Australia’s superannuation sector has been radically reformed in the past two years.
While the Coalition has no plans to make further significant changes, if – as the polls indicate – Labor comes to power in the next few months, super will face another shakeup.
Late last year, Labor leader Bill Shorten released new superannuation policies. They have a distinctly progressive flavour and aim to help low-income workers, while hitting those with the bucks to build big balances.
These have been pared back in recent years, but under a Labor government they would be reduced again. Labor plans to cut non-concessional (after tax) contributions from $100,000 a year to $75,000, which would prune the super ambitions of those with large wads of cash available.
Currently non-concessional contributions are banned once a member account reaches $1.6 million, and this will not change under Labor.
Labor would also scrap a new measure allowing catch-up concessional super contributions when caps have not been fully utilised in the past. The rule allows people to contribute up to five years’ concessional payments in one year once in their lives.
Currently the concessional cap is $25,000 regardless of your income, so Labor’s policy would prevent up to $125,000 of catch-up contributions for those who could afford to make them.
High-income earners tax
Currently anyone earning $250,000 or more is hit with a tax surcharge, meaning they pay 30 per cent tax on their super contributions instead of 15 per cent. Labor wants to reduce the threshold to $200,000.
As this chart shows, the tax significantly cuts the concession to high- income earners.
Labor’s policies aim to make super less of a tax strategy for those who can already afford a comfortable retirement. It aims to reduce the taxation benefits for the top 20 per cent of income earners who currently earn about 55 per cent of total super tax concessions and so make the system fairer.
Phase out super payment thresholds
Currently people earning less than $450 a month fall out of the super net because their bosses are not required to pay them superannuation. If Labor is elected it will phase out this threshold over five years, cutting it by $100 per year to bring low-income, part-time workers into the super system.
Some business commentators have opposed the change, saying it will be too complex for employers to manage. However, Deloitte superannuation expert Russell Mason took the opposite view.
“The current system is administratively messy as many people work two or three jobs in areas like retail and employers have to try to work out whether they earn more than the threshold. Scrapping the threshold would end that,” Mr Mason said.
Super for parental leave
Currently when people take parental leave they don’t receive super contributions while they are off work. Because women take the lion’s share of parental leave, their super balances are hit, with women currently retiring with balances 57 per cent of the average male level.
Labor plans to extend super contributions to parental-leave payments, a measure that will cost $400 million over four years.
Cashing out dividend imputation credits
Currently those getting company dividends can receive extra cash payments from the Australian Taxation Office if their tax bill is less than the 30 cents in the dollar that companies pay in tax. The result is that wealthy people with large super balances can get a full refund of 30¢ in the dollar of company tax because their super funds are in pension mode and deliver them tax-free income.
Labor has pledged to scrap that for investors who are not on some kind of welfare benefit, a measure it claims will save $11.4 billion from the budget over four years.
What the commentators think
Mr Mason supports scrapping the $450 monthly super threshold and extending super guarantee payments to parental-leave recipients. Ending imputation credit cash-outs, he says, will have a negligible effect on large pooled superannuation funds, but will hit self-managed super funds mainly used by wealthy people.
Most recent figures show that SMSFs had average balances of $621,000 compared with around $51,000 for pooled funds.
However, he saw measures to reduce contribution caps as a negative that would reduce the ability of retirees to become self-sufficient.
Paul Versteege, policy chief at the Combined Pensioners and Superannuants Association, said he supported contribution-cap cuts because they would better target tax concessions to low- and middle- income earners.