Sustainable vision for super required: ASFA

Amidst continued debate regarding potential changes to superannuation taxation in the upcoming Budget, the Association of Superannuation Funds of Australia (ASFA) is calling for a calm and considered debate on the future of the system.

ASFA CEO Pauline Vamos says to return confidence to the system, policy makers need to ensure decisions are made using a long-term approach.

“Despite what you may be hearing and reading in the media, Australia’s superannuation system as it stands today is not in crisis. It is starting to deliver real money in retirement for the average Australian. It is saving the Government billions in the Age Pension and today, the use of the system and the benefits of the system are broadly equitable across all income tax brackets.”

“However with an ageing population living longer in retirement, there is no doubt adjustments will need to be made for the future to ensure the system’s long-term sustainability. Many ideas and proposals have been recently debated in the media and while we welcome this debate, the overarching goal should be to ensure we have a sustainable superannuation system which delivers a comfortable retirement income for all Australians,” says Ms Vamos.

“This means ensuring a person has an income for their whole retirement which meets their lifestyle expectations.”

Ms Vamos says two key factors must be addressed today.

“Firstly, let’s stop the panic about the system being unsustainable and off the rails. While there will be adjustments required in the future, the current system is sound.”

“Secondly let’s have an informed and not an hysterical debate. ASFA advocates that any debate should start with some key principles and facts which we have released today in order to inject a degree of calm and encourage a better-informed debate.”

Ms Vamos also noted the increase in community engagement, citing this as a welcome change.

“The broader community is now highly engaged in the superannuation debate, which highlights the fact that it is one of the most important public policy issues facing Australians today. We encourage all policy makers to remain focused on the dual role of superannuation – to deliver a comfortable retirement for the average Australian so that they are not dependent on government handouts and to play a key role in supporting the Australian economy. Policies which support this overall purpose must be considered.”

ASFA’S KEY PRINCIPLES UNDERPINNING SUSTAINABLE SUPER

1. Adequacy – Superannuation should cover the income needs of a person’s whole retirement.
   “This means designing a system which plans for people living into their 90s and beyond, which is the reality for many of us today,” Ms Vamos says.
2. Sustainability – Super assets should be primarily devoted to providing an income in retirement, to help reduce the cost to government of the Age Pension in the future.
   “Developing innovative, cost-effective income stream products is crucial to addressing the longevity and sustainability of the system and taxation policies during the pension phase of retirement should support this,” Ms Vamos says.
3. Equity – The amount of government support for retirement income should be broadly comparable across income tax brackets.
   “This involves taking into account all the various tax and other concessions provided to a person over their lifetime, including the support provided to those who have insufficient income to self-fund their retirement via the Age Pension,” says Ms Vamos.
4. Flexibility – The system should recognise that people have different needs and therefore different requirements at different points in their retirement.
   “We know that from time-to-time people will need to have adequate income to cover large expenses during their retirement and the system needs to be flexible enough to account for this.”
5. Member protection – Protection should be offered to superannuation fund members through regulation and requirements that trustees look after their best interests.
   “Each and every fund member has the right to know their super is in safe hands. This ultimately helps boost confidence in the system, which underpins its sustainability,” Ms Vamos concluded.

FACTS UNDERPINNING SUSTAINABLE SUPER

There are three key facts regarding the current sustainability of the system which ASFA believes need to be clarified.

FACT 1: Tax-free superannuation benefit payments after age 60 are affordable now and for decades to come
At present, the tax revenue forgone by allowing retirees to withdraw a pension from their super tax-free is around $500-800 million per annum. While the average balance in retirement is growing, it is only at a modest rate and there are still very few individuals with very large accounts, therefore it is unlikely this number will grow significantly. Reintroducing a tax on benefits for those aged over 60 would crush community confidence in super which would have a dramatic impact on the long-term sustainability of the system.

FACT 2: The concessional contribution cap is already relatively tight
By international standards, the $25,000 concessional cap is already low and ASFA believes there is little to no scope to make a substantial reduction in the current concessional contribution caps.

To illustrate why, a reduction in Australia, for example, to $15,000 a year would mean that a person on $120,000 a year would reach the cap through compulsory superannuation contributions at 12 per cent of wages. Well over one million Australians would be affected and there would be a substantial impact on confidence in superannuation.

FACT 3: The aggregate amount of tax concession provided for superannuation contributions is sustainable over the longer term
Treasury estimates of the tax concession provided for employer contributions indicate that the aggregate is around one per cent of GDP. With upcoming policy changes such as the effect of contribution caps and the proposed higher tax on contributions for those on $300,000 this will not rise significantly as a percentage of GDP, even with the staged increases in the Superannuation Guarantee. By contrast, other areas of budget expenditure such as health, aged care and pensions are projected to grow substantially over the next few decades.

Improving private retirement income also helps take pressure off government to fund other age-related expenses. For example, without superannuation very few retirees would be able to afford private health insurance.

For the future, this may require a reassessment of the link between the superannuation, health and aged care systems.

For further information, please contact:

Pauline Vamos, CEO, 0433 169 342

Lisa Chikarovski, Media Manager, 0451 949 300

About ASFA

ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry. It is a not-for-profit, sector-neutral, and non-party political national organisation whose aim is to advance effective retirement outcomes for members of funds through research, advocacy and the development of policy and industry best practice.