ASFA admits superannuation system is unfair

The superannuation industry has displayed a rare glimpse of honestly, with the Association of Superannuation Funds of Australia (ASFA) – the peak policy, research and advocacy group for superannuation funds – admitting that Australia’s superannuation system is grossly unfair in that it provides the greatest concessions to those that need it least: high income earners.

In its pre-Budget submission, ASFA has called for lower superannuation tax rate for people who earn between $37,000 and $45,000, and higher tax for those at the top of the income scale. It also says superannuation accounts with more than $5 million should be moved out of the super system:

ASFA accordingly recommends that the low-income superannuation tax offset should apply to individuals with taxable income of up to $45,000…

The RIR [Retirement Income Review] Report observed that high-income earners enjoy a greater share of the tax concession in relation to concessional contributions. Because tax on concessional contributions is levied on the superannuation fund at a flat rate of
15 per cent, those members on higher marginal tax rates enjoy a greater tax concession than those members on lower marginal tax rates.

Division 293 tax is an additional 15 per cent tax on concessional contributions that effectively reduces the tax concession on contributions for high income earners…

There are equity grounds, identified by the RIR, for adjusting settings applicable to those with higher incomes and/or high account balances. In this regard, ASFA considers that equity across the system can be improved through a modest reduction in the Division 293 threshold from $250,000, removing indexation of the transfer balance cap and removing balances above $5 million from the concessionally taxed superannuation system.

Superannuation is about ensuring people are comfortable in retirement, it is not about facilitating excessive wealth transfers.

However, ASFA still maintains that the superannuation guarantee (SG) should be lifted to 12% from 9.5% currently:

For many Australians the increase to 12 per cent SG is essential to offset the financial loss from super withdrawn under the COVID-19 early release scheme…

ASFA considers the legislated change in SG needs to go ahead as scheduled on 1 July 2021 with full implementation by 1 July 2025.

It is good to see ASFA acknowledge that the superannuation system is grossly unfair. This is illustrated clearly by the below Treasury chart showing that high income earners receive the lion’s share of concessions and more taxpayer support than low income earners on the full aged pension:

The Australian Bureau of Statistics has shown similar inequity:

In 2017-18, total household superannuation benefits received was $112,009m. Households in the highest income and net worth quintile received 47% and 74% of total household superannuation benefits, by comparison households in the lowest income and net worth quintile received 3% and 2% of total household superannuation benefits.

Lifting the SG to 12% would obviously make the above inequity even worse alongside increasing the cost to the federal budget.

An simpler solution to improve equity and budget sustainability would be to scrap the planned increase in the SG and instead replace the 15% flat tax on contributions/earnings with a flat-rate refundable tax offset (e.g. 15%):

 

This way, everybody that contributes to superannuation would receive the same tax concession, the system would be made progressive, and lower income earners would get a better deal.

However, implementing the above reforms would also deprive the super industry of additional funds under management and the opportunity to earn fatter fees.

Therefore, the industry continues to lobby for an increase in the SG to 12%, despite its adverse impacts on wage growth, the federal budget and inequality.

Unconventional Economist
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Comments

  1. You say: “However, implementing the above reforms would also deprive the super industry of additional funds under management and the opportunity to earn fatter fees.”

    However you contradict yourself yourself in quoting from the ASFA report: “In this regard, ASFA considers that equity across the system can be improved through a modest reduction in the Division 293 threshold from $250,000, removing indexation of the transfer balance cap and removing balances above $5 million from the concessionally taxed superannuation system.”

    ASFA apparently says more on that “modest reduction” too: “The lobby group wants “a modest reduction” in the Division 293 threshold – the level at which super contributions are taxed at 30 per cent rather than 15 per cent.

    At the moment it kicks in at $250,000. But although Dr Fahy said ASFA had not yet identified an appropriate threshold, he noted that the top marginal tax rate kicked in at $180,000 a year, a figure that was closer to $200,000 when fringe benefit considerations were added in.” and,

    “ASFA also targeted high-value accounts, saying that amounts above $5 million ought to be moved out of the superannuation system.
    “The Retirement Income Review identified 11,000 super accounts with more than $5 million and moving them out of super means [the account owners] would have to pay tax at their marginal rate,” Dr Fahy said.
    ASFA also called for the removal of the indexation of the cap beyond which tax-free pensions can no longer be paid.
    That transfer balance cap, as it is known, is due to rise from $1.6 million to $1.7 million in July.”
    https://thenewdaily.com.au/finance/superannuation/2021/02/11/asfa-super-tax-concessions-listo/

      • Numerous SMSFs also pay for advice from and have funds managed by genius finance grifters from the same institutions used by numerous pooled super funds.

        Take the present case, for but one example of funds that can be invested in either APRA regulated pooled super or ATO regulated SMSF with Nucleus Wealth / MB Fund. That’s an in house example. Others are through shared layered institutional associations. Follow the money to find ultimate beneficial owners of those institutions, eg large financial institutions, banks, etc

  2. “…This way, everybody that contributes to superannuation would receive the same tax concession, the system would be made progressive, and lower income earners would get a better deal.
    …Therefore, the industry continues to lobby for an increase in the SG to 12%, despite its adverse impacts on wage growth, the federal budget and inequality.”
    You apparently are not in touch with how tax works in with the SG at the low income end, and hold fuzzy ideas that wages for all not just a few have grown and may continue doing so.

    https://thenewdaily.com.au/finance/2021/01/07/michael-pascoe-superannuation-guarantee-increase-wages/
    $1 super levy increase worth 12.5% more than $1 wage rise, in worst-case scenario

    https://thenewdaily.com.au/opinion/2021/02/12/michael-pascoe-wages-hope/
    Australians surrender wages hopes

    • “$1 super levy increase worth 12.5% more than $1 wage rise, in worst-case scenario”

      By that logic you should put all your money in super and have no wages, due to completely disregarding the fact that money in hand now may actually have more use than money that can’t be accessed for 40 years.

      • You kid yourself. Your hyperbole isn’t logic.

        And, “If it really worked out to be the same or even better for employers if the SGL is increased, do you think Wilson, Bragg, Falinski & Co would think it’s worth campaigning about?”

  3. Still haven’t answered the question Leith……..?

    Why is the concessions chart you put up last week so different to this one? It appears to be based on more recent modelling yet you continue to default to this older, more dramatic one? Why?

  4. Jumping jack flash

    Pfft. Super.

    At the halfway mark i have about 2 or 3 at most average yearly wages saved up to last me 20 years.

    I think my “growth” account is currently returning -1% before insurance premiums are taken out…
    My cash account is only earning what i put in, but at least it isnt losing anything, so there’s that i guess.

    If allowed to i would withdraw the lot and put it into houses but i dont have enough for that to make any sense.

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