In the past 12 months we have witnessed the Government’s progression from an administration doggedly paying lip service to the difficulties facing retiring baby boomers to one that will now participate in the senate inquiry.
While the Government tossed a few more disconnected ‘reforms’ into the legislative pot in the last Budget, perhaps we should all wait just a little longer until the inquiry recommends what needs to be done in a cohesive and thorough manner to ensure both our retirees and the nation as a whole have a secure financial future.
SISFA believes that building an individual’s wealth will ensure a healthy nation. In order to achieve this, our retirement incomes strategy needs to be re-thought in several areas. This requires care, precision, simplicity and a bipartisan approach to make it work well.
The first area is adequacy. It is safe to assume that most Australians feel they need more than the current pension payment in order to comfortably sustain their retired years. Therefore it is important to focus on how increasing super benefits will, in the long-term, reduce reliance on the age pension. To engender a desire for such self-reliance we need to give Australians ownership of and interest in their superannuation. This could be achieved by expanding the compulsory member contributions system, as well as an intensive national public awareness and education campaign.
The second area that should be reformed is the taxation of super and the complexity this confers. The current system of taxing superannuation at three stages is enough to turn anyone off contributing to super. Tax incentives for super must not be considered in terms of the cost to today’s Treasury revenue. What Treasury gives now as a trade-off for assets invested and inaccessible until retirement, will be recouped in a lessening of reliance on the age pension.
SISFA does recognise the equity component of the dreaded surcharge, but maintains it is an inefficient tax. It costs more to collect than it raises in revenue. Instead, we would support a system where super contributions are recorded on the PAYG payment summary, on receipt of which the Australian Taxation Office (ATO) could issue an assessment to the super fund trustee. Contribution limits should be made more flexible, allowing people to make ‘catch-up’ contributions if it appears they will be under funded.
There has been so much ill-considered meddling with superannuation investment rules over the last three years that we now have a system that is overly prohibitive, inflexible and inconsistent.
SISFA supports the fundamental principle of the Government’s retirement income policy — that super should be invested prudently — but we also suggest the following.
Circumstances differ from fund to fund, thus investments should be meaningful to each fund. We need consistency where the investment environment is the same for all funds, and flexibility where trustees have the freedom within that environment to make appropriate decisions that suit their circumstances. We need greater transparency rather than blanket prohibitions or limitations concerning investment rules that in turn support local small-scale investment in our regional and rural areas.
SISFA is particularly committed to the reinstatement of related unit trust arrangements that provide for long-term investment vehicles, which enable super funds to take advantage of current investment opportunities.
We also support a thorough examination of the regulation of superannuation funds. In particular, we promote the establishment of an advisory board that would oversee the operation of ASIC, APRA, ATO and DFaCS in relation to superannuation issues. This board would consist of members of each of these bodies as well as industry representatives. It would monitor the industry as well as provide cohesive and timely recommendations to the Government ensuring that superannuation moves in the right direction.
While the current regulatory regime is robust, we would like to see the practice of defining small independent super funds changed so funds can be judged based on the relationships between fund members and/or trustees alone, rather than the current inequitable practice of restricting the number of fund members to less than five as well as the relationship test.
The effective integration of our superannuation system with taxation, social security arrangements and our lifestyle itself is essential to any future success. There is also a need for equality in our retirement incomes strategy. All forms of discrimination should be removed, providing all who wish to save for their future the opportunity and choices to do so.
Superannuation should provide an adequate retirement income that ensures a smoothing of lifetime consumption and an equitable balance of wellbeing between the retired and non-retired sectors of the population.
In our submission to the Senate committee, SISFA has tried to keep these notions at the fore of our suggestions. We ask that all those participating in the inquiry do the same.
— Graeme McDougall is CEO of SISFA.
