Super tax advantages not over-generous
While the size of tax concessions provided to superannuation in Australia has been a point of contention recently, that tax advantage is not generous when compared to world-class retirement systems on a global stage, according to research released by Mercer.
Quite the opposite can be argued, says Dr David Knox, Mercer senior partner and author of the research — entitled ‘Tax & Superannuation: Benchmarking Australia against the world's best retirement savings systems'.
"Our research reveals (that) when the Australian approach is compared to countries with world-class retirement income systems, the after-tax retirement benefits provided to Australians are lower than five of the eight countries," he said.
According to Knox, the research modelled the effect of different tax systems, showing the present value of after-tax retirement benefits for an individual on average earnings with a 9 per cent employer contribution over 40 years. It then benchmarked those results against Australia.
On that basis, an average British worker would be 16.4 per cent of $45,534 better off, while an American worker would have a net retirement benefit that was 11 per cent or $29,273 higher.
"The taxation treatment of superannuation may be controversial, as the greatest benefits are inevitably received by those who participate to the greatest extent: primarily the higher income earners," Knox said.
"However, it's also important to look at our retirement savings system in its entirety and the impact altering the tax model could have on the future costs of funding the age pension."
Commenting further, David Anderson, managing director and Pacific market leader for Mercer, said that any limitations placed on the tax advantage given to superannuation could discourage contributions and diminish confidence in the entire system.
"We are relieved the Federal Government has ruled out taxing withdrawals on super for people over 60," he said.
"Our research into superannuation members tells us there is significant confusion around tax on super and the last thing Australians need is more tinkering."
Anderson said that Mercer's research had also compared contribution caps across countries — and the current $25,000 limit fell well short of the countries studied when expressed as a percentage of average earnings.
"We believe increasing concessional caps, particularly for those aged over 45, should be a priority for government, rather than reducing super tax concessions," he said.
"Higher superannuation benefits due to increased contributions, improved investment returns or lower taxation will lead to less pressure from the ageing population in future budgets."
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