working for Australians in retirement

Superannuation

  • How to Assess the Competitiveness and Efficiency of the Superannuation System

    Response to Productivity Commission Draft Report September 2016 [abridged]

    See full document here

    How to Assess the Competitiveness and Efficiency of the Superannuation System

    A.I.R. accepts, in preparing this submission, the statement from the Deputy Chair of the Productivity Commission, Karen Chester that “This system-wide assessment of the competitiveness and efficiency of our super system is challenging and novel. It has not been done before. Getting the foundations right matters most — and we know there are no silver bullets”.

    However in reviewing the draft report we consider that it does not adequately cover aspects specifically impacting on those in the retirement income stream pension phase or those who are about to retire.

    We do agree on the need for: 

    1. the superannuation system to maximise net returns on member contributions and balances over the long term; 
    2. the superannuation system to meet member preferences and needs, in relation to information, products and risk management, over the member’s lifetime; 
    3. the superannuation system to complement a stable financial system and not impede longterm improvements in efficiency; 
    4. competition in the superannuation system that drives efficient outcomes for members.

    A.I.R. sees a critical need for a broad political and community agreement to enshrine in legislation a realistic Objective of Superannuation and a set of measurable goals to ensure that there is clarity of purpose and a clear path forward.

    Our view is that the Government’s current adopted Objective is not a positive statement and does not satisfy this need. It should be modified to reflect the intent of the superannuation system - which is to support the self-funding of a sustainable income stream in retirement that will adequately provide for a comfortable and active lifestyle in retirement rather than creating a dependency on the Age Pension in retirement.

    We believe this opinion is supported by Commissioner Angela MacRae’s statement that the intent of the superannuation system is to be able to meet its primary purpose of providing retirement income.

    The Association is critical of the Government’s position on the current reform of the superannuation system, and in particular the lack of adequate consultation with those who are now self-funding their retirement or have plans in place to retiree.

    Likewise we are critical that proposed reforms are not adequately grandfathered for those who are retired, having made their retirement income and asset investment decisions on the basis of past rules and regulations and are now locked into the existing income stream pensions.

    It needs to be clearly understood in looking for improvements that the accumulation phase of superannuation and the retirement income stream pension phase are very different.

    Improvement is needed to the process to facilitate self-sufficiency in retirement with the need for self-management of superannuation retirement assets and the investment strategies to generate a retirement income stream. These must be no Government involvement in specifying the detailed management of an individual’s assets and investments.

    Also, in looking at improving efficiency and effectiveness, there is a need to choose between market driven competitiveness and efficiency as opposed to regulation. A.I.R. supports a market driven approach with limited but necessary regulation to protect retirees and mitigate abuse of the system.

    Retirement planning has not only become more complex, but current volatile market conditions and low interest rates are making it harder for many to develop a retirement plan that’s built to last for the long term.

    The Government needs to adopt a truly holistic approach to bring about greater efficiencies from the superannuation system especially for those in this retirement income pension phase. It needs to ensure in the process of change that this specific group is protected from unintended consequences of change. 

    required in the income stream pension phase of superannuation where the retirement income stream fund assets are used to provide income for everyday living.

    A.I.R.’s view is that while the market itself must be the driver of change, there are other market forces that can have a negative impact as individuals move from the accumulation phase to preparing for retirement and then into the income stream pension phase. Self-sufficiency is 

    It is essential to take into account the additional costs incurred by aging retirees, including

    • significant home improvements necessary for lifestyle, maintenance and to enable retirees to remain in their home; 
    • replacement of major household equipment (refrigerator, washing machine, etc); 
    • replacement of the family motor vehicle; 
    • home, home contents and private health insurance; 
    • specific aged care that is subject to means testing; 
    • GP and medical specialists, including prescriptions; 
    • medical procedures, rehabilitation and equipment; 
    • special support for family members when needed.

    One specific area where significant effectiveness and efficiency improvements could be gained would be a revision of the current aged based percentage drawdown requirements and lowering the percentage once people have reached age thresholds.

    It is estimated such change would generate as much as $200 million additional savings for the Government, enabling an extension of the period until a retiree’s assets have been drawn down to the level where he/she qualifies to apply for and receive a Government part Age Pension.

