Kicking the super can down the road

What a pity the February, March and April rhetoric of the Treasurer, Scott Morrison, was not matched in the reality of his first Federal Budget in May.

The Morrison rhetoric in the opening months of the year was that equity needed to be injected into the superannuation tax regime and that, consistent with defining an objective for superannuation, Australians needed to be encouraged to contribute more to their own retirement income to ultimately relieve pressure on the Age Pension.

Thus, the Government's changes reducing the level of tax concessions to high income earners and consequently introducing the Low Income Super Taxation Offset are welcome, while the reduction in the concessional contribution cap to $25,000 is not.

Morrison dedicated a substantial part of his discussion during the SMSF Association annual conference in Adelaide towards the need for Australians, particularly women, and those on low incomes, to have the opportunity of topping up their superannuation savings. This, of course, gave rise to the expectation of either a higher concessional cap or a lifetime cap.

What the Budget delivered fell well short of expectations. Thus, while some equity may have been injected into the superannuation tax settings, yet another Government will be seen to have missed a golden opportunity to do something about addressing the nation's longevity/social welfare issues by driving up the ratio of fully self-funded retirees.

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Morrison, of course, is not alone in this. Former Treasurer, Joe Hockey, studiously steered clear of major super changes because the newly-elected Abbott Government vowed not to adversely tinker with super, while the former Labor Government lowered the cap without making any significant effort to address the issue of targeting tax concessions.

There has long been a perception that a number of senior bureaucrats within Treasury have held negative views about the Australian superannuation regime, despite its successes, and that they have therefore been long-time vigorous advocates of lowering the concessional contribution caps.

Whether such perceptions of Treasury are right or wrong, the fact remains that independent economic modelling commissioned by the Financial Services Council (FSC) has suggested that any benefit flowing to the Budget from lowering the concessional cap to $25,000 is likely to prove illusory.

That research, undertaken by Mercer, suggests the ultimate cost to the Government in terms of the Age Pension will be greater than it might otherwise have been. In other words, lowering the concessional cap has simply added to the growing age pension and social welfare costs of an ageing population. What is more, it has made it harder for women and other people with broken employment patterns to play catch-up.

The Government's changes to Transition To Retirement (TTR) arrangements will certainly create a good deal of work for planners, but the TTR regime was always viewed as an indulgent and expensive manifestation of the latter years of the Howard/Costello Government.

Few sensible planners would have advised clients into a TTR without the caveat that there was a high likelihood of Government policy change in the future.