system that does not demonise people because they were unable to accumulate scads of money at retirement; is proof against rorting by those who have plenty and would never demean themselves by living solely on the age pension but are happy to add it to their salted away million or two; and treats everyone with respect by providing a decent standard of living to the aged.

    The L/NP and IPA in our Reserve Bank, policy branches of government and oversight agencies have presided over monopoly capitalism getting entrenched in our country, and millions of workers who will never have enough super to be meaningful, while the lords and masters feather their gold plated nests. An adequate universal pension is essential to compensate at least two generations for their forfeited incomes and homeless status, just as it is for all those women originally shut out of superannuation and ageing now in poverty.

    Radical surgery is required, not more fiddling at the edges. Just ask the chap who writes in The Guardian about finance and economics in the real world. He seems to have an idea or two and knows what he is talking about, rather than the fantasy/nightmare of neoliberal trickledown (but gush upwards) L/NP policy.
    ray from Bondi
    7th Mar 2019
    3:57pm
    here here, but sadly the right wing trolls will spew their Orwellian doublethink in reply. I am a labor supporter but I firmly believe the Hawk/Keating duo destroyed Australia, as far as I am concerned they are the ones who start the crushing of unions, sell OUR assets, and signing away our sovereignty with the not so level playing field, what a furphy.
    OlderandWiser
    8th Mar 2019
    9:45am
    But Labor is doing far more harm to retirees than the LNP now, and the ones Labor is attacking are the battlers. At least these LNP policies target the wealthier in the community.
    OlderandWiser
    8th Mar 2019
    9:45am
    But Labor is doing far more harm to retirees than the LNP now, and the ones Labor is attacking are the battlers. At least these LNP policies target the wealthier in the community.
    GeorgeM
    8th Mar 2019
    9:29pm
    Good comments, maelcolium, CJ and Travellersjoy, the real issues are not being addressed. Yes, ray from Bondi, Labor (especially Keating) destroyed Australia and set it up to benefit the rich, that's why Liberals like him - he did their job for them!

    The solutions proposed in the article are meant to help the rich (except the deductible contribution cap of $25,000 is a bit low), and is just tinkering with the system again to benefit those who don't need it. Universal Age Pension at Age 65 and say Residency of 15 years, with NO other tests, is the only real and fair solution now.
    old frt
    7th Mar 2019
    11:54am
    Mael. Everyone except the public service know that a defined benefits pension is unsustainable. At the 9.5% super contribution its impossible , that's why public servants get 18% super contributions . But wait there's worse to come when tweedle dee and tweedle dumber get into government and reduce the maximum concessional contribution to $20000 and reduce the non concessional to $75000 P/A.
    Rae
    7th Mar 2019
    4:40pm
    It wasn't unsustainable but people just didn't want to fork out those sorts of amounts after tax for decades to buy an income stream when the aged pension was the go to for retirement.
    Sundays
    7th Mar 2019
    4:59pm
    The defined benefit schemes have all been closed even the parliamentary scheme. Most low level public servants were conned. Forced to compusorarily save 5% of after tax income. Unless they stayed in for ever or had big promotion in later life the return was not that great
    Tricky
    7th Mar 2019
    12:42pm
    WTF investment in fixed Term Deposits are assessed at earning 1.75% for the first $85,000 and then 3.25% for investments in Term Deposits over $85,000. My question is where can you earn 3.25% on cash investments in Term Deposits?

    7th Mar 2019
    2:01pm
    And it will only get worse under labor.
    OlderandWiser
    8th Mar 2019
    9:58am
    Yes. These changes target the high income earners who don't need superannuation concessions to save for retirement. Labor is demolishing the battlers.
    OlderandWiser
    8th Mar 2019
    9:58am
    Yes. These changes target the high income earners who don't need superannuation concessions to save for retirement. Labor is demolishing the battlers.

