Superannuation and politics are inextricably linked. The first would not exist without the second. But now that super is a $1.3 trillion behemoth it can be both political player and football at the same time. The hot issue at the moment is centering on the federal government’s proposed increase of the super guarantee from 9 percent to 12 percent commencing in July 2013. The federal opposition has opted to oppose mandated rises in the SG level and the debate is being fuelled by the competing and unexpected demands on the federal budget from the impacts of the flood disasters. Make no mistake – raising the SG to 12 percent is a major shift in policy setting that will go a long way to providing a comfortable retirement income for today’s 20-30 year olds. It is the big picture for the broader intergenerational challenge the federal government is grappling with. But if your date of birth means you are classified in the baby boomer tribe then there are clearly more basic things to be worrying about with your superannuation than whether the SG rate gets lifted. Bluntly put you may not be able to afford to wait for the government to raise the contribution rate – it may well fix the next generation’s retirement problem but not yours. Indeed one unintended but positive outcome from the 12 percent debate that is now a regular media debating topic is that it may be a catalyst for investors to seriously review whether the 9 percent contribution rate is the right amount to be putting into super. The 9 percent contribution level was not meant to be the endpoint for super contribution levels – more a staging post for a final push to 12 percent with the help of voluntary contributions under then Treasurer Paul Keating’s original plan.
But changing political approaches meant a 9 percent contribution rate became a de facto anchor point for the system and by inference for fund members the right amount to contribute. The Minister for Superannuation, Mr Bill Shorten, is doing his best to debunk that myth as he tries to win support for the contribution rate rise. But for anyone who has left their contribution run late in life the real challenge is how to get money into the concessionally taxed accumulation system and ultimately tax-free pension phase. So contribution strategies are arguably much more relevant to the baby boomers than the debate about 9 percent versus 12 percent SG levels. The reform package the government is proposing for super is broader than just the contribution rate increase to 12 percent. There are some concessions to those needing to build super account balances late in life. From 2012 people over 50 will be able to contribute on a concessional tax basis up to $50,000 provided their existing account balance is below $500,000. For people with account balances above that threshold the concessional cap remains at $25,000. For people who are bumping into the concessional tax limits, the second option is to contribute up to $150,000 a year into super on a non-concessional tax basis. For people with large lump sums available, they can bring forward up to three years of contributions into one year. Which raises an interesting question about the role of financial advisers and what motivates people to seek out the services of an adviser? Typically investors go looking for an adviser when they are looking for help with their investment strategy. But for baby boomers with the retirement finish line in sight strategies to maximize contributions are arguably as – if not more - important. After all you can control contributions and costs but not market returns.
The rules and interactions between super and the tax system are complex in the detail – particularly around transition to retirement pensions – but it is also where financial planners (perhaps working in conjunction with a tax accountant) can add real value in terms of getting on track for a retirement that may well arrive before the higher 12 percent takes effect.
21st-February-2011 | 