The Australian superannuation industry just won’t stop lobbying against reform to the concessions system.
A few weeks back, following the release of Deloitte’s “circuit breaker” on superannuation reform, which estimated that the Budget could save $6 billion per year if the 15% flat tax on superannuation concessions was replaced by a 15% flat deduction in which every income earner would receive the same concession, Pauline Vamos of the Assocation of Super Funds of Australia (ASFA) lobbied against reform:
PAULINE VAMOS: It is broadly equitable, because people who do collect their bit of amount in their super end up not being on the aged pension.
TOM IGGULDEN: And she says making large changes to the system like those proposed by Mr Richardson could have unintended long-term impacts.
PAULINE VAMOS: The cost of delivering the pension is much higher than the super tax concessions but that’s going to be nothing in the future compared to the cost of delivering health care. So let’s look at health care, aged care, the aged pension and super through the modelling of that and then make the changes…
Any budget savings is going to be very attractive for any government, but the last thing we want in the community is short-term revenue to displace good long-term policy.
Then yesterday, Industry Super Australia (ISA) released modelling to the Turnbull Government claiming that workers would be worse-off under Deloitte’s proposed 15% progressive concession, and instead called for a 25% concession.
Today, the Self-Managed Super Funds Association (SMSFA) and the Financial Services Council (FSC) have warned against cutting super concessions because it would increase reliance on the Aged Pension:
The Turnbull government would save nowhere near as much from cutting super tax concessions as Treasury figures suggest, the financial industry has warned.
It says if super tax concessions are cut, more people may be forced onto the full pension, which would cost the budget more…
The Financial Services Council and the Self-Managed Super Funds Association have both called on the Turnbull government to provide Treasury with more resources so it can generate more realistic analyses of the costs and benefits of Australia’s super tax concessions…
Andrea Slattery, the SMSF Association chief executive, said those figures make it seem as though the government could make significant revenue gains simply by cutting them.
She said those figures took no account of the way super tax concessions reduced pressure on the age pension.
“Treasury has shown that when using a [different measurement] the cost of the superannuation tax concessions fell from $32 billion to $11.24 billion in 2013,” Ms Slattery told a House of Representatives committee this week…
“In this calendar year, the super system accounts for about $7 or $8 billion in reduced aged pension outlays,” [FSC’s] Mr Bragg said.
While the call for better data and analysis is sound, how can the industry seriously defend a system that allows those on high incomes to collect a huge concession on their superannuation contributions/earnings, meanwhile those on the lowest incomes are penalised (see below table)?
The inequities of the current system were laid bare by Mercer and the Australian Institute of Superannuation Trustees, which published research estimating the total amount of government support in retirement a person receives over their lifetime across 10 categories of income, taking account of both the Aged Pension and superannuation tax concessions.
According to this analysis, the top 10% and top 1% of income earners receive more government retirement support than the other 90%:
As for super relieving pressure on the Aged Pension, has the industry not read the Intergenerational Report? It projected that reliance on the Aged Pension would be little changed by 2055 [my emphasis]:
In 2013-14, around 70 per cent of people of Age Pension age were receiving the Age Pension. Of these, 60 per cent were in receipt of the full-rate pension. As Australia’s superannuation system matures, and compulsory contributions increase, many Australian workers will retire with much larger superannuation balances. The proportion of part-rate pensioners relative to full-rate pensioners is expected to increase. The proportion of retirees receiving any pension is not projected to decline.
Some system, hey? Despite a lifetime of compulsory contributions, the superannuation system is not projected to significantly reduce reliance on the Aged Pension. Sure, there would be less people on the full Aged Pension and more claiming the Part Pension, but not nearly enough to justify the huge and growing costs to the Budget from superannuation concessions.
The above factoids tell us that the current super concession system is out-of-whack with far too much support going to those who least need it and would never be reliant on the Aged Pension anyway (i.e. high income earners), and not nearly enough concessions going to those that do (i.e. low income earners). Deloitte’s proposed reform obviously helps to overcome this issue, while saving the Budget an estimated $6 billion a year.
In the end, the industry’s incessant opposition to Deloitte’s sensible changes to superannuation concessions reek of self-interest. Many in the super industry want the status quo to remain so that they can continue to ‘clip-the-ticket’ and earn huge fees on funds under management. Alternatively, they want a progressive system to be implemented, but at a much higher level than 15% (ISA wants 25%).
Either way, it is the taxpayers that will pay to line the industry’s pockets.
