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?