A letter from the average saver to our likely next prime minister and the current one, just in case.
Dear Tony and Julia,
For the past month or so we’ve heard lots about whether superannuation should be taxed more or limited further. To be honest, we’re still not entirely sure where we stand.
We know you’ve got budgets to balance, but can we skip the tax talk for a moment? We don’t care which one of you does it but can you please improve the superannuation system?
First off, there’s the complexity. We seem to have an awful lot of rules without a lot of substance.
For instance, a self-managed super fund is required to have a detailed document outlining its investment strategy – but there’s nothing stopping the strategy itself being ridiculous.
Perhaps we could consider a simple rule whereby trustees are required to have a strategy that’s half sensible and leave it at that? Commencing a pension triggers another round of paperwork. Isn’t the fact you’ve retired enough? Finally, there’s the trust deed. Instead of paying big bucks to the lawