Paul Howes on superannuation: a central and sacrosanct pillar of retirement

Paul Howes, Partner, Head of Wealth Management
Paul Howes, Partner, Head of Wealth Management

Superannuation is a central pillar in Australia’s retirement incomes system. If it wasn’t for the deferment of wages into compulsory retirement savings, meeting the challenges facing an ageing population would be almost impossible.

It is crucial that politicians remember this. With Australia’s growing budget deficit, it is understandable that policymakers eye the $2 trillion superannuation pool of funds under management (FUM) covetously.

But there are some other figures that are equally eye-catching. In 1975 there were 7.3 workers to every pensioner in Australia.  By 2015, it was 4.7, and by 2055 it will be 2.7. By that time, two million Australians, or 5 percent of the population, will be aged 85 or over.

So tempting though it might be for some in Canberra to see the FUM as a potential sovereign wealth fund, I believe it is crucial that the compulsory nature of super contributions and their exclusive use for the provision of retirement income for Australians is maintained.

The government’s proposal to enshrine the purpose of superannuation into legislation as being to provide Australians with a decent retirement income is sound. In our submission to the Treasury on the objective of superannuation, we strongly support it, and argue that this clarity of purpose should aid both consistent policy delivery and industry development of additional retirement products and services to retirees.

But we have also made a series of proposed changes to make the superannuation system fairer and stronger.

These include:

•    Reducing the annual income threshold at which the 15% tax rate applies to
concessional super contributions
•    Cutting the existing annual non-concessional contribution cap from
$180,000
•    Restricting the ability to bring forward 3 years’ worth of
non-concessional contributions
•    Introducing measures to provide greater flexibility for contributions to
personal retirement savings for owners of SMEs
•    Introducing limited exemptions from capping arrangements to allow low
income earners and those who have broken work patterns – often women – to boost their super contributions
•    Expanding the ASFA income adequacy standard to include home ownership and
aged care considerations
•    Reviewing all legislative impediments to the creation of innovative and
comprehensive retirement income products by trustees

The tax benefits associated with concessional contributions need to be more evenly distributed across the Australian workforce. And those who have broken work records and/or low incomes, usually women, need exemptions from the current capping arrangements to help compensate for their reduced contributions. This is both equitable and will boost the productivity of our economy.

Owners of small and medium-sized enterprises also suffer from current regulations, which make it difficult for them to invest both in the business and their own retirement pots. There are limits on subsequent catch-up contributions once the business is more firmly established. We need to help our SME owners, who will be the source of many jobs in the future.

More flexibility is needed in the super regulatory framework if trustees are to be able to create innovative comprehensive income products for retirement (CIPRs), such as annuities. We would recommend a thorough review of any legislative obstacles to the product rationalisation and innovation that is necessary if the government’s objective for superannuation is to succeed.

If adopted, these recommendations, would help achieve the government’s objective of ensuring all Australians receive a decent standard of living in retirement.

Paul Howes

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