Take, for example, the 2004 federal government report, Australia’s Demographic Challenges. It’s a pertinent reminder of why we need a non-political compulsory superannuation system. Eight years later, two core statistics in that report should still send a message to politicians that continual tampering with the superannuation system puts Australia’s long-term economic health at risk, as well as the living standards of many retirees. First, the proportion of the population aged 65 years and higher will almost double to around 25 per cent over the next 40 years. Second, at the same time growth in the population of the traditional workforce age – 15 to 64 years – is expected to slow to almost zero. What the report is doing is giving statistical evidence to what everyone intuitively knows: most people are living longer and healthier lives; retirees and people near to retirement know they have to stretch their savings further. Yet this demographic reality is coinciding with one of the most volatile periods in investment markets in living memory. People in or approaching retirement have been witnessing their savings take a buffeting, especially if they have significant share investments. Shifting the goal posts However, it’s not just market volatility that has people skittish about their retirement savings. Financial planners we speak to say that nervousness about superannuation is being compounded by what seems to them to be ongoing changes to the rules of the game – whether they’re regulatory or tax. Take, for example, the lowering of the limit on salary that can be sacrificed into super. Under the Howard government, those aged 50 or older were allowed to salary sacrifice up to $100,000 of pre-tax income annually from July 1, 2007. Then the Rudd government lowered the cap to $50,000, and now it is back to $25,000. And, for those earning more than $300,000 a year, the tax on their super contributions will double from 15 per cent to 30 per cent from 2012-13. The latter measure might only affect 1.2 per cent of taxpayers, but it’s the type of change that sends another ripple of uncertainty through the entire system. After all, when the Superannuation Guarantee was legislated in the early 1990s, the system was sold on a simple basis: employees would forgo current income to save for their retirement and get tax incentives for doing so. The goal was to get as many people as possible to be self-sufficient in retirement. But if the governments keep changing the rules then financial planners, who deal with these people regularly, are convinced that many people will start to look for other ways to fund their retirement. Negative gearing is one option that gets mentioned. If this trend continues, the superannuation system envied by many other countries will begin to fray. So, what is required? Actually, not much. All political parties are committed to a universal superannuation scheme, but they just can’t help tinkering with it, especially if they have a short-term fiscal objective to meet. What’s required is a bipartisan approach to superannuation – the same as Medicare now has – that sets the ground rules in stone and then lets the system do what it was set up to achieve: giving people a secure lifestyle in retirement. Peter Dorrian is head of global wealth management at PIMCO
15th November 2012
Source: Professional Planner http://www.professionalplanner.com.au
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