    The Government has stated that reforms and approval of additional more flexible income stream pension product are intended to make the system more equitable and sustainable. However these goals would be undermined if the tax treatment of all income stream pension products are not treated equally and based on the aggregated total of the pension asset held by an individual.

    A.I.R. also believes that in special circumstances, after the preservation age, a retiree should be able to use funds from outside superannuation to set up an account based pension or an annuity and receive an income stream pension subject to revised annually minimum drawdown rates suggested above.

    This in no way detracts from the superannuation system and is only for the purpose of establishing an income stream minimum annual drawdown pension by those who have not contributed to superannuation over their working life, and do not comply with the special case circumstances are in place for small business owners and farmers.

    See full document here

     

  • Response to public consultation on Superannuation Reform Package September 2016

    Superannuation Reform Package

    Public Consultation on the exposure draft legislation:

    Superannuation (Objective) Bill 2016
    Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016
    Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulation 2016
    [Issued on 8 September 2016]

    1. the objective of superannuation;
    2. tax deductions for personal superannuation contributions;
    3. improve superannuation balances of low income spouses;
    4. introduce a Low Income Superannuation Tax Offset (LISTO); and
    5. harmonising contribution rules for those aged 65-74.

    We support and agree with the details contained in measures 2, 3, 4 and 5 of the draft legislation but we do not agree with the detail on the first measure - the objective of superannuation - contained in the draft legislation document and consider that this is not an adequate objective.

    A.I.R. accepts the value of a broad political and community agreement to enshrine in legislation a realistic objective of superannuation and a set of measurable goals to ensure that clarity of purpose and a clear path forward. However, it is essential that the agreed objective reflects the needs of those who now and in the future will self-fund their retirement, and the need for improved and increased self-sufficiency in retirement.

    As such, A.I.R. strongly believes that the primary objective of the superannuation system is to enable Australians to be self-reliant and have a sustainable income stream in retirement that will adequately support a comfortable and active retirement lifestyle.

    The Government’s current proposed objective - to provide income in retirement to substitute or supplement the age pension - is not a positive statement and is not based on the perspective of those currently living on or planning their retirement future funded by their superannuation.

    On the question of intent Productivity Commissioner Angela MacRae recently stated that the aim of the superannuation system is to be able to meet its primary purpose of providing a sustainable, adequate and equitable retirement income stream which must be optimised over the lifetime of a person in retirement.

    Back in 2013 the Charter Group of the Council of Superannuation Custodians set up by the Government concluded that the objectives of the Australian superannuation system are to:

    • provide an adequate level of retirement income;
    • relieve pressure on the Age Pension; and
    • increase national savings, creating a pool of patient capital to be invested as decided by fiduciary trustees.

    A recent media article clearly articulated that the problem with the objective of the
    superannuation in the draft legislation is that it puts superannuation and the Age Pension the wrong way around.

    There are now some 1.6 million Australians who are trying to create their own self sufficiency by looking after themselves in retirement by either partly or fully self-funding their retirement. The majority of this group would not support the view that superannuation is just “to provide income in retirement to substitute or supplement the Age Pension”.

    Also in 2013 the then Minister for Financial Services and Superannuation, Bill Shorten MP, stated

    "We owe it to all Australians, present and future, to sustain a system that gives
    everybody a fair shot at a decent and dignified retirement. This is the ongoing
    objective of superannuation."

    Secondary Objectives
    It is noted that in the Exposure Draft explanatory materials for the Superannuation Objective Bill, as well as having a Primary Objective for superannuation, the Government has proposed five Subsidiary Objectives which provide the framework for assessing the compatibility of any Bill or Regulations associated with the primary objective of the superannuation.

    However, these Subsidiary Objectives do not seem to be in the actual legislation for the primary objective. A.I.R. suggests these should be included in the legislation if it is intended that they are to be used to evaluate other superannuation legislation or regulations.

    Withdrawal of the contribution harmonisation
    These issues around the objective of superannuation are compounded by the decision announced on 15 September to withdraw the measures proposed under item 5 of this draft legislation to harmonise the contribution rules for people aged 65 to 74. We consider that this decision completely ignores changes currently happening in the community and our association strongly objects to this decision.

