High End Super In Tax Spotlight

The spotlight has been firmly directed towards the high end of the superannuation market.

The release this week of the Opposition’s proposed policy changes to super focussed on high account balances and two key changes: a tax on earnings of super accounts in pension phase and a lowering of the threshold on the high income super charge from $300,000 to $250,000 a year.

However, according to the ALP’s policy announcement the tax on pensions would only affect about 60,000 super fund members – those with more than $1.5 million balances.

It is entirely reasonable that we have public policy debates on superannuation through the lenses of equity and sustainability particularly given our ageing population and the pressures on the federal government budgetary position.

The next election will ultimately pass judgement on the Labor proposals and the Government’s still-to-come alternative approach. Sadly these long-running policy debates bring along with it the fellow travellers of regulatory uncertainty and legislative risk – both of which can effectively undermine confidence in the entire system.

While the ALP proposal focusses on "How much is enough" at the high account balance end of the market the single biggest challenge facing the system is that far too many people still have far too little in super to fund anything like a comfortable, let alone generous retirement.

According to the Rice Warner Superannuation Market Projections 2014 the average account balance in pre-retirement phase currently sits around $84,800 and that is only projected to rise to $114,300 by 2019.

So for the vast bulk of working Australians the simple answer to "how much is enough" is that today’s super is not even close particularly when you factor in realistic life expectancies reaching into the high 80s, early 90s.

That is a perspective that hopefully will not be drowned out in the forthcoming debate.

The recent report of the Financial System Inquiry – which at least in part has fuelled the super debate with its finding that 10% of Australians receive 38% of the tax concessional benefits in super – recommended one fundamental change that perhaps holds the best hope yet for some bi-partisan approaches to super.

That is the recommendation to "seek broad political agreement for, and enshrine in legislation, the objectives of the superannuation system…"

This could perhaps be the most important recommendation to come out of the FSI in relation to superannuation and retirement savings. If agreement can be reached on the over-arching objectives then it would provide a firmer policy framework against which initiatives like changes to tax arrangements can both be assessed and understood.

Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.