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Busting superannuation tax concessions myths: ASFA

Media Release 27 March 2015

27 March 2015

Busting superannuation tax concessions myths: ASFA

The Association of Superannuation Funds of Australia (ASFA) has released a report that busts some of the most common myths cited when it comes to superannuation tax concessions.

Released ahead of the tax issues paper due out next week, the analysis uses facts and figures to debunk some of the commonly repeated claims made about superannuation tax concessions that are misleading or incorrect.

ASFA CEO Ms Pauline Vamos says while debate regarding superannuation tax concessions is welcome and necessary, it’s critical that these conversations are based on facts, not myths.

“Australia faces an ageing population, a higher dependency ratio, and escalating pension, health and aged-care expenditure. This means governments will face challenges in setting policies that will help accommodate the costs of supporting older generations throughout their retirement years, and the tax framework going forward will be an important part of this.

“For some time now, we have expressed concern that a number of the claims made about the cost and allocation of superannuation tax concessions are incorrect or misleading. However, they have been repeated so often that they have almost become folklore. Correct information is the first step in good decision making, which is why it is so important that we get the facts right before we start these discussions.

“An informed debate is what’s needed to ensure policymakers and the broader community can reach a consensus on how we can adjust our superannuation system to ensure it remains sustainable and equitable, and caters better to the needs of the growing population of retirees,” Ms Vamos concluded.

Summary: Superannuation tax concession myths busted

MYTH: Superannuation is not helping reduce the government’s spending on the Age Pension

FACT: Super saves the government $7 billion in Age Pension expenditure annually, and these savings will only increase as the system matures

Superannuation is boosting incomes and providing a lifestyle in retirement that is better than that which can be sustained on the Age Pension alone. Around 32 per cent of those aged 65 in 2013 were fully self-funded in retirement, up from 22 per cent in 2000. We project this number will rise to 40 per cent by 2023.

MYTH: Superannuation tax concessions cost the budget $30 billion annually – more than the total spending on the Age Pension

FACT: The actual cost of tax concessions is around $16 billion a year

When you take into account the savings the government makes on the Age Pension as a result of super, and the impact of behavioural change (people shifting money from one tax-effective vehicle to another) that would occur if super tax concessions were removed, a more accurate estimate would be around $16 billion a year.

MYTH: The majority of government support for retirement goes to high-income earners

FACT: Financial assistance for retirement provided by the government is broadly comparable across the personal income tax brackets

When both the Age Pension and tax assistance are added up across a lifetime, the average taxpayer benefit is around $300,000 across all tax brackets as a contribution by the government to their retirement. The main difference between is the timing and vehicle through which it is delivered. For example, the full Age Pension for a single person currently is $22,365 a year, while tax concessions for super are for smaller annual amounts but accrue to individuals prior to age 65.

MYTH: The bulk of tax concessions for superannuation contributions go to high-income earners

FACT: The bulk of tax concessions for superannuation concessional contributions go to middle-income earners

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. 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 (then) middle income marginal tax rates of 30 per cent or 38 per cent: those earning between $37,000 and $180,000 a year.

MYTH: The most important tax concessions received by high-income earners relate to superannuation

FACT: High-income earners get the most benefit from concessional capital gains tax treatment, negative gearing and exemptions for the family home

The bulk of the wealth of high-net-worth individuals is in the form of shareholdings or property, both residential investment properties and commercial real estate. Around $360 billion is held in superannuation by those with more than $1 million in super. This is just over 20 per cent of the $1.6 trillion investable assets held by high-net-worth individuals.

For most high-net-worth individuals, tax arrangements relating to capital gains, negative gearing and the family home are likely to have more impact on the achievement and maintenance of wealth than superannuation tax concessions

MYTH: Only high-income earners make salary sacrifice contributions

FACT: Many middle-income individuals make salary sacrifice contributions

Only around 35 per cent of employees with incomes above $150,000 a year make salary sacrifice contributions. Around 85 per cent of salary sacrifice contributions relate to employees with incomes below $150,000 a year. Over half a million Australians earning between $40,000 and $80,000 a year make salary sacrifice contributions.

MYTH: Most people take a lump sum from their super when they retire, spend it all on a big holiday or to pay off debt, then end up on the Age Pension

FACT: The majority of superannuation assets end up in income stream products when people retire

There is no evidence that the majority of retirees are using their super to pay off debt or using a lump sum to fund the purchase of boats, cars and overseas trips before going on the full Age Pension.

The vast majority of Australians are very sensible with what they do with their retirement savings. The great bulk of larger balances are retained in the superannuation system in order to generate ongoing income in retirement. In 2012/13, around $45 billion in superannuation assets were invested in phased drawdown income-stream products, compared to just $8 billion taken as lump sums.

MYTH: Compulsory superannuation has not increased household or national savings

FACT: National and household savings have been substantially lifted by compulsory super

The household savings rate has increased by around five percentage points from five per cent in 1992, when compulsory superannuation was first introduced, to around ten per cent in 2013/14.

MYTH: Government funds spent on superannuation tax concessions would be better directed at helping other areas of the economy

FACT: Superannuation provides broad economic benefits that are the foundation for growth and prosperity

Superannuation plays, and will continue to play, an important role in providing the foundations for economic activity and prosperity. It currently lifts household savings by around 2 percentage points of GDP or nearly $40 billion a year and, with the increase in the compulsory Superannuation Guarantee from 9.5 per cent to 12 per cent, this is expected to rise to 2.5 percentage points of GDP. Higher levels of domestic savings reduce the cost of capital in Australia, increasing investment by Australian businesses, which drives stronger economic growth.

MYTH: Private superannuation savings could be confiscated and that process has already started

FACT: Superannuation entitlements and account balances are strongly protected by law including constitutional requirements that property can only be acquired on just terms

No political party in Australia has a policy that would involve the nationalisation of superannuation savings.

For further information, download the full report here.

For further information, please contact:

Lisa Chikarovski: Manager – Consumer Strategy, Media and Public Affairs, 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, which aims to advance effective retirement outcomes for members of funds through research, advocacy and the development of policy and industry best practice.

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