The conga-line of commentators urging the Coalition to pass its superannuation reforms in full has just got longer, with the Actuaries Institute backing the $500,000 cap on post-tax contributions. From The AFR:
Mercer partner Guy Thornburn and Rice Warner consultant Nathan Bonarius told The Australian Financial Review they hoped discussions about how to manage the transition to the new rules did not derail the implementation of the broad reform package.
Mr Thornburn said that “on the whole” the suite of changes to the super rules announced in the federal budget in May were “good policy”.
“The government has announced a raft of changes that make the super system more fair, flexible and sustainable,” he said…
Mr Bonarius said the government was right to include contributions from previous financial years when implementing the cap.
“If they hadn’t, many wealthy people would immediately contribute $500,000 and accumulate an even larger balance, which would be unfair to younger generations,” he said.
The Grattan Institute’s John Daley also strongly supports the $500,000 cap:
A $500,000 lifetime cap on post-tax contributions would also help to align super tax breaks with the Government’s stated objective for superannuation: to supplement or substitute for the age pension. In reality, after-tax contributions do little to increase retirement savings. Instead, most people who make them already have large balances and typically contribute from existing pools of savings in order to minimise their tax…
Critics who say the $500,000 lifetime cap is too low usually neglect to mention that someone who has already made post-tax contributions of more than $500,000, are so well off they are very unlikely to qualify for an age pension. $500,000 is more than 95 per cent of taxpayers have in super right now. Even in a mature super system, where workers contribute at least 9 per cent for their working lives, most people will retire with less than $500,000 in super.
Accounting for post-tax contributions made in the past – in this case since 2007 when reliable records are available – helps to target the reforms. The alternative of grandfathering the $500,000 cap so it applies only to new contributions would lock in the excessive generosity of the former Howard Government’s 2006 super changes. Younger generations, on the wrong side of the drawbridge , would lose out having paid higher taxes to fund benefits for older generations.
In just the last week, we have seen a disparate group of commentators line-up in favour of super reform, and against any weakening of the Coalition’s package. In addition to the actuaries and Grattan Institute referenced above, these also include the Australian Council of Social Services and the Councils on the Ageing.
In short, there is no policy justification for Malcolm Turnbull to kowtow to the loony right in the Coalition and water-down its superannuation reform package.
