5 February 2018
The key lobby group for the $2.3 trillion superannuation industry has warned the federal government to hold off making any more changes to super and the age pension in the May budget or risk eroding confidence in the system.
“We don’t want any more meddling with the super and age pension settings,” said Martin Fahy, the chief executive of the Association of Superannuation Funds of Australia in a budget submission to the federal government released on the weekend.
He said data put together by ASFA had shown that the changes made as a result of the 2015, 2016 and 2017 federal budgets were working to achieve the government’s goals of constraining spending on super and the pension.
“The changes the government has put in place in super and aged care in the past few budgets have given the government the outcome it was looking for,” Dr Fahy said.
“We don’t want things to be dialled down any further.
“The reforms to superannuation and the retirement system are working, but they need to be bedded down. “Stability needs to be achieved to maintain confidence in the system.”
Dr Fahy added that the changes to the asset test for the age pension, which came into effect on January last year, were “helping contain future growth in aged pension expenditures”.
The changes were estimated to cut back spending on the age pension over the period of the forward estimates by about $2.4 billion. The number of people getting the age pension has fallen from 2.57 million in December 2016 to 2.49 million in September last year
— a fall of more than 3 per cent.
“The changes to the age pension were substantial and appear to make the age pension fiscally sustainable for Australian governments in the years ahead,” Dr Fahy said.
“However, any further tightening of either the asset or the income test could leave many Australians in retirement worse off,” he warned.
Changes to the age pension system announced in the May 2015 budget cut back the maximum amount of assets a person could own and still receive a pension.
They also increased the “taper rate” — the amount of pension lost per extra dollar of assets owned.
ASFA said about 100,000 people were estimated to have lost their entitlement to the pension as a result of the changes, with another 330,000 receiving a lower age pension.
Improvements to the lower end of the asset scale saw an estimated 50,000 Australians receive a larger pension.
Dr Fahy said work done by ASFA showed that the compulsory superannuation system was working to cut back reliance by Australians on the age pension.
“Super is working and will do more of the heavy lifting to deliver retirement outcomes into the future,” he said.
He said projections done by ASFA showed that a combination of increasing super balances and the fact that people were working longer would help reduce reliance on the age pension.
Currently, about 70 per cent of people over 65 receive either the full or part pension, with 60 per cent of those getting the full age pension.
Dr Fahy said ASFA projections showed that only 30 per cent of Australians over 65 would be on the full pension by 2025.
He said it would fall further to below 25 per cent by 2055. Dr Fahy said the changes announced in the May 2016 budget on superannuation were estimated to be saving the government about $2.35 billion a year.
This was made up of $1.25bn a year saved from lower contribution caps and $1.1bn as a result of the introduction of the $1.6 million transfer balance cap, a tighter cap on post-tax contributions and changes to transition-to-retirement pension arrangements.
The 2016 budget reduced the annual concessional level of contributions from a maximum of $35,000 a year (or $30,000 a year for people under 50) to $25,000 a year.
It also increased the tax on superannuation contributions for people earning over $250,000 a year from 15 per cent to 30 per cent. (Before that, the 30 per cent tax rate kicked in for super contributions once people earned more than $300,000 a year).
The changes also cut the allowable level of post-tax contributions to super from $180,000 a year to $100,000 a year, with post-tax contributions banned once a person’s super assets reached $1.6m.
It also introduced a cap of $1.6m that could be transferred into a super fund in pension mode earning no tax, with amounts above that being subject to a 15 per cent tax on earnings.
Dr Fahy said the changes to superannuation had cut back the proportion of total tax concessions going to the highest income earners and increased the proportion of tax benefits going to lower and middle income earners.
The proportion of super tax concessions going to people on the top income tax rate fell from 13.3 per cent to 10.8 per cent.
The proportion of tax concessions going to people earning between $37,000 and $80,000 a year rose from 34.7 per cent to 36.9 per cent while the proportion of super tax concessions going to people earning between $18,201 and $37,000 a year rose from 11.9 per cent to 12.4 per cent.
“The changes (to superannuation and the age pension) have had a substantial and positive impact on budget outcomes, in terms of reducing government spending and increase tax revenue,” Mr Fahy said.
“The super tax changes have substantially reduced the tax assistance flowing to upper income earners.
Now is the time for consolidation”.