Mr Shorten, Here’s your superannuation to-do list

Dear Mr Shorten

Congratulations on your appointment as Assistant Treasurer and Minister for Financial Services and Superannuation. You have a busy few years ahead of you and the team at SuperGuide are here to help you make the right policy decisions for the financial security of millions of Australians.

For the benefit of your newly appointed advisers, SuperGuide has prepared a superannuation (and retirement) to-do list. No need to thank us: completing the to-do list for the benefit of all Australians will be thanks enough.

Note: This list may be updated over time by SuperGuide as other important superannuation policies come to light. Also, the team at SuperGuide will be keeping a scorecard of what you actually achieve (or don’t achieve) in the superannuation space over the next 3 years. Good luck!

Your to-do list is divided into four categories:

• ‘Big deal’ policies (7 items)
• ‘Fix or else’ policies (4 items)
• ‘It’s about time’ policies (3 items)
• ‘Interesting and worthy’ policies (2 items)

‘Big deal’ policies

• Increase Superannuation Guarantee from 9% to 12%. Since this is one of your major policies, I don’t need to provide you with background information, but you have been out of the superannuation space for a little while so, just in case, feel free to read our article Superannuation Guarantee set to jump 33% to find out what your party promised in terms of super. Yes, we do realise the successful implementation of the SG policy is linked to the Mining Resource Rent Tax (MRRT) although I do believe the tax cost to the Government by individuals accumulating more super over time is grossly overstated (in my view, another one of Mr. Rudd’s and Mr. Swan’s swifties). You can read about what I say about the MRRT in the article Mineral Resource Rent Tax: Let’s get on with it.
• Ban commissions on financial products. I am a little uneasy about whether your Government’s commitment to this policy is genuine. Throughout the election campaign your colleagues made no mention of the historic promise to ban adviser commissions on new products from 2012. Your party also promised a swag of progressive initiatives in relation to financial advice under the label ‘Future of Financial Advice’ Package. As a refresher, here’s an article that provides a summary of what your party promised the Australian public in improving the quality of financial advice: Financial advice: Government bans new adviser commissions from 2012.
• Refund contributions tax to accounts of low-income earners. I have complained for a long time about the unfairness of the compulsory superannuation system for workers who pay less than 15 cents in the dollar income tax. By receiving SG contributions, individuals earning less than $37,000 (for the 2010/2011 year) are financially penalised with a higher tax hit by receiving entitlements as super rather than as income. I congratulate the previous ALP Government for announcing this policy (to take effect from July 2012). I expect that the newly elected Government will keep this promise. If you have forgotten this policy, in all the excitement of deposing Mr Rudd and in securing the role of Assistant Treasurer, feel free to read about this policy in our article Super tax refund for lower-income earners is a winner.
• Retain the $50,000 concessional contributions cap, for some. This policy sounded good at the time and we all went ‘ooh’ and ‘aah’ about the prospect of retaining the $50,000 concessional (before-tax) cap (which had been halved from $100,000 by the Rudd Government from July 2009). Or, is this really just another one of the cynical swifties that you have inherited from Mr Rudd and Mr Swan? Are you really going to allow those with less than $500,000 in super have a $50,000 concessional contributions cap, and how on earth is this going to be implemented? Yes, your colleagues did promise to retain the cap for some over-50s (see article Over-50s contributions cap of $50,000 now permanent, for some). A better option is to retain the $50,000 cap for all over-50s, and even better, have a $50,000 cap for everyone! I discuss SuperGuide’s idea of a fair go when making concessional contributions in the next section of this open letter.
• Introduce MySuper. A lot of time and money has gone into the Super System Review chaired by Jeremy Cooper, which recommended a cheaper super option for Australians who don’t take an active interest in their super accounts. Mr Shorten, your Government has promised to introduce MySuper from 1 July 2013. As you probably know, the key features of MySuper account include: no entry fees; exit fees to be limited to cost-recovery; licensed by Australian Prudential Regulation Authority, but no further special licence required; APRA will publish investment returns and costs; a single investment option; plain English reporting to members; rules requiring value for money super accounts or risk losing APRA licence.
• Consider fully the Cooper Review recommendations. The Government has promised to respond fully to the Cooper Review report. The Cooper Review didn’t get much of a run during the election campaign so if you need a quick summary to refresh your memory see our article Cooper Review: Top 10 recommendations from final report. Don’t forget that in addition to MySuper, you have also promised to implement SuperStream, which involves the increased use of technology, uniform data standards, use of the tax file number as a key identifier and straight-through processing of superannuation transactions.
• Introduce tax file numbers as primary identifiers for fund members. If you want an easy tick on the SuperGuide policy scorecard, then introduce the legislation for using TFNs as the key identifier for superannuation accounts and fund members. You have promised that this policy will apply from July 2011 so you better get moving. All Australians looking for lost accounts or trying to consolidate or switch super funds will thank you.

