Budget elicits mixed reaction from financial services groups

Craig Dunn

The financial services industry has delivered the Federal Budget a mixed response, with the Association of Superannuation Funds of Australia (ASFA) lamenting the narrowness of the Government’s one-off co-contribution bonus while Challenger has questioned whether the tax changes will make salary sacrificing into superannuation less attractive.

ASFA chief executive Philippa Smith said that while the Government’s co-contribution announcement represented a nice one-off gift, the question of structural change to savings still needed to be addressed.

“This initiative rewards individuals who accessed the co-contribution a year ago, but it is difficult to see how it will encourage younger people to invest in their retirement future going forward,” she said.

ASFA’s sentiment was shared by Mercer Human Resource Consulting worldwide partner David Knox, who said that as a retrospective measure, the Budget co-contribution initiative did not focus on the future.

“It is important to provide incentives for members of superannuation funds that will promote long-term saving habits. Yet, this one-off payment does not encourage future contributions from low income earners,” he said.

“We would have preferred to see an extension of the co-contribution system so that it provided a clear incentive for more Australians to save in the future.”

However, AXA Asia Pacific chief executive Andrew Penn adopted a more positive view of the co-contribution initiative saying it would encourage more Australians to start saving for their retirement earlier.

“There is no doubt the changes announced in last year’s Budget will make superannuation the preferred long-term retirement savings vehicle for Australians,” he said.

“The initiative announced last night increases the attractiveness of superannuation for those eligible for the co contribution.”

AMP Financial Services managing director Craig Dunn was equally positive, saying AMP supported any move that boosted people’s superannuation savings and helped them achieve a more comfortable lifestyle in retirement.

He said that doubling the co-contribution for lower income earners who made after-tax contributions to their superannuation in 2005-06 could compound into relatively significant benefits over time.

On the question of the personal tax cuts announced in the Budget, Challenger’s head of technical services, Alex Denham used an analysis of the Budget to question whether the further reductions in personal tax rates would make salary sacrificing to superannuation less attractive for those earning up to $80,000.

She said that this might prove especially the case for younger people who might baulk at losing access to capital.