Super reform takes more than a budget

SUPERANNUATION is a hot topic in the industry at the moment for a few reasons.

The first is that super provides some highly effective end-of-year tax strategies that are particularly useful at this time of year, given clients are focused on how to maximise their tax returns.

The second reason is that May 14 is fast approaching, and lobby groups keen for super reform are busy toiling away over their budget submissions.

Although one budget cannot possibly iron out all the issues requiring attention in superannuation (after all, that’s what the Senate Select Committee’s is for), the Federal budget is an important starting point to address some of the ways Australia will handle the impending ageing population crisis.

The Australian retirement policy is both world-renowned and studied as a shining example of a good retirement system — by world standards anyway.

Its three-tiered structure of age pension, compulsory contributions and voluntary contributions is viewed as the model to aspire to. Particularly celebrated is the foresight (Paul Keating’s anyway) shown in introducing compulsory superannuation to cope with the looming retirement bubble.

From 2005, the first of the baby boomer generation will begin to retire. This will place not only a heavy burden on Australia’s future retirement policy, but also on ancillary services such as health and pharmaceuticals. Resources will be stretched to ensure these people can retire in a sustainable manner.

Some of the budget proposals put forward by the Association of Superannuation Funds of Australia (ASFA) include a broadening of the Government’s commitment to co-contributions for low income-earners, allowing fully deductible super contributions for the self-employed up to the limits that apply to others in the workforce, and splitting super contributions between couples at retirement to avoid unnecessary fees.

However the number one beef for all lobby groups would have to be the taxation of superannuation at three stages — on the way in, during and on the way out. No other system in the world does this.

The Federal budget will hopefully redirect funds to address some of the flaws of the superannuation industry, and in doing so, assist all people with compulsory superannuation, which covers most Australians.

The Senate Select Committee’s review of superannuation will be an important landmark in making real structural reform to a system that will be very much challenged in the next five years.

But unless reviews of superannuation address the issue of taxation of funds at multiple levels, it will remain difficult to convince the public of the long-term worth of super and the necessity for a greater focus on one of the guaranteed vehicles of retirement income.