Super under siege: political games risk retirement billions
Financial experts warn constant changes to Australia's superannuation system threatens to undermine one of the world's best retirement schemes.
The Albanese government’s latest assault on superannuation savings is putting at risk one of the best schemes in the world, according to advisers.
Analysis by The Australian’s Wealth team has uncovered more than 70 significant rule changes to superannuation since compulsory employer contributions began in 1992. That’s an average of more than two big changes every year, and it doesn’t include the regular indexation of caps and other limits.
Tribeca Financial chief executive Ryan Watson said super had been “political football” used to please and appease the voters of the political party in power.
“Both sides of politics seem hellbent of leaving their impression on the superannuation system whilst they are in government, in order to serve their political agenda,” Mr Watson said.
He said booming immigration was fuelling concerns about pension system sustainability, prompting governments to seek ways to help more retirees be self-funded.
“In short, I think the continued changes to Australia’s superannuation system have had a negative effect,” Mr Watson said.
“Constant change serves to create uncertainty among Australians, and with this change comes complexity. Respective governments over the last three decades have done a really poor job on educating people on how superannuation actually works, and the significant benefits of it.”
The latest is the Albanese government’s controversial move to tax unrealised capital gains when people’s superannuation account balance exceeds $3m as part of its additional 15 per cent tax on earnings above this threshold. Known as Division 296, the tax is only expected to impact 80,000 people, but it is not indexed and the fear is, over time, it will capture far more people.
The CPA warned that a young, average wage earner today was likely to be hit with the tax by the time they retired.
Meanwhile, Jim Chalmers is foreshadowing fresh attacks on wealthier older Australians. Super could be in the firing line again.
With more than $4.2 trillion in forced savings accounts, it is the world’s fourth-largest retirement funding scheme, which is expected to pass Canada and Britain’s in the next decade to be second behind the US.
Yet, is it at risk of unwinding as younger generations consider alternative investment pathways and overlook the enormous tax benefits for fear of future governments raiding their nest eggs?
And, has the superannuation system become overly complex and too hard to navigate?
Super specialists have mixed views on whether the overall result of rule changes is positive or negative, but agree that governments on both sides use it as a political tool and the confusion this causes retirement savers is real.
A good example is concessional contribution caps, an annual limit on tax-deductible contributions including salary sacrifice and employer contributions. Over the last 25 years, these caps have ranged between $25,000 and $100,000, and have changed six times.
Political games
Financial strategist Theo Marinis said governments changed super rules “for political reasons rather than economic reasons”.
“The left hand doesn’t know what the right hand is doing,” Mr Marinis said.
“They tweak all the time, then realise that people are going to move stuff around, so they tighten up. It’s like a dyke – they plug one hole and another hole opens up somewhere else.”
Mr Marinis said despite the constant changes, super remained a generous scheme because retirees could still hold $2m each in an account-based pension and pay zero tax on income, capital gains and withdrawals.
Contributing to super had become easier over the years due to the relaxation of age-based limits, he said.
“It’s more complicated because of the fiddling, but it’s actually better than when I first started,” Mr Marinis said.
“People always say to me, ‘I don’t want to invest in super because they keep changing the rules’. I say keep investing until they stop changing the rules. Then it won’t be as generous.”
Mr Marinis said Labor’s planned new superannuation tax on unrealised gains for people with super above $3m was unlikely to generate the tax revenue the Treasurer wanted because wealthier people would move money out of the super environment. For example, they could shift excess super into a larger and fancier home where all their capital gains would be completely tax-free, he said.
Necessary changes
Rising Tide senior financial planner Rebecca Pritchard said governments changed the superannuation rules “because they can”.
“I also think to a degree they ought to, because some of the decisions you made in the 1990s you can’t anticipate the impact they’re going to have in 30 years’ time,” she said.
“With the quantum of funds in this environment, it should be regularly reviewed and adjusted to keep pace with what the modern world looks like.”
Ms Pritchard said super was intended as a retirement savings vehicle, not a tax shelter, and rules had been changing to reflect that.
Some tweaks made little sense though, such as the ups and downs of contribution caps. “What’s the intent there? They’re not making a huge amount of sense,” she said.
“Australia’s retirement system is the envy of the world and it aligns beautifully with human behaviour, which is we really struggle to make decisions to benefit our future selves, to the detriment of our current selves.”
Ms Pritchard said more changes were needed, particularly in relation to equalising super balances between women and men.
“A lot can be done on the gender side of things. The gender superannuation gap is still hideous,” she said.
But rule changes generally caused confusion and deterred people from saving.
“It can go in the too-hard basket,” Ms Pritchard said.
What to do
Mr Watson said regular changes to anything created fear and uncertainty.
“A retirement system like superannuation simply needs consistency and stability,” he said.
“Progress and practicality over chasing perfection would be my recommendation to Australia’s politicians when it comes to superannuation.”
Mr Watson said it was important to seek advice to help navigate through the rule changes. It could “improve your retirement superannuation balance by tens if not hundreds of thousands of dollars”.
He said people should develop an understanding of the basics of superannuation, understand their super fund’s fees, investment returns and insurance benefits, and to always remember that it was their money.
“Treat it as if you had hundreds of thousands of dollars sitting in a bank account. Invest in it and nurture it; your future self will thank you for it,” he said.
More Coverage
To join the conversation, please log in. Don't have an account? Register
Join the conversation, you are commenting as Logout