In September 2010, I published a to-do list of 16 major superannuation issues needing action by the Federal Government post the Federal election. I published this list in the form of a public memo, as a helping hand for the newly appointed Minister of Superannuation, Bill Shorten.
Sadly, progress has been slow on the 7 ‘big deal’ polices contained in the SuperGuide superannuation to-do list, namely the policies to:
- increase Superannuation Guarantee from 9% to 12%
- ban commissions on financial products from 2012
- introduce the MySuper reforms, including MySuper, and SuperStream
- refund contributions tax to accounts of low-income earners
- retain the $50,000 concessional contributions cap, for some
- consider fully the Cooper Review recommendations
- introduce tax file numbers as primary identifiers for fund members
I explain these 7 ‘big deal’ policies in the SuperGuide article Mr Shorten, here’s your superannuation to-do list.
While the items listed above may the big-ticket super policies, there are 4 items on my superannuation to-do list that no one within Government seems willing to talk about publicly. I believe that the 4 items (detailed below) have fallen into the ‘forgotten’ or ‘try to ignore’ basket, although I have previously described these forgotten issues as the ‘fix or else’ superannuation policies.
I hope that the Federal Government seriously rethink the short-term stance taken on these issues, and consider the real people who are trying to save for a decent retirement who bear little resemblance to the rhetoric and loosey goosey statistics used to justify these policies.
Below is an edited extract from my September 2010 superannuation to-do list, explaining the 4 forgotten issues
1. Increase concessional contributions caps
The $25,000 concessional cap is too low and fails to recognise that the majority of the population cannot make large, regular additional contributions to a super fund. Most Australians do not live linear lives. Typically, the majority of Australians make lumpy, catch-up contributions after they have paid off their house, educated children or returned to work (if caring for children full-time).
I want to know the name of the so-called ‘expert’ advising the Federal Government who told the decision-makers that only 2% of the population would be affected by the halving of concessional caps from July 2009! Who are you kidding? The Government has misled and betrayed the Australian public.
Let’s add the insensitivity of the Government halving the concessional caps while the world and investment markets were trying to recover from the Global Financial Crisis (GFC) and we have decision-makers who think we’re idiots and simply don’t care!
Mr Shorten, I advise you not to make the same mistake as your predecessors when making decisions in the superannuation space. The concessional contributions cap is not only utilised by ‘rich’ people. Here’s a list of some of the categories of Australians who have been hit hard by the halving of the concessional contributions caps (and the eventual cut to $25,000 for many over-50s — a quarter of the original $100,000 cap!):
- Women and others who take breaks from work
- Self-employed and contractors
- Home-owners paying off mortgages who must delay their super saving until the mortgage is repaid
- Australians bringing up children
- Senior Australians hit hard by the GFC trying to rebuild retirement savings
- Individuals who divorce and must now rebuild wealth
- Australians in their thirties and forties who won’t experience a full working life with SG and won’t have the benefit of bigger caps in their fifties.
2. Fix the cynical manipulation of indexation
Mr Shorten, in May 2009, your Government colleagues announced that the non-concessional (after-tax) contributions cap would remain at $150,000, the same level as the 2008/2009 cap and in the future, the cap would be indexed at 6 times the level of the indexed concessional contributions cap, with the indexation clock turned on from July 2009.
I think that policy announcement may have been a little porky pie by your colleagues. Before this May 2009 announcement, the Government had announced in March 2009 that the contributions cap was to increase to $165,000 for the 2009/2010 year. In effect, the May 2009 announcement cut the cap by $15,000 and ignored the past three years of indexation. The Government had turned back time and believed that no one would notice. The SuperGuide team certainly noticed, as did our many thousands of SuperGuide readers.
For your information, the contributions caps have not been indexed since they were introduced in July 2007, because the indexation rules (based on movements in average wages) require any adjustment to be at least $5,000 before the caps are increased. The first indexation of the caps was to occur from July 2009, until the Government announced its indexation swifty. For example, a $5,000 increment on a $25,000 cap represents a 20 per cent increase in wages, which means Australians will now be waiting many more years before the $25,000 cap is increased. What an absolute con! Please Mr. Shorten, don’t make the same arrogant mistake when implementing superannuation policy. Review this unfair and opaque policy.
3. And the same goes for co-contribution indexation
The co-contribution scheme is one of the few female-friendly super policies. In May 2009, the Government announced that the indexation of the income thresholds for co-contribution eligibility would be frozen for 2 years; up to the 2011/2012 year. I’m assuming that indexation will resume from July 2012. For my views on the Government’s decision to freeze indexation of the co-contribution thresholds, I suggest you read our SuperGuide article on the topic: Sneaky sneaky – no indexation in co-contribution income threshold for 2 years.
In May 2009, the Federal Government ‘temporarily’ cut the maximum co-contribution payment available from $1,500 to $1,000. In May 2010, the same decision-makers announced that they would permanently freeze the maximum co-contribution payment at $1,000. I explain the impact of this policy on Australians in the article It’s official: Co-contribution cuts hurt middle Australia and women.
In November 2010, these co-contribution announcements became law.
4. Change the excess contributions penalties regime
SuperGuide has been very vocal on the issue of excess contributions tax, and how the tax is administered. Mr. Shorten, you must realise that penalising Australians with up to 93% tax on super contributions because of ridiculously low contributions caps that have been poorly implemented by the Government is unfair and politically a serious risk for a minority government.
Your colleagues have chosen to largely ignore this issue which means you may not be familiar with the financial issues at stake. Although the Government has promised to give the ATO a discretionary power when considering excess contributions from the 2010/2011 year, the following SuperGuide articles may give you some insight into what Australians are facing when trying to stay within the contributions caps:
- Excess contributions tax regime is … daft
- Super tax alert: Have you counted your super contributions lately?
- Show mercy on contributions caps, for votes’ sake
- Making super contributions: cracking concessional cap means more tax