Frydenberg hints at imminent super reform
Assistant Treasurer Josh Frydenberg has confirmed the government will be taking the Tax White Paper’s “good ideas” for super to the next federal election and flagged an impending announcement on the future of super retirement income streams.
In an address to the Committee for Sustainable Retirement Incomes in Canberra, Mr Frydenberg weighed in on the current debate on the sustainability of superannuation tax concessions.
He confirmed, as widely predicted, that the government will be taking the recommendations of the Tax White Paper to the federal election.
The government’s Tax Discussion Paper, released in late March, called for consultation on the fairness and complexity of tax arrangements for superannuation and questioned how these arrangements could be improved.
In particular, it mentioned the inequity between superannuation tax concessions for high income earners versus low income earners.
Mr Frydenberg stressed, however, that the government is aware of the limitations of the Tax Expenditures Statement (TES) when considering changes to superannuation tax concessions, as acknowledged by Treasury earlier this year.
“The TES is not meant to show how much better off the budget would be if the tax concessions were removed,” Mr Frydenberg said.
“Let’s say the tax concessions on super contributions were removed and instead contributions were taxed at marginal tax rates. What would happen?
“Well, you would get an increase in tax revenue, but there would also be some behavioural change. With a higher tax rate you would expect that superannuation contributions would be smaller for many people.”
Mr Frydenberg also labelled superannuation retirement income streams as an “important area of reform” which the government is currently considering.
As per its pre-election promise, the government is reviewing the current minimum drawdown rules for account-based pensions and the rules that may be impeding the development of other retirement income products.
The current minimum drawdown rules require superannuation pension products to draw down a minimum of four per cent of the capital value a year initially, with this percentage increasing later in life.
Mr Frydenberg stressed superannuation capital is supposed to be depleted over retirement, rather than preserved as a bequest.
He also raised concerns on the opposite end of the spectrum – that it would be “undesirable” to make Australians draw down too much of their super early in retirement and risk the sustainability of their savings.
“The government has heard a range of views on whether the current requirements strike the right balance and how they might be made more flexible without undermining their integrity,” Mr Frydenberg said.
“I am hopeful of making an announcement on this in the not too distant future. To be clear, we are not considering increasing the current rates, but rather making sure the system allows for innovative retirement products to be developed. We have also been looking more broadly at the range of post retirement products currently available.
The government has also been consulting on ways to make it easier for people to purchase longevity insurance incrementally, Mr Frydenberg said.
“I am hopeful that we will be able to deliver a package of changes that facilitates the emergence of new and innovative retirement income stream products,” he said.