Speaking at the media launch of Deloitte’s Adequacy and the Australian Superannuation System report yesterday, Deloitte’s superannuation partner Russell Mason said the government should encourage higher contributions into super and assess the merits of lifetime contribution limits as opposed to year-to-year limits.
“There have been many different regimes for limiting tax-deductible superannuation contributions in the past which have created uncertainty, inequity and discouraged retirement savings,” Mr Mason said.
“The limits are now assessed year by year, with no scope for clawback to compensate for periods out of the workforce – continuing to create the gender divide – or for different lifecycle stages.
“There is limited and inadequate scope to top up super in the years approaching retirement to finance a comfortable lifestyle.”
Deloitte said the government should also facilitate access to deferred and lifetime annuities, which it says “will not happen on a wide scale without government action”.
Mr Mason also said the broader superannuation industry should examine the factors that drive investors to consider SMSFs.
“If funds want to compete with SMSFs, instead of what this industry so often does – which is criticise them – we should be looking at the SMSF and thinking how can we replicate that in the wholesale and retail industries,” Mr Mason said.
Mr Mason added that the industry can expect more “SMSF lookalike” products as software systems continue to evolve.
The Deloitte report also highlighted that superannuation will not provide adequate support in retirement for most Australians unless they work longer or contribute more to their super.
“The system in its current form will not deliver adequacy. It must change. From government we need policy settings that build trust, foster greater efficiency and competition, and sensibly apply concessions across the working lifetime of individuals,” said special superannuation adviser at Deloitte Wayne Walker.
To finance a comfortable retirement, Deloitte calculates each person would need to contribute an extra 5.5 per cent to 7.5 per cent of salary to superannuation each year of their working life, in addition to the 12 per cent superannuation guarantee.
When the large funds (at a minimum) can offer a capital guaranteed rate same as bank term deposits, they might have a chance. Otherwise, SMSF’s are safer for weary investors who are afraid of the sharemarket. Some very reasonable arguments from Deloitte above. Nobody will listen though.
Of course the biggest hurdle for a lot Australian’s contributing to super are the never ending changes. We have a generation that is very skeptical of making larger contributions (above what is required) as they simply do not trust our policy makers.
The contribution caps as they stand are inadequate, for a personin their 40’s and older, to accumulate sufficient assets to fund a comfortable retirement. I have done plenty of work in this area and I am surprised that the government has not realised that $35,000 per annum is a completely inadequate amount to fund a retirement for an slightly older person.
A great article and a good idea. The difficulty to overcome is that our Governments have a 3 year cycle in which to do something, and then win their job back. Superannuation is a big pie and they want some of it to balance their promises now vs knowing that future generations will pay for their indiscretions. They know the Age Pension can’t last and Super is the answer, but they don’t want to give enough incentive yet because they need the tax dollars now too. What will it take to shift the balance?
I’d like to see something like no lifetime limit but not a zero tax pension. Encourage Retirees put as much as possible into super, keep it low taxed rather than no tax but 100% accountable. Better to have a constant piece of the whole pie, than make it a nightmare to manage or encourage hiding.
I’d certainly encourage far more discussions in this field. Well done Deloitte.
Spot on Russell. We have been advocating higher and more flexible contribution caps in our submissions to Government. There’s not enough going into super savings to permit most people to be financially independent in retirement. Facilitating super savings is good economics. For every dollar the Government invests in a super savings tax incentive, it will recover at least three dollars in age pension costs in the long run.
As you say, instead of being criticised, SMSFs should be acknowledged as a highly successful vehicle for Australians determined to look after themselves in retirement.
Duncan Fairweather, SMSF Owners’ Alliance
Could not agree more with these comments. We are expected to be able to live on our superannuation after retirement but we are not encouraged to invest more funds in our superannuation when government constantly looks at ways to tax or limit our contributions.
A lifetime rather than yearly limit is just so sensible, it’s a debate we really should have. I remember it being proposed in submissions to a number of Govt enquiries over the last few years. Perhaps 10 years ago it would just have been too hard to administer but surely that’s no longer the case. If there are tax concessions in super we have to have a limit on something. RBLs tried to apply a lifetime limit to what came OUT (the end benefit), while contribution caps try to apply a limit to what goes IN (a more sensible approach in my view). What we’ve lost in the process of moving from a combination of RBLs and contribution caps to a focus exclusively on contribution caps, though, is the recognition implicit in the RBL system that for most people, building up retirement wealth isn’t a linear thing. Well done Deloitte.