At the SMSF Professionals’ Association of Australia (SPAA) annual conference, held in Melbourne in mid-February, delegates at the gala dinner were treated to a keynote address from retired High Court Chief Justice Sir Anthony Mason – who did not hold back when covering the topic of government tinkering with superannuation.
Mason called on both sides of politics to make superannuation “as sacrosanct as the family home”.
The average Australian’s super balance now sits alongside their home as their major asset when they come to retire. However, for tax purposes, the two are treated in very different ways, both in terms of liabilities and in terms of tax concessions, Mason told delegates.
“They are both encouraged by governments and should be entitled to the same degree of security,” he said.
The compulsory element of superannuation saving only adds to the argument that it should receive treatment that protects it from government tinkering.
“People look at tax advantages in deciding how much to invest and what form that will take,” Mason said. “In doing so, they and their advisers make projections based on the current laws, including tax advantages, and the assumption that the relevant laws will not be changed to their detriment.”
Mason is not the first – and surely won’t be the last – to point out that constant uncertainty over which rules may apply to super following each successive federal Budget or election is likely to have a detrimental effect on people’s enthusiasm for making additional contributions.
But as patron of SPAA, a former Royal Australian Air Force officer and ninth Chief Justice of the High Court of Australia, his voice should carry some weight.
“In the absence of such a settled framework, it is not possible to make realistic projections and provisions [about] the superannuation adequate to the individual’s needs,” he said.
Even with a settled framework of superannuation rules and regulations, making any kind of financial projection would be a tricky business, Mason added.
With life expectancies rising faster than anticipated, despite increased involvement in superannuation by Australians, it is possible – or even likely – that many retirees will find their existing position will fall short of providing an adequate lifestyle in retirement.
“By making contributions to super assets, people lock away assets that could be used for other purposes. Uncertainty is about security; it may lead people to conclude that the sacrifice is not worth making,” Mason said.
People may then elect to spend more on consumption and simply rely on the old age pension.
Mason then went on to outline exactly why the superannuation ‘honeypot’ is so tempting to governments that are looking to plug a gap.
“Unfortunately, the high level of investment in superannuation, and the cost to revenue of the tax advantages, present a strong temptation to governments looking for sources of additional revenue and cost savings to fund new programs,” he said.
“History tells us that governments do not have a good track record of resisting temptations of this kind. Taxation arrangements are all subject to change depending on circumstances and government priorities.”
When politicians start to eliminate superannuation concessions to bolster government revenue, it is only natural that people will expect them to go further down this path, according to Mason, who emphasised these actions will have detrimental consequences for public confidence in the system.
“There is a strong case for not disturbing the basic framework of the principal assumptions on which the superannuation projections are based,” he said. “Superannuation is no less important to the Australian family than the family home.”
Given that Australian workers have been urged and persuaded to moderate their wage claims in exchange for receiving increased superannuation benefits, they are entitled to expect a modicum of security around those investments.
“Conscientious politicians recognise that public confidence in the political process – and it is not at a high point at this time – rests on the integrity of the political process,” Mason said. “Broken promises, public statements and over-reliance on spin inevitably damage trust in that process.”
Nothing is more damaging to public trust in the political process than the making of decisions which disappoint the justified financial expectations of workers and retirees, he said.
“We should not expose [the Australian superannuation system] to jeopardy by speaking of proposals which could disappoint the well-founded expectations of many Australians,” Mason concluded.
Chris Kennedy is the editor of SMSF Adviser