Labor, the ‘raw prawn’ on super deal

The Australian Labor Party (ALP) has emerged as the only major critic of the superannuation deal struck between the Government and the Australian Democrats to introduce a co-contribution for low income earners combined with a reduction in the superannuation surcharge.

While the deal has won the plaudits of both the Association of Superannuation Funds Australia (ASFA) and the Investment and Financial Services Association (IFSA), the ALP labels it both “unbalanced and unfair”.

The Opposition spokesman on Retirement Incomes and Savings, Senator Nick Sherry, says the income thresholds and benefits covered by the deal illustrate its unfairness.

Sherry says those earning between $40,000 and $94,700 will receive nothing, while those earning $27,500 or less will only receive the agreed matching $1,000 Government contribution if a voluntary superannuation contribution is made.

“How many Australians, after paying off the mortgage, increased health and education costs will be able to do so?” Sherry asks.

However ASFA chief executive officer Philippa Smith says the deal could result in retirement savings for lower income earners being boosted by as much as 70 per cent if they take advantage of the new co-contribution arrangements.

Discussing the workings of the deal, which will see people earning up to $40,000 being eligible for a super co-contribution and those earning up to $27,500 having personal contributions matched dollar for dollar, Smith says the arrangements have significant potential to boost retirement savings for people on lower incomes.

“For instance, a person on $30,000 a year, who makes voluntary contributions to super of $800 a year would have this matched by the Government, with a total of $1,600 being contributed to their super,” she says.

For its part, IFSA describes the deal as “the most significant breakthrough in superannuation tax in 15 years”.

IFSA chief executive officer Richard Gilbert says IFSA research suggests the dollar for dollar co-contributions are likely to produce a significant increase in the number of people making voluntary contributions.

“APRA figures show that voluntary super contributions fell some $3.3 billion in 2002, and our own IFSA research has identified a $600 billion retirement savings gap between what Australians expect to have in retirement savings and what they will have actually saved upon retirement,” he says.