There has been plenty of talk recently about what changes the government may or may not make to superannuation in the upcoming budget. Pressure is mounting on Labor to be seen as “fiscally responsible” and minimise the size of the deficit.
Will there be an increase to contributions tax or earnings tax? Is is only the wealthy or the super wealthy who will be targeted?
Earlier this year Julia Gillard ruled out taxing super withdrawals for those aged 60 and over. At the risk of getting offside with the super industry – how long is this sustainable?
According to the KPMG report Evolving Superannuation Industry Trends – November 2012:
“Since June 2004 the number of pension members has more than doubled whereas the number of accumulation members has hardly increased at all over the same period. ”
As those aged 55+ hold most of the super wealth, that is a lot of money moving from 15% earnings tax to no earnings tax. It is also a lot of people moving from earning an income and paying marginal tax rates to not working and drawing a tax free income stream (although the above also includes those drawing transition to retirement income streams and still working).
My strong view is that we need to encourage long term savings and self funding of retirement. The tax concessions need to remain better than non-super alternatives to encourage this. Adverse changes that discourage additional super savings risk being a greater burden down the track through reliance on age pension entitlements.
However with an ageing population change is inevitable. What else will be on the cards – restrictions on lump sum withdrawals?
I’m interested in your views?