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This morning, the government announced the changes that will be made to the superannuation system. We expect that this announcement was brought forward due to increased pressure from the opposition and the media. The real risk here was that the (mostly negative) speculation was damaging confidence in our world class retirement savings system.
Here’s a quick summary of the changes.
In their media release, the government suggests that changes have been made to reflect the ageing population as well as Australians living longer and therefore looking to make the system more fair and sustainable.
The reforms include:
- The establishment of the Council of Superannuation Custodians an independent body that will be responsible for any future changes and ensure all changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability
- A tax exemption on superannuation earnings supporting pensions and annuities will be capped at $100,000, and anything above that level taxed at a rate of 15 per cent
- The government will simplify the design and administration of the proposed higher concessional contributions cap by providing an unindexed $35,000 concessional cap to anyone who meets certain age requirements
- Withdrawals will continue to remain tax-free for those aged 60 and over, and face the existing tax rates for those aged under 60
- For people aged over 60, concessional caps will be increased from $25,000 to $35,000 from July 1
- For people with more than $2 million in super assets supporting income streams, the reform will affect assets earning a rate of return of 5%
Responses from industry have all been positive so far with statements released by Pauline Vamos of ASFA saying "We have been calling on the Government to put a stop to the hysteria and consider policies which take a long-term approach to the future sustainability of Australia's superannuation system."
Mark Rantall of the FPA has also welcomed the changes stating “We believe it is critical for Australians to have certainty and to maintain confidence in one of the best retirement systems in the world. We welcome the government on bringing forward today’s announcement and hope that it will look to address current concerns for Australians around sustainability, equity and confidence in the superannuation system.”
The Financial Services Council’s John Brogden welcomed the changes, but reserved the right to campaign against further changes. The FSC had hinted at a mining industry style ‘anti’ campaign, and made it clear this is still an option: ‘‘We do want to make it clear to this government and future governments, that if there are sovereign threats to the savings of Australians in the future, we will consider again running a campaign to ensure that the 10 million Australians who have superannuation will have their superannuation protected,’’
The Government expects that these changes will lead to a person aged 30 today on average full-time earnings will retire with an extra $118,000 in superannuation savings. From initial inspection these changes will bring confidence back to the superannuation system and the establishment of an independent body , in the form of the Council of Superannuation Custodians, will remove superannuation from the annual federal budget cycle and the political debate.
For more of the industry reaction see Bruce Madden’s post.
