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Reforms get broad tick, but not all are super

Getty

Getty

The raft of superannuation changes unveiled in the budget by Treasurer Scott Morrison have been broadly welcomed by the industry, but concerns remain that some measures do not go far enough.

While welcoming the government’s decision not to abolish the $500 Low Income Superannuation Contribution (LISC) for those earning less than $37,000 a year, Industry Super Australia said much more needed to be done to address the 45 per cent gap in super savings between men and women.

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The ISA also backed the decision to increase the superannuation tax rate for those earning more than $250,000 to 30 per cent, but said low-income earners were still at a disadvantage.

Has the budget gone far enough?

“The budget papers show the government has rightly wound back $4.5 billion in overly generous super tax concessions benefitting high income earners with large super balances needing no help to save for retirement,” said ISA chief economist Stephen Anthony.

“Unfortunately, only $1.5 billion is being re-invested back into the super system and even less will flow to lower income earners. It will help these workers avoid a tax penalty on their super, but it won’t provide a much-needed, proactive annual boost which would keep their retirement savings moving more steadily upwards.”

Cuts to contribution limits

At the same time, Association of Superannuation Funds of Australia’s chief executive Pauline Vamos said the decision to cut the amount that individuals aged under 50 can contribute into their super from $30,000 to $25,000 a year at the concessional tax rate of 15 per cent was disappointing.

ASFA's Pauline Vamos sees positives in many of the changes.

ASFA’s Pauline Vamos sees positives in many of the changes.

“We do not support the reduction of annual concessional caps to $25,000,” said Ms Vamos. “While today less than 2 per cent of people (around 255,000) with superannuation make contributions above $25,000, a significant number of such individuals that have low balances are attempting to catch up. For instance, around 36,000 women with balances less than $200,000 in 2013-14, were making contributions in excess of $25,000.”

This was also a focus for Financial Services Council chief Sally Loane, who said while steps to help women save more for their retirement were welcome, new restrictions on the amounts that can be put into superannuation and cuts to tax concessions post retirement were counterproductive.

“The new caps and thresholds limit the capacity for Australians to save for their own retirement and will restrict retirees to an income of around $80,000 per annum from their superannuation. An $80,000 limit will fail to cover the costs of retirement for many Australians, when you include healthcare, aged care and a comfortable standard of living.”

budget-2016-estimates

The great retirement divide

Meanwhile, while praising many of the measures in the budget as “a necessary step toward a fairer and more sustainable super system”, Australian Institute of Superannuation Trustees chief executive Tom Garcia said more needed to be done, noting changes to the pension assets test next year would be detrimental to many.

retiree man

Most retirees won’t be affected by the government’s latest changes. Getty

Yet KPMG tax partner and superannuation specialist Damian Ryan said there were lots of positives in the announced super changes, which went a long way to defining the objectives of superannuation.

“The measure that surprised us was the introduction of the $1.6 million pension cap, but we welcome it,” Mr Ryan said. “We also welcome the introduction of a $500,000 lifetime cap on non-concessional (tax-paid contributions).

Dr Anthony added: “Industry Super Australia supports the introduction of a $1.6 million cap on the total amount of super that can be transferred into a tax-free retirement account – this will go some way limiting the exploitation of super for tax minimisation and wealth accumulation.”

And AIST’s Mr Garcia said: “This cap will make the super system more sustainable, while also funding other important measures like the LISTO (Low Income Superannuation Tax Offset).”

But Ms Vamos said ASFA would need to do more work to assess the impact of this on retirement incomes.

“While ASFA has previously supported a $2.5 million cap on balances that can be transferred to the tax free retirement phase, the budget proposal for a cap of $1.6 million goes much further. A $2.5 million cap will have an impact on over 50,000 people, and involve additional revenue of under $500 million a year – while a $1.6 million cap will affect more than 100,000 people and result in additional revenue for the government of $1.15 billion by 2019-20.”

Steps in the right direction

Other measures which received a broad tick include the ability for individuals with broken work patterns, primarily women, to contribute up to five years of contributions.

The industry also welcomed improvements to retirement phase products, such as deferred annuities, as an alternative income stream.

However the ISA urged the government to engage constructively with industry to ensure all measures can be implemented efficiently.

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