Is linking tax and super sabotaging sustainable retirement?

Is the recent tax-super linkage helping sabotage a sustainable future for Australians? A Super Review roundtable joins the dots between the key issues.

Mike Taylor, managing editor, Super Review: Okay, I thought I’d kick off with the whole question of the Government’s speculation about tax rates applying to super and particularly the high income earners.

I think there seems to be a view out there that speculation isn’t a helpful thing and tinkering with super settings isn’t a helpful thing.

Tom, you’ve suggested previously that perhaps it’s not tinkering – perhaps they’ve genuinely thought the thing through, that there’s a legitimate policy basis coming through here. So Tom, starting with you, what’s your thought on that? 

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Tom Garcia, chief executive, Australian Institute of Superannuation Trustees (AIST): Well, things are always changing in the super industry and we’re actually always asking for change, but change needs to be based long term, so what we are looking at is 20 years out, 30 years out.

If we do change we need a lot more transition period; don’t change things that are going to affect people who are retiring in the next one or two years, because that just throws everything in a great mess for them. 

And so this is the difference I guess between this tinkering and change. We don’t know what the Government really is suggesting they’re wanting to do.

Obviously they’ve got this NDIS [National Disability Insurance Scheme] which went through the Lower House yesterday, and they’ve also got the “Gonski” [education measures] as they’re calling it. 

I think they [the Government] is trying to weigh up that these are two big reforms we want to push through: there’s money here, there are people who are obviously – well, through the numbers we’re getting from Treasury, and we keep asking for more numbers from Treasury – this cohort of people are getting a really big advantage so we’re [the Government] going to look at that. What exactly they’re looking at though I’m not sure, it keeps jumping around.  

Mike Taylor, Super Review: Alex? 

Alex Hutchison, chief executive, Energy Industries Super: I can only repeat what I’ve said recently, and I think a number of other people agree, is that there should be “hands-off super” given the volume of change we’ve had in the last couple of years. I’m an advocate of no further taxes with respect to super 

I believe in having an egalitarian approach. I think that the connection of tax with other revenue measures is a change in what Governments have done in the past. Normally it’s been that superannuation has stood alone; and I think that at this point in time, hands-off would probably be the best, at least until we get certainty over what’s happening after the election.  

Mike Taylor, Super Review: Danielle? 

Danielle Press, chief executive, Equipsuper: I think they need to do something with the system because it’s not sustainable, it’s just not sustainable long-term with the pension where it is and the tax base where it is. So it worries me around the level that they’re potentially putting taxes in. 

The very, very large sums in super, I have far less problem with them having a tax on the way out; but define “very large”. I don’t think $1 million is very large particularly, not when you’re looking at that figure sustaining someone through 20, 30 years of life. That’s a pretty modest type of outcome. 

But I think ultimately the system isn’t sustainable as it is, so they need to look at it somewhere.

But I also agree that doing it now before a change in Government, surely it’s just going to upset people for no real advantage. Because they’re not going to get it through anyway if the Government changes, so why throw the dust?  

Mike Taylor, Super Review: Brett, what do you think? 

Brett Himbury, chief executive, Industry Funds Management: Well, the compulsory system was established, and arguably well thought out, a little over 20 years ago.

It’s now one of the most highly regarded systems in the world. One of the things that went into that is that a whole lot of people gave it some thought, gave it some strategic, long-term thought. 

So if we are going to change the system now, let’s apply that same thinking – strategic, long-term thinking – about what the system may look like in the next 20 years. That’s the first thing I’d say. 

The other thing I’d say is that whilst there’s a lot of discussion around the sustainability of the costs of the system – and I think we clearly need to look at that – but we also need to look at the benefits.

You know superannuation and our pool of capital provides an enormous amount of not just economic benefit to the members, which is clearly the priority, but it also provides an enormous amount of benefit to society. 

The Australian balance sheets were remediated through the GFC – effectively because of the size and scope of the Australian superannuation system. We have been across-the-industry pioneers in infrastructure, which has enhanced productive capacity. 

We provide capital when banks are no longer prepared to provide capital in debt and equity markets. So I think as well as the cost issue, there’s a couple of things: a strategic, long-term approach for any review, not tinkering; and secondly, let’s also look at the benefits, because they are probably understated and misrepresented – well certainly understated. 

Mike Taylor, Super Review: Peter, what do you think? 

Peter Smith, head of distribution, group insurance, Metlife: Yes, I think it’s a credibility potential issue, going along with Alex’s point. I think if you continue to just keep tinkering with this thing, members are going to get lost in all this change. 

I think somebody needs to stop, take a longer-term view of this and make the changes as necessary and communicate to members why these changes are being made, because I’m not sure that’s really being done.  

Mike Taylor, Super Review: Russell? 

Russell Mason, partner, Deloitte: Yes, I think Alex summed it up very well. I’m very anti any new taxes. I think we’ve seen it in the past over time. Every time the system is tinkered with, people lose confidence, you see a downturn in contributions. 

Allow people to make themselves affluent in retirement – that’s good. It takes pressure off social security, it takes pressure off the health system.

It allows people to able to retire with dignity and perhaps ultimately into retirement villages, and that can be an expensive option for those of us who have seen it with parents, for instance. 

But give people some certainty. Right now I’m hearing from people who say, ‘look, will I put money into super, because they just keep changing the rules too many times’. I would leave the system alone.