Retirement 12/10 – The industry’s retirement wish list

While the Rolling Stones sang 'You can't always get what you want', that hasn't stopped planners seeking the ideal product.JULIA NEWBOULDexamines what advisers are putting on their wish list for superannuation.

If there was a superannuation Santa, some of the wishes he might hear at policy changing time might be to KISS - keep it simple, stupid - and others may be to get rid of the double or triple taxing of superannuation. It seems no one is happy with the status quo, even planners, who could take advantage of a general public that can't understand superannuation on their own.

The Government is currently showing a lot more interest in discussing superannuation issues. However, while super is now on the political agenda, getting it to completion will still take some work. And when the Government does eventually get around to tackling superannuation, what will be the most important issue for it?

For starters, the Financial Planning Association's (FPA) acting chief executive Ken Breakspear says that the Government needs to do more than just treat superannuation.

"It is one area, and a very important area, but just one of the core pillars of retirement income. There are still fundamental issues that relate to other parts of the system for people to self-provide for their retirement," Breakspear says.

These pillars are a Government funded pension, superannuation and voluntary savings, according to Breakspear, who says they need to be used in an integrated way since the emphasis on a Government funded pension has not resulted in any increase in savings.

"The FPA has worked very closely with IFSA and ARISA on the need for the Government to conduct a Ralph-style review on the whole system instead of just one element. It's a necessary reform, as there's not enough there in terms of savings, particularly those coming in voluntarily," Breakspear says.

However, focusing on superannuation is already a great enough task for most working in the industry.

Association of Superannuation Funds of Australia (ASFA) chief executive officer Philippa Smith says there are a few structural things she would like to change about superannuation, as well as a few administrative issues.

One of the key changes would be the restoration of some of the incentives and simplifications in the tax arena, according to Smith.

Doing away with contributions tax was popular on the superannuation wish list, with a preference to be taxed at a higher rate when the superannuation was eventually drawn if contributions tax was abolished along with taxation during the accumulation stage.

"Administratively, we want superannuation to be paid in line with PAYE - or at least at a quarterly rate," Smith says.

"Current legislation means that some employers need only pay their employees' superannuation once annually. If it is paid more regularly, the interest accrues to the employee."

While introducing compulsory superannuation for 90 per cent of workers was a monumental step for a government to undertake, Smith believes there is still a long way to go.

"The Government needs to set about removing some of the restrictions in dealing with flexible working arrangements to a situation where there is no different treatment for contract, self-employed and part-time workers," Smith says.

"It also needs to look at the fact that people are having more broken working lives. This requires looking at the current age contributions and ensuring maximum contributions do not limit work flexibility.

"There is also a need to look at lifetime contribution levels for tax concession limits and people who have reached their retirement age need to have flexibility for part-time work," Smith says.

Another major issue is how much is enough? A contribution of 12 to 15 per cent is estimated to be more realistic than the current eight or nine per cent (in 2002) and is also high on Smith's wish list.

"Our concern is that nine per cent is not enough. People aren't working the traditional 40-year work life but are living longer. Nine per cent is like a glass half full," says Smith.

At the same time, choice of funds has seesawed on and off the Government agenda but investment choice has become the focus as it becomes fairly well implemented throughout the industry.

However, Smith says fund choice is available to a lot more people now but the real issue is that we haven't really seen anything of substance of late.

Smith says for this to continue, CLERP 6 style arrangements need to come into play, and fees and charges need to be disclosed.

However, the changes need to be limited, as the cry most often heard about Australia's superannuation policy is to "leave it alone", according to Lismore Financial Planning Association chair and NRMA regional financial adviser, Julie Berry.

"We need to consider preservation of superannuation monies very carefully, as people are being scared away. The common belief is that the Government's intention is they will never get their money again. The Government needs to make its intentions clear," says Berry.

As a financial adviser, Berry says she structures a client's portfolio for today's legislation. So when the Government changes its legislation, then tomorrow she needs to run around changing things.

"Superannuation still has the aura of the unknown. The Government needs to say what it means now."

AMP manager of technical resources Bonnie Guilford agrees with Berry and says the Government could stop playing with the rules.

"The Government spends more time on this tax vehicle than others, but the main thing is to stop tampering with it and let people grow their confidence in building their own retirement savings," Guilford says.

The public also need to appreciate that superannuation is not a mystery but rather just a tax vehicle for savings, she says.

"It's a tax concession vehicle to save for retirement. It's exactly the same as a managed investment, insurance bond or allocated pension, but is just a different tax product and the public need to be educated about that," Guildford says.

Clients find it difficult to reconcile the idea of superannuation encompassing the different forms of investments under a different tax regime, according to Guildford. Educating the investing public is high on her agenda for things she'd like to see occur in the industry.

RetireInvest technical services manager Louise Biti says at the top of her agenda is the need to reform the reasonable benefit limits (RBL) to simplify superannuation.

However, Biti's main suggestion, and one which would meet widespread approval, is to offer tax concessions on superannuation, which she says is the best way to attract retirement savings.

"We're the only country that taxes retirement savings three times - on the way in, while it's there and on the way out. Tax on contributions should be stopped," Biti says.

Seven things we would like to see done with super:

1. Superannuation choice. Providing a choice of funds should be a Government priority. This will allow planners to work with employers in advising employees on the best investment strategy for individual needs, circumstances and risk profile.

2. Reduce or eliminate tax on superannuation. We are currently taxed on the way into superannuation, while we are in and on the way out. With the reduction in marginal tax rates, the tax benefits of superannuation as a tax effective structure are now marginal. The Government needs to encourage people to save for their retirement through greater tax incentives.

3. Abolish the superannuation surcharge. It is an administrative nightmare and unfair that many people who normally earn well under the surcharge threshold have been surcharged on redundancy payments.

4. Remove working requirements on superannuation contributions. Currently, single non-working people such as widows, are disadvantaged as they are unable to access the superannuation system and this prevents them from setting up effective retirement income streams.

5. Introduce more incentives. Tax deductions for contributions encourage people to contribute to superannuation but currently it is restricted to the self-employed only.

6. Remove the complexity which, combined with the constant changes to the rules, have eroded public confidence in the superannuation system.

7. Broaden the assets test exempt product range by allowing retirees to have non-commutable allocated pension products that will provide them with an assets test exempt income stream while allowing them to invest in growth assets. Currently, many are overweight in fixed interest, as they are restricted to investing in complying lifetime or 15 year annuities.

<I>Source: Bridges Financial Planning.