The Ever Changing World of Superannuation

When compulsory superannuation was introduced over twenty years ago, it was done with a view that people should save for their own retirement and not rely solely (or at all) on the government. The legislation introduced by Paul Keating has largely been a resounding success providing both a carrot and stick approach to ensure people save for their own retirement.

Superannuation does have its problems though. The apathy that a large number of Australians treat their superannuation with is truly remarkable. An account of say $30,000 at age 30 could quite easily grow to be in excess of $350,000 by the retirement age of 67. That’s growth without any future contributions. Even with inflation and assuming we are not talking about Zimbabwean dollars, $350,000 will be a fair slice of money and deserves at least a modicum of attention.

Superannuation also has a major problem in that it is horrendously confusing. Today, Bill Shorten announced a raft of measures that if passed by parliament, will make further amendments to superannuation. Taken on their own, the changes include positive measures for the majority of Australians. However, it is important to realise that superannuation legislation has had more changes than a Paris fashion show since its introduction. The trumpeted increased deductible contribution limit of $35,000 for over 60’s from July 2013 and over 50’s from July 2014 is still well short of what was allowed when the government took power at the end of 2007 and short of the mooted concessions from 2014 of $50,000 in allowed concessional contributions that were proposed in a recent budget. It’s hard not to feel a little cynical when a government strips you of a benefit, gives a little bit of it back and tells you that they are looking after you.

Where the current government is being the most mischievous with their sales pitch is that they say you will need to have a portfolio of $2,000,000 before you will pay any tax. That is using a very crass assumption that super earns 5% each and every year. The reality is some years can be lower and in others significantly higher. What happens in a good year when super can earn 20%? “Working families” with superannuation balances as low as $500,000, which can still qualify for Centrelink support would be in a position where their superannuation earnings are taxed. Are these people on Centrelink benefits the new “fabulously wealthy”?.

I don’t buy into the ”class-warfare” rhetoric trumpeted by the opposition either. Superannuation was never designed to be a tax-free haven for the wealthier Australians to avoid paying any tax. The devil is always in the detail, however my view is the new tax levied on pension earnings isn’t against the spirit of superannuation and shouldn’t discourage the use of superannuation as a vehicle for people to save for their retirement. Superannuation still remains a remarkably attractive option for the majority of Australians to ensure their post-work years are comfortable.

In reality, with strategic planning of your retirement, it may be possible for families to have significantly more than the $2,000,000 of retirement savings, nearly a quarter of a million dollars of earnings and still avoid any taxation. That still looks like an attractive tax concession to me.