The Association of Superannuation Funds of Australia (ASFA) wants the government to know that using the country’s mandatory pension scheme as a political football is detrimental to the industry and may have a negative impact on the size of the asset pool.
On Friday ASFA launched a survey giving members a chance to have their say on the future design of the system, which now holds A$1.5 trillion ($1.37 trillion) in retirement savings.
“Confidence in superannuation has been damaged by the constant tinkering with rules and policies,” says Pauline Vamos, chief executive of ASFA, who believes the industry isn’t given enough notice about the introduction of new measures.
“People want certainty. They deserve to be able to plan for their retirement without thinking the goalposts are going to be moved all the time as governments play politics with the system.”
The survey is timed to tap into fresh disgruntlement over suggested changes to the tax regime – in particular, a possible new exit tax of 30% on the 700,000 or so super accounts with a balance greater than A$1 million.
Critics of the exit tax, flagged in February, say it would discourage people from putting extra money into their accounts beyond the mandatory requirement. Australians currently pay no tax on the income they earn from their accounts after they retire.
The Labor government responded by watering down its policy, suggesting instead that annual earnings over A$100,000 would be taxed at a rate of 15% – a policy it plans to implement if it wins the federal election scheduled for September.
Vamos is disappointed with the revised plan. She says ASFA advised that accounts with balances below A$2.5 million should be left alone. “The way the new policy is being framed, it has the potential to hit people with much lower account balances.”
The survey launched last week covers nine topics. “The hottest topic at the moment is the issue of lump-sum withdrawals post-retirement – whether they should be allowed and if they should be taxed,” says Vamos. She says ASFA is pushing for lump-sum withdrawals to be permitted so retirees can pay for one-off expenses such as a new car or repairs to the family home.
The survey also canvases views on the current system of capping non-concessional contributions based on an annual limit, and asks whether this should be replaced with a lifetime cap.
“One issue with annual caps is that most people have the ability to top up their retirement savings when they are nearing retirement, after the mortgage is paid off and the kids have left home,” says Vamos. She notes that the current non-concessional cap stands at A$150,000 a year. “A lifetime cap of about A$1.5 million on contributions would give people more flexibility to manage their finances.”
On the topic of the mandatory guarantee, the survey asks whether it should be set at a higher rate. “The guarantee is scheduled to rise from 9.5% now to 12% by 2019, but the popular wisdom is that it needs to be as high as 15% for people to receive an adequate retirement income. One option might be to keep the mandated level at 12%, but then offer tax incentives to encourage people to make voluntary contributions.”
In general, Vamos says the survey aims to build a national consensus around what policy changes the industry wants to promote. “We need to build a sustainable system that recognises the different life stages that people pass through.”
The survey remains open until August 17. Responses will be used to fine-tune ASFA’s recently launched white paper on recommended changes to superannuation legislation. The revised paper will be launched at ASFA’s annual conference scheduled to take place in Perth on November 13-15.