Plan to offer super opt-out

Those on low incomes should be able to opt out of the superannuation system according to a pre-budget submission. The proposal would see those earning less than $37,000 have the equivalent of the 9.5 per cent superannuation guarantee paid directly into their salary, effectively giving them a pay rise.

Industry groups (unnamed in the original News Corp report) are urging Prime Minister Malcolm Turnbull to consider the opt-out proposal. Senior cabinet ministers are also calling for Treasurer Scott Morrison to think seriously about the plan, citing the fact that low-income workers will not be able to avoid a reliance on the Age Pension due to inadequate savings.

According to News Corp, a part-time worker who earns $35,000 could receive an extra $63 a week in their pay if the proposal was adopted. From next year, the plan would also save those earning less than the tax-free threshold and who opt out from super contributions, up to $500 a year. This is due to the cessation of the Low Income Super Contribution Scheme under which the Government compensates those who pay tax on super contributions made by their employer despite having no tax liability on their income.

Deputy Prime Minister Barnaby Joyce downplayed the suggestion that the superannuation system should be changed to simply allow people to have more money to spend. Speaking to Sky News, Mr Joyce said the Government wanted people to save for their own retirement.  “We obviously want those who can save to save, and not rely on the pension, because … we’ve got to reduce our expenditure and one of those expenditures, one of the biggest ones when you get your [tax] receipt is welfare payments. Therefore, anything we can do to help people be self sufficient, we should drive that,” he said.

However, Mr Joyce did take the opportunity to flag his own thinking on how the system could be changed. “If people invest that money in a younger age in a substantial capital asset, such as the house they live in, I think that would fit them out well later on in life,” Mr Joyce told reporters.

Not surprisingly, the proposal has been met with disdain from opposing groups, with Labor Senator Doug Cameron telling ABC News Breakfast “I think it’s more panicked stupidity from the Government, if they are proposing this, this is just not a good idea,” he said.

“Lower-income people need every cent they can get in retirement, and they need access to superannuation when they retire.”

CEO of the Association of Superannuation Funds of Australia, Pauline Vamos, said that even a little put away today can make a difference in retirement.  “We need to think about what we need to give up today for tomorrow, and this is what people are not understanding,” she said.

“We have a system who’s [sic] strength is based on [superannuation] being universal.

“We do not have the looming problem that many countries have overseas of people not having enough money in their retirement, and the cost of delivering pensions breaking the Government purse.”

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Opinion: Super opt-out is super folly

I always thought the silly season referred to the Christmas period but it seems that a looming budget also brings out some crazy behaviour.

Australia’s retirement income system is struggling from a lack of identity. Rather than being the vessel to help people save for their futures and have less reliance on the Age Pension and government income support, it has instead become a complex jumble of rules and regulations that is ‘open to interpretation’ by those more than willing to do so for their own benefit. The concessions and beneficial tax treatment of superannuation are being manipulated by those who can pay for clever accountants to do so on their behalf. Yet those who rely on the fairness of the system are, quite frankly, being shafted.

In the changes to the asset thresholds and taper rate scheduled for 1 January 2017, we have seen the Government pull the rug out from under those who have managed to save a meagre amount in assets. The onus is being put on people to plan for their retirement, to fund their own retirement yet we have a system that is subject to change on the whim of an industry group, or a government trying to raise more revenue or cut spending.

In the last few years we have seen this system of saving for retirement undermined by changes in the name of cutting costs and increasing revenue. The halt on the increase of the superannuation guarantee will hurt those relying on their superannuation to fund their retirement. Not only will the increased super contribution be missed but also the positive effect of compound interest. Incidentally, the cost of increased contributions is actually borne by an employer, or those individuals earning enough to be on a salary package, not the Government, so putting a halt on such increases makes little sense. The next change to be implemented is the removal of the Low Income Super Contribution Scheme, which will hurt low-income earners who will now bear the full brunt of tax on their superannuation contributions. 

Superannuation is a great means of saving for retirement if used properly and respected by all. It’s not a pot of money to be dipped into when times are tight, either by the Government or individuals – it’s to stop those tight times pervading your later years. By giving people the option to take their superannuation as extra salary, we are robbing them of the opportunity to not live their later years in poverty. An Age Pension at the current rate is nowhere near enough to fund even a modest lifestyle, so even a few dollars paid into super over the years will be of benefit in retirement. The aim of our superannuation system is to provide a long-term saving vehicle to enable people to be more self-sufficient in their retirement years – let’s keep it that way.

Do you think low-income earners should be able to take their super contributions as a salary payment? Have changes to the retirement system made it less attractive to save for your own retirement? Does the retirement income system need an overhaul? Are you totally confused bye the continual changes to superannuation rules and regulations?

Other articles:

Age Pension to become a loan 

No rise in GST but super in spotlight

Written by Debbie McTaggart