When the cap doesn’t fit

Just because both the Government and the Federal Opposition have, in their own ways, undertaken not to significantly alter the superannuation settings in a post-election environment, that does not and should not preclude addressing the major issues of retirement adequacy confronting Australia. 

And, as a recent roundtable conducted by Money Management’s sister publication Super Review has revealed, there are some genuine measures a newly-elected Government can pursue which would help achieve the objectives so clearly outlined in a succession of Treasury Intergenerational Reports. 

While the broad policy maps outlined in the Intergenerational Reports may have been conveniently overlooked by those responsible for drafting Australia’s last six Federal Budgets, their undeniable message has been that the nation is facing a considerable challenge in funding an ageing population and, in particular, the associated health costs. 

Indeed, viewed against the messages contained in the Intergenerational Reports, the Labor Government’s decision to reduce the concessional contribution caps being applied to superannuation caps across successive Budgets looks just plain irresponsible. 

Equally, the manner in which the Government then failed to moderate a highly punitive excess contributions regime looks similarly short-sighted. 

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While it may be argued that the former Howard Government became too generous with respect to concessional contribution caps, it is clear the former Treasurer, Wayne Swan, tightened the screws too far. That is why the Association of Superannuation Funds of Australia’s calls for a lifetime super contribution cap makes good sense. 

Indeed, a lifetime cap when taken together with positive Government action with respect to encouraging the taking of income streams in preference to lump sums would seem to tick some of the most important boxes of retirement incomes sustainability in Australia. 

As one of the participants at the recent roundtable made clear, you cannot sensibly activate an income stream if you have not first been able to build an adequate superannuation balance. 

With just over a week to go before Australians vote at the Federal Election, it is worth congratulating the Labor Party for having moved to eventually lift the superannuation guarantee to 12 per cent, but it is also worth reminding voters that this will do little to assist those facing retirement in next decade and a half. 

One of the only ways to help those approaching retirement in the next 15 years is to adopt an approach to concessional contribution caps which allows them to play catch-up in the latter years of their working lives – this in turn will relieve pressure on the age pension in the out years. 

It is to be hoped that whichever party wins Government on 7 September recognises the underlying objective of superannuation in Australia – the provision of a comfortable and sustainable retirement while relieving pressure on the public purse.