The Self Managed Super Fund Professionals’ Association (SPAA) has today called for tax reforms including an increase in the annual concessional superannuation caps and a solution to the problem of excess contributions tax on superannuation.
SPAA CEO Andrea Slattery, an attendee at this week’s Tax Forum, said both measures are critical to help Australians save for retirement, reduce reliance on the aged pension and restore confidence in the superannuation system.
Prime Minister Julia Gillard acknowledged at the forum that an important message is the ageing population and what our dependency ratios mean for Australia’s future well-being.
“The SMSF sector is characterised by taxpayers who largely look after themselves. This group includes the self-employed, small business owners, professionals and primary producers and, as a consequence, they are the least likely to look to Government for support in retirement. SPAA believes the review of Australia’s Taxation System should recognise this and ensure that any proposed changes encourage the community to reduce reliance on government support in retirement,” said Andrea Slattery, SPAA CEO.
“In particular, any proposed tax changes should be tested against whether they might act as a disincentive to save for retirement,” Mrs Slattery said.
In its Tax Forum Statement of Reform Priorities, SPAA called for an increase in the annual concessional superannuation cap to allow people who, at various stages in their life, have greater capacity to save for retirement, the opportunity to do so. SPAA proposed that the standard concessional contribution caps for those aged over 50 be raised to $35,000 in the short-term, and that further research be undertaken to validate the level of contributions which achieve the appropriate balance between equity and adequacy. This research should also be used to validate the overall budgetary cost of the three-pillared architecture of Australia’s retirement income system in terms of the increased reliance on the age pension should the level of the contribution limits remain low.
“In SPAA’s view, the current, excessively low concessional contribution cap represents a significant barrier to voluntary savings under pillar three (voluntary savings) of our three-pillared retirement income system,” Mrs Slattery said.
“We acknowledge the budgetary cost of increasing the standard concessional contribution cap by $10,000 to $35,000 for those over age 50, however, we believe the cost to revenue would be partially offset by the cost savings of not increasing the cap to $50,000 for those with $500,000 or less in super, as proposed by the Government. In any case, the Government should give consideration to a modest increase in revenue cost acknowledging the strong appeal of the longer-term administrative/communications efficiency gains that this approach would produce.”
“We note the latest ATO statistics which show that more than $300 million of excess contributions tax has been collected by the ATO since 1 July, 2007. The severity and manner in which this tax is imposed is one of the most significant issues confronting consumer confidence in the superannuation sector and the level of voluntary superannuation savings, particularly when a significant majority are low to middle income earners,” Mrs Slattery said.
In terms of broader tax reforms which may encourage voluntary retirement savings, SPAA advocates the removal of disincentives for those aged 65+ who wish to continue contributing to superannuation. In particular, SPAA believes the superannuation work test for individuals over 65 should be removed, allowing people up to age 75 to continue contributing to superannuation irrespective of their employment status and the extension of the three year bring forward rules till the same age.
Finally. SPAA has underlined its support for an increase in the Superannuation Guarantee to 12% and the introduction of a contributions tax rebate for low income earners as proposed.