ASFA responds to CEDA retirement report

The Association of Superannuation Funds of Australia (ASFA) welcomes the contribution today from the Committee for Economic Development of Australia (CEDA) to the national discussion on retirement incomes and superannuation, however has some deep concerns with elements of the proposed reform.

In a report released today, CEDA proposes a number of measures that compromise the retirement incomes system in order to fix the broader issues of housing affordability, including allowing first home buyers to access their superannuation and mandating superannuation be paid out of post-tax income.

“Allowing people to access their superannuation to buy a house will have a significant negative impact on the retirement incomes of those who choose to take this option, as well as potentially increasing the cost burden on all other members who would have to pay for it,” explains Pauline Vamos, CEO, ASFA.

“People who dip into their super early will likely have a substantially lower superannuation balance at retirement, and first home buyers are also likely to be diverting funds in their 20s and 30s – the time when they will be getting the most compound growth from their superannuation balance.”

“While those who rent do require higher incomes in retirement, using superannuation to fund house purchases is merely reducing one asset to pay for another.”

ASFA believes that housing affordability is best addressed through policy measures directed at making housing more affordable, including the release of land, rezoning, the lowering of stamp duty, the funding of assisted housing and other measures designed to reduce costs and increase supply.

“Policies that merely increase the capacity of individuals to pay for housing often have the effect of driving up housing prices, eroding any positive impact on housing affordability,” added Ms Vamos.

ASFA also challenges the CEDA proposal to address inequality by mandating superannuation be paid out of post-tax income.

“Data shows that tax concessions applied to superannuation concessional contributions are not significantly skewed towards high-income earners, and in fact support the bulk of the working community to save for their retirement,” said Ms Vamos.

ASFA analysis of data from 2011/12 found that around 75 per cent of the tax concessions applied to contributions went to those paying either of the middle income marginal tax rates of the time, of 30 per cent or 38 per cent: those earning between $37,000 and $180,000 per year.

“Paying superannuation out of after tax income would substantially reduce the incentive for people to save for their own retirement – a fact that is directly acknowledged in the CEDA report,” added Ms Vamos.

“Most people need to contribute more than the minimum 9.5 per cent to have a comfortable retirement, so we need an incentive for people to contribute more. If less money goes into superannuation, people will be worse off in retirement.

“ASFA still believes that there does need to be a limit put on full tax concessions in superannuation, but we believe that a more effective solution is to limit tax concessions after a balance of $2.5 million has been reached. At a standard rate of return, that provides around $125,000 in retirement, or just over twice the ASFA estimate of a comfortable retirement standard.”

ASFA does, however, agree with CEDA that while Australia’s three pillar superannuation system is a world-leading retirement income system, the objectives of superannuation should be agreed and enshrined.

“Today’s CEDA discussion paper is a welcome contribution to the national conversation about superannuation and retirement incomes,” concluded Ms Vamos.

“I agree with the premise of the paper, in that we must find smart and sustainable policy solutions to alleviate the poverty faced by many Australians in retirement, particularly single women. I also agree that we must have an increased focus on innovative retirement income products to ensure that each superannuation balance has optimal longevity on retirement.”

“However, we must avoid the temptation to compromise how we deal with an ageing population in order to fix housing affordability for our younger community. Both are important but different solutions are needed.”