Andrea Slattery

The Government’s decision to again delay the introduction of the promised Superannuation Guarantee (SG) increases highlights the need for superannuation to be removed from the short-term political cycle, says SMSF Professionals’ Association of Australia (SPAA) CEO/Managing Director Andrea Slattery.

The decision, announced yesterday after the Government reached agreement with the Palmer United Party in the Senate, will put the current SG levy at 9.5% on hold until to 30 June 2021, when it will increase by 0.5 percentage points until it reaches 12% in 2025.

It reverses the Government’s announcement, made in the May Budget, to freeze the SG at 9.5% until 30 June 2018, and on 1 July 2018 to resume increasing it by 0.5% increments until reaching 12% in 2022-23.

Slattery says: “What this decision highlights is the urgent need to have an informed debate about measuring the long-term budget cost of superannuation and what is considered an adequate income for retirement, especially when it’s considered that people are now living, on average, into their mid-80s.

“In its submission to the Financial System Inquiry (FSI), SPAA recommended that major superannuation policy decisions be removed from the annual budget cycle and instead be subject to a five-year review as part of the intergenerational report. In light of this decision, the acceptance of that recommendation is more imperative than ever.”

She says the Government’s decision to make this short-term fiscal decision came at the expense of the long-term retirement goals of the Australian people.

“By linking the abolition of the mining tax with the decision to freeze the SG for seven years, the Government is again demonstrating that dipping into the superannuation ‘piggy bank’ is always an option when difficult fiscal decisions have to be made.

“SPAA was critical of the Budget announcement in May to delay the SG levy until 2018, and now Australians will suffer a further blow to their rightful ambitions to be self-sufficient in retirement.

“Moving the SG rate to 12% as quickly as possible was an important measure to ensure that Australians had adequate balances in their superannuation funds on reaching retirement.

“But this decision only works to undermine the public’s confidence in the superannuation system that’s the key plank to their long-term retirement planning,” she says.

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John Brogden

The Financial Services Council has calculated that working Australians will have $128 billion less in their superannuation savings by 2025 due to the delay of 12 per cent superannuation guarantee charge for seven years.

This follows the government’s revised schedule for the SGC to enable the repeal of the Mining Resources Rent Tax.

John Brogden, CEO of the FSC said: “It is very disappointing that the government has again slowed the increase in the Superannuation Guarantee to 12 per cent.”

“We are concerned it could exacerbate the nation’s low savings rate and that costs will be passed on to future generations.

“Australia has a savings gap of $727 billion.  The delay of revised schedule would result in a widening of the gap as Australians will have $128 billion less in superannuation contributions by 2025.”

Superannuation is significantly reducing the pressure on the Federal Budget.  This year it will save the government $6 billion in Age Pension costs. If it continued to 12 per cent at the current schedule, this would be $11 billion per annum by 2030.

“Australians are living longer and need to plan for their retirement with certainty.”

“With increasing the financial pressures of an aging population, now is not the time to slow down on superannuation.”

“The changes announced will reduce the likelihood that people can retire comfortably and that the costs of an aging population will be passed on to the next generation.

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“Minister Shorten is to be congratulated for taking what we consider to be a very important step forward,” said AFA CEO Richard Klipin. “In moving for the Superannuation Guarantee (SG) to be lifted to 12 per cent, the Government is helping Australians better prepare for retirement and relieving what had the potential to become a crippling tax burden for taxpayers.”

Minister Shorten today introduced legislation into the House of Representatives to increase the superannuation guarantee to 12 per cent.

“Minister Shorten has identified what the financial advice community has been highlighting for years – that while currently only three million people in Australia are over the age of 65, by 2050 the number will have more than doubled to around 8 million,” Mr Klipin said. 

“That represents a population top-heavy with people who have retired from the workforce, which will put a huge tax burden on the country.  Measures that relieve that burden, such as increasing the SG to 12 per cent, and which will also provide the superannuation account balances they need in order to live in dignity in retirement are welcome,” he said.

Mr Klipin said financial advisers are well-positioned to help people deal with larger superannuation balances and work with them to meet their retirement goals.

“What we know from our Back to Basics research is that people who are in an advice relationship are not only better off financially, but are happier, more engaged with their finances and have a feeling of certainty and control over their financial future,” Mr Klipin said.

