Australian Superannuation Fund Managers Want Radical Reforms

by Mary Swire, Tax-News.com, Hong Kong

23 September 2009

Radical reforms of the Australian superannuation system are proposed by the Industry Super Network (ISN) of investment funds, in a submission to the Henry review of taxation.

After the Association of Superannuation Funds of Australia had recently urged the Henry review to accept that the average Australian needed to contribute 12% of their income to superannuation over their working lifetime for the provision of an adequate retirement income, the ISN has re-approached the subject from the angle of tax incentives that should be provided to encourage such investment.

In doing so, the ISN has concluded that the current superannuation tax concession, which is considered to favor those on high incomes, should be abolished and replaced with a universal government co-contribution of either 25% or 33% of superannuation savings. It is said that the present 15% reduced income tax rate on superannuation savings is used by those with larger annual incomes to save on the higher marginal tax rates, while those on lower incomes may receive no benefit at all from the concession.

It is said that, at present, 1.6m Australians on low incomes receive no tax concession on their superannuation contributions, while the Henry review itself has reported that 5% of contributors receive over one-third of the tax concessions given.

If the government were to require that the new system was revenue-neutral, the ISN has calculated that, if the government were to introduce a 25% co-contribution, a maximum co-contribution cap of AUD6,250 would be necessary. If a 33% co-contribution was chosen, a maximum co-contribution cap of AUD4,000 would then be required.

The resultant increases to the retirement funds of the less well-paid from the government co-contribution would be significant, whether the government chose the higher or lower level of its co-contribution. The ISN said the rise in the savings of those on low incomes could also mean that future old-aged pension increases could be moderated.

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