Labor sends wrong message with focus on taxing earnings in the pension phase

The Labor Party seems locked on to the idea that taxing earnings above a certain level in the pension phase is a potentially good revenue source, says Olivia Long, CEO of the SMSF administrators Xpress Super and SuperGuardian.

“Superannuation should not be about raising government revenue; it is about retiree savings and security.

“Labor’s proposal of a 15% tax on earnings at and above $75,000 in the pension phase looks like back-of-the envelope numbers, and assumes the tax will only kick in for those with super balances of at least $1.5 million.

That is expected to affect about 60,000 people and the supposed “kick” to revenue, estimated at $1.4 billion a year, is nothing better than speculation.”

Ms Long says that last year (2013-14) the average APRA fund enjoyed a double digit return (about 12%), and since the inception of compulsory superannuation in 1992, the average fund return has been about seven per cent, so obviously people with super balances well below $1.5 million will be affected.

“The seven per cent return means the funds under management needed to generate a $75,000 income stream drops to a tad below $1.1 million , hardly enough for a retiree to live a life of luxury, especially when the average life expectancy is now in the mid-80s and rising.”

Long says that Labor has not paid sufficient attention to other issues.

“Many SMSF trustees place their business premises in the fund as their retirement nest eggs – should they have to suffer the 15% tax regime if they generate a high return one year with a one-off sale of property assets?

“In addition, changes in tax obligations will force people to find other ways to invest for their retirement (and in retirement) outside superannuation if they think it will minimise their tax.”

Long says that the super industry, more than ever, needs stability.

“There have been over 66 reviews and reports impacting on superannuation in the past 13 years, and the thought of even more changes only creates lack of confidence among retirees and the investment community.

“A key recommendation of the Financial System Inquiry was for all participants to finally determine superannuation’s principle objectives, and only after achieving that should specific issues such as tax concessions be considered.

“Labor would be better served by clearly outlining the principles it wants to underpin the system instead of isolating some supposedly easy tax pickings, creating more fear and confusion.”