‘Fix or else’ policies

• Increase concessional contributions caps. Dear Mr Shorten, here’s some practical information to help you make a very important superannuation decision. 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, while industry body, ASFA claimed it would only affect 4% of Australians who salary sacrifice! Who are you kidding? The Government and the main superannuation industry body have 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 cap is not only utilised by ‘rich’ people you know. 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 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.
• 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 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.
• And the same goes for co-contribution indexation. The co-contribution scheme is one of the few female-friendly super policies. 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.
• Change the excess contributions penalties regime. SuperGuide has been very vocal on this issue. You’re an intelligent man Mr. Shorten and 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 an aspiring career politician. Your colleagues have chosen to 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:
  • Show mercy on contributions caps, for votes’ sake
  • Making super contributions: cracking concessional cap means more tax
  • Super tax alert: Have you counted your super contributions lately?

‘It’s about time’ policies

• Extend Superannuation Guarantee (SG) entitlements to age 74. Mr Shorten, we expect that you will keep your Government’s promise (see Superannuation Guarantee now fairer to older workers) and ensure that Australian employees who are aged 70 to 74 will be entitled to Superannuation Guarantee contributions, from July 2013. We covered this issue early last year and the SuperGuide team believe that by publicising this issue on the SuperGuide website and in our newsletter (and also publicising several other significant issues), that we have helped improve superannuation outcomes for Australians.
• Ensure SG entitlement is not lost when salary sacrificing. In 2007, the ALP promised to legislate that when an individual boosted super contributions via a salary sacrifice arrangement that their SG entitlement would not be reduced. The ALP has not delivered on this promise and it’s about time they fix this massive flaw in the superannuation laws. If you’re not aware of this longstanding inequity, I suggest you read the SuperGuide article SG: Beware the salary sacrifice loophole.
• Index the income threshold for Commonwealth Seniors Healthcare Card. If the Liberal Party had won the election, they promised to index the Commonwealth Seniors’ Health Card income thresholds, from 1 July 2011. I think it’s about time the CSHC is indexed considering that the income thresholds for the card have not been indexed for nearly 10 years. Mr Shorten, although the CSHC doesn’t fall within your ministerial responsibilities, I am sure you work closely with Ms Macklin and can help convince the Government that sneaky (or lagging) indexation policies make unhappy voters.

‘Interesting and worthy’ policies

I also trust that you will keep your Government’s promise to introduce the following policies:

• More money for Superannuation Complaints Tribunal. In the May 2010 Federal Budget, the Government announced that the funding for the SCT will increase over the next four years to ensure that the SCT continues: “to meet its statutory responsibilities to resolve consumer complaints in a manner that is fair, economical, informal and quick.” You can’t remember this policy? It was about one line in the Federal Budget papers. See our article SMSFs: More money for Superannuation Complaints Tribunal.
• Relax the rules for First Home Savers Account (FHSA). For more information on this hardly-mentioned policy see article Free cash: Renovating the First Home Savers Account.

Mr Shorten, I wish you every success with your new role.

Yours sincerely

Trish Power

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