The Association of Financial Advisers (AFA) is calling for an amnesty on making changes to the taxation of superannuation in next month’s Federal budget in order to restore consumer faith in the Australian retirement system.
The call comes in response to reports from AFA members of a significant increase in client concern following speculation around increasing the tax rate on superannuation contributions in this year’s budget.
“Our members indicate that the speculation is driving high levels of anxiety amongst those of their clients who are trying to fund their own retirement and avoid the need for future government handouts,” AFA President Michael Nowak said.
“Continuing speculation over the last few months and the recent ramp up in media speculation about the issue are seriously dangerous for the superannuation system and this anxiety is impacting people at all income levels.”
Mr Nowak said that if Governments want more people to fund their own retirement, consumer confidence in superannuation must be strengthened rather than undermined.
“If consumer confidence falters, Australia will have nothing more than a mandatory superannuation system which offers insufficient incentive for additional voluntary contributions,” he said. “For many people, mandated savings are unlikely to support a comfortable lifestyle in retirement.”
While the speculation includes reducing the income level at which a higher contributions tax kicks in, Mr Nowak said the real problem is the message being sent to consumers.
“The 2012 introduction of an increase in contributions tax (an extra 15% for people earning more than $300,000) coupled with the potential further change to this threshold in 2013 begins to create a pattern of policy change. Consumers are concerned there is a very real risk the threshold will be further reduced in coming years.”
Mr Nowak also rejected concerns raised recently about the sustainability of Australia’s superannuation system, referencing recent Mercer research which suggests that current tax concessions on superannuation in Australia are not generous when compared to retirement systems in eight other countries, which are considered to have the best pension systems in the world.
“It’s important to also remember that of the nine countries included in the research, Australia is the only country with a tax on contributions.”
The AFA called for a long term, bi-partisan approach to ensure certainty around the future of superannuation.
“That starts with not increasing the taxation of superannuation in the May budget,” Mr Nowak said.