    7th Mar 2019
    2:01pm
    And it will only get worse under labor.
    Ted Wards
    7th Mar 2019
    2:25pm
    Maybe the whole issue of retirement needs a massive rethink. Once I finish working in an office, I am re-training so that I can have my own business and generate another income. I plan on never retiring but living my life to full living my passion as I have always done, but in a different way. The whole concept of retirement is false.
    OlderandWiser
    8th Mar 2019
    9:57am
    Tell that to someone who works their whole life in a lousy, dangerous, low-paid job that wrecks their physical and mental health. Good luck to you - and I sort of did the same, though as a carer I can't earn much and can only work very limited hours.
    OlderandWiser
    8th Mar 2019
    9:57am
    Tell that to someone who works their whole life in a lousy, dangerous, low-paid job that wrecks their physical and mental health. Good luck to you - and I sort of did the same, though as a carer I can't earn much and can only work very limited hours.
    Bren
    7th Mar 2019
    2:47pm
    I don't see any justification for doubling the cap to a whopping $3.2 million nor removing the tax increases for those on more than $250,000 pa. These people are not the poor people they are purporting to be defending.


    On the other hand raising the concessional contribution amount from $25000 pa seems like a good idea.
    Bren
    7th Mar 2019
    2:47pm
    I don't see any justification for doubling the cap to a whopping $3.2 million nor removing the tax increases for those on more than $250,000 pa. These people are not the poor people they are purporting to be defending.


    On the other hand raising the concessional contribution amount from $25000 pa seems like a good idea.
    OlderandWiser
    8th Mar 2019
    9:55am
    I agree, Bren. I'm far more concerned with Labor's brutal attack on poorer self-funded retirees, which really does destroy all incentives to save for retirement.
    OlderandWiser
    8th Mar 2019
    9:55am
    I agree, Bren. I'm far more concerned with Labor's brutal attack on poorer self-funded retirees, which really does destroy all incentives to save for retirement.
    ray from Bondi
    7th Mar 2019
    3:51pm
    “But you have to trust the governance model, you have to trust the ethics and integrity, you have to trust the regulators." just like the banks we were told were above reproach.
    Every year governments change the superannuation rules, there is so no comfort in knowing what is accepted now may not be in the future, when we fist has this forced on us instead of pay rises and that is where a significant amount of a person's wage goes these days that the money would create jobs in our Commonwealth of Australia, what a load of codswallop we believe all it has done in make very rich people richer sucking at OUR money.
    I have heard on the right wing radio business owners complaining about having to pay super as it comes from their money, this is what the right wing thinks of OUR money that we have no choice about.
    Aussie
    7th Mar 2019
    4:10pm
    I got to the conclusion that there is no way to have a decent life in Australia as renters so I decide to PO and stay overseas as long as I can and only get the basic pension .... with that I can pay rent of a unit with water views + Great fresh food + entertainment and much much more .... and only come back to visit my kids and stay with my Daughter that has a room where I keep some of my things and a bed for me to stay ..... so I have great time with them for short times then out again .... I am having a great retirement this way and save lots money to the government because they do not cover me for anything ...... I pay for everything.

    I am very happy with what I get on my pension .... I live better than where I was working and earn good money in Sydney .... now I have no worries, Happy and having great times
    Cowboy Jim
    7th Mar 2019
    6:00pm
    Long may your happiness continue, Aussie. If I was younger I might think of doing something similar. Have been to the places, alas, they are all in Asia. I would prefer Tahiti, Noumea, possibly the Canary Islands or Madeira. And those places are dearer than Aussieland and the flights back are costly.
    Aussie
    7th Mar 2019
    8:19pm
    Sorry to disappointing you mate but thanks a lot ......... I am 75 and still rolling very well my kids are the same they all healthy and going very well but they think I am crazy ..... well maybe I am but they all agreed with my happiness and we travel together from time to time ..... I am having a great retirement with just the basic pension ,,, Thanks for your comments

    I do Asian only and return cost me about AU$600 +- from Bali Thailand Vietnam Cambodia etc etc easy to save after a few month ... no worries
    Mikko
    9th Mar 2019
    9:14am
    Gee, surprise, surprise ... no mention of Labor's planned changes ... turning a blind eye when they are likely to be the next government and hit low income retirees with the removal of dividend imputation credits. Even people who become pensioners after their cut off date in March 2018 will be hit, and that's not taking their restrictive changes to negative gearing and 50 %increase in Capital Gains Tax into account.


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