The purpose of superannuation is to increase retirement savings, support lower-income workers and eventually reduce reliance on the taxpayer-funded Age Pension.
Sadly, super has, so far, not lived up to these expectations.
In fact, 68 per cent of retired Australians still rely on the means-tested Age Pension.
Super has not been the saviour many predicted.
“Many of us look to superannuation with enthusiasm as we believe this will pad our ability to be financially independent when retirement comes,” policy researcher for the Australian Taxpayers’ Alliance (ATA) Xin Yuan Quek told Spectator.
“There are many drawbacks to our superannuation system that will prevent us from achieving this goal.”
Tax on super contributions may be the main factor holding the pension system back from its intended purpose, she says.
The ATA blames the 15 per cent tax rate on interest, along with high returning superfunds and compound interest over a lifetime, for the average worker retiring with 25 per cent less money in their super.
Australians are mandated to pay taxes on compulsory contribution and investment earnings. And anyone below the preservation age (55) is also taxed on withdrawals. This tax on superannuation erodes super funds over time and is a major reason for the shortfall in many nest eggs.
Read more: Call to tax retirees’ super income
The tax advocacy group says this ‘unnecessary’ tax cost means many Australians will retire with just 54 per cent of their working income, diminishing the prospect of retiring comfortably.
If the tax on contributions were scrapped, a worker would be able to retire on 73 per cent of their working income – more in line with what many experts say is the ideal income for a comfortable retirement.
And that’s not all.
Super funds also charge fees such as administration fees, investment management fees and many others. Then add penalties for late contributions and not supplying seemingly mundane information and, over the years, it all adds up.
“These fees and penalties are unhelpful in accumulating savings and the tax on superannuation only serves to line the pockets of politicians,” says Ms Quek.
“The government clearly sees it as a money maker that funds its activities and fuels politicians’ wasteful spending habits. It is no surprise superannuation has not alleviated the cost of living for retirees.
“It claims to aid in our welfare, but ironically fails to take our welfare into consideration.”
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And these taxes are hurting us more than protecting us, she adds.
“The triple taxation of superannuation doesn’t serve anyone well. The federal government only collects $12.9 billion per year in super taxes and yet they must pay out over $50 billion in the means-tested Age Pension,'” she says.
“Superannuation is just another tax that buys the trust of Australian taxpayers with false promises of social security and other benefits.”
Most Australians have become inured to paying taxes on super, including contributions, investment earnings and withdrawals, as well as potential fines and penalties.
The ATA research findings highlight the glitches in the system as well as how immune Australians have become to the government taxing their super and investments.
“The superannuation scheme is merely a wolf in sheep’s clothing, robbing taxpayers of financial independence on the pretence of caring for retirees,” she concluded.
“[This paper] serves to remind us of the failings of this system and fight for positive changes to these policies. We may get taxed to death if we don’t.”
How much are super taxes costing your retirement? Why not share your thoughts on super taxes in the comments section below?
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