“An increase in the Superannuation Guarantee means that Australians will have larger superannuation account balances. Financial advisers have the skills, knowledge and experience to help people to make the right decisions about their superannuation and better prepare for retirement.”

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“This would be great news for working Australians as AustralianSuper research shows that increasing the super guarantee to 12 per cent means the average Australian worker will be able to afford a more comfortable lifestyle in their retirement.

“For example, for a 20 year old earning $40,000 a year, an increase from 9 per cent to 12 per cent SG could mean over $90,000* more when they retire,”* Mr Silk said.

The Federal Government has announced that the recommendations of a review into its mineral resource rent tax had been accepted.  The new mining tax laws, which will see coal and iron-ore miners pay a resources tax, are expected to go to parliament by the end of the year.

“If passed, this would see the industry closer to that 12 per cent Super Guarantee.  This would make a substantial improvement to most people’s retirement living standards and the nation’s overall wealth,” stated Mr Silk.

“We are very supportive of the government’s commitment to increasing the SG to 12 per cent and encourage them to make this a reality sooner rather than later.”

According to Mr. Silk, certain proposals from the Government’s FoFA reforms will also play an important part in benefiting the community.  Elements such as annual opt-in and a ban on all volume based remuneration will assist all sectors of the industry to operate in the best interests of its members.

“It is essential that the industry supports these reforms, as they are in the best interests of all Australians and will help to build public trust in the investment industry,” explained Mr. Silk.

“We also urge MPs of all political hues to enact these reforms when the time comes as a matter of utmost national importance.”

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Currently, it is only compulsory for employers to make the Superannuation Guarantee payment until a worker turns 70. The Federal Government has promised to raise the Superannuation Guarantee age limit to 75, however, this latest Bill calls for the removal of the age limit altogether.

 This is a welcome announcement that, if implemented, would remove an inconsistency in the tax system that unfairly disadvantages mature-age workers,” FPA General Manager, Policy and Government Relations, Dante De Gori said.

“We should be encouraging a savings culture and providing incentives to defer the age pension by allowing individuals who are still working to receive Superannuation Guarantee entitlements offered to all other working Australians and to contribute to superannuation beyond the age of 75.”

We call on the Federal Government to support this Bill and the abolition of a Superannuation Guarantee age limit.”

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John Brogden, CEO of the Financial Services Council, said the decision to double the concessional contribution cap to $50,000 for individuals aged 50 and over with balances below $500,000 would go a long way to delivering Australians an adequate retirement.

“Raising the contribution caps recognises that many people have the capacity to increase their superannuation contributions in their 50s and should not be discouraged from doing so,” Mr Brogden said.

“This measure, combined with the Government’s commitment to increase the Superannuation Guarantee to 12 per cent, will help address Australia’s $897 billion retirement savings gap as well as the pressures associated with an ageing population.”

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John Brogden, CEO of the Financial Services Council, said the findings highlighted the urgency of increasing the Superannuation Guarantee (SG) from 9 per cent to 12 per cent.

“The research shows the longer we delay the move to 12 per cent superannuation, the greater the cost for working Australians,” Mr Brogden said.

The research (undertaken by Rice Warner Actuaries for the Financial Services Council) provides a snapshot of Australia’s progress as a nation towards funding a comfortable retirement. The retirement savings gap is the difference between what is actually being saved through superannuation and what is needed to sustain a comfortable lifestyle after ceasing work.

“An adequate annual retirement income is defined as 62.5 per cent of a person’s last salary. Our research shows 9 per cent superannuation will fail to provide the population with their expectations of a comfortable retirement,” Mr Brogden said.

“The Superannuation Guarantee needs to be at least 12 per cent – this, combined with the Government’s plan to raise the concessional contribution caps for those nearing retirement and the SG age limit, would provide a 30-year-old on average weekly earnings with an additional $108,000 in their superannuation account on retirement.

“Increasing compulsory superannuation also has significant benefits for the Australian economy and the Budget. Higher savings would reduce Australia’s reliance on international investment, lower the current account deficit and ultimately provide a cheaper and more stable pool of funds for Australians to draw on.

“Higher contributions would also lower the tax burden on working Australians as the population ages by reducing the draw on the Age Pension.

“Parliament must support the rise to 12 per cent superannuation if Australians are to enjoy a comfortable retirement,” Mr Brogden concluded.

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