    A.I.R. reiterates it’s clearly stated position that there must be bi-partisan agreement to a holistic review of Australia’s retirement income and superannuation system.

     SEE FULL DOCUMENT HERE

  • Super September 2016

    Superannuation Submissions By A.I.R.

    AIR has continually been tracking proposed changes to Superannuation and participating in the discussion. The changes that passed in the House of Representatives this week have been a long time in the making.

    Submissions to Federal Treasury

    Below are recent submissions which have been lodged with the Federal Treasury in response to

    (a) a discussion paper on the Objective of Superannuation
         Read AIR Submission on the Objective of Superannuation April 2016

    (b) input to the Government’s public consultation process on the exposure draft legislation:
    Draft legislation: Superannuation (Objective) Bill 2016[
    Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016; and
    Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulation 2016 to implement five of the superannuation measures announced in the 2016-17 Budget

    Read AIR Submission on draft Superannuation Legislation 08-09-2016

    AIR Media Release

    This media release below was issued in response to the changes to the Government’s Budget superannuation proposals announced 15 September 2016.  Click here for a PDF

    Government Accedes to Calls for Change to Superannuation Proposals

    The Government has responded at least in part to pressure by A.I.R. and other organisations representing self-managed superannuants to change aspect of its Budget proposals around superannuation.
    The decision to scrap the $500,000 lifetime non-concessional cap is very sensible given its benefit was questionable in light of the $1.6m transfer balance cap. The replacement of the lifetime non-concessional cap with a reduced non-concessional cap of $100,000 a year (with $300,000 bring forward) going forward is much better than a lifetime cap of $500,000 back-dated to 2007. While it is not as favourable as the current $180,000 per year limit, it will allow people to continue making contributions rather be stalled as is the current situation.
    Of concern, however, is the decision not to proceed with the harmonisation of contribution rules for those aged 65 to 74. A.I.R. has advocated for many years for harmonisation as was proposed in the Budget and queries the figure quoted by the Government of a cash flow improvement of $180 million over the forward estimates and a total of $1,920m to 2026-27.
    The decision takes no account of changes in the community and the fact that many people may need to work until they are 74 or more and, ideally, put every available dollar into superannuation to achieve some level of self-sufficiency when they eventually retire.
    We cannot see how this decision in any way supports the Government’s stated objective to provide income in retirement to substitute or supplement the Age Pension. It appears that there has been little consideration given to what the current generations of working Australians will want from their retirement in the decades to come.
    There is a similar disregard for the increasing longevity of Australians which requires easing of the annual compulsory drawdown capital percentages of retirees’ super accounts to allow them to stay off the pension for longer. It would be interesting to see an estimate from the Government on the additional Age Pension payments that will be required in future years.
    This is yet another example of change being made on the basis of rushed consultation rather than the result of bi-partisan well-thought out, long term planning. It remains to be seen if the Government will also reverse the changes to the Age Pension qualifying age and the preservation age is the same nonsensical way.   

    For further information, contact Sue Hart, Executive Officer on 02 6290 2599


    Taper Rates Change

    Are you in the "poverty trap" with assest test threshold changes?

    More about Super Taper Rates here

    Treasury Summary of Changes

    View PDF of Superannuation Changes produced by The Treasury

    More detailed information can be found at The Treasury Superannuation website


  • SUPERANNUATION TAPER RATES ARE CHANGING

    SUPERANNUATION TAPER RATES ARE CHANGING

    The proposed action by the Federal Government to increase the age pension taper rate from $1.50 to $3.00 per $1000 has reduced the asset test threshold down to $820,000 approximately for couples effective from 1 January 2017.

    The proposed changes are punitive to those partially self-funded retirees who currently qualify for a part age pension. In fact, it has created a poverty trap for those with income producing assets (including super) in excess of $820,000 and less than $1.3M.

    For self-funded retiree couples about $1.3m is required to equal the income of a full age pensioner couple. A similar comparative situation applies to single and non-home owner retirees.

    The changes now proposed by this Government reverse this situation that was established by the Howard Government.

    The proposed action by the Government will create a new poverty trap for the average self-funded retiree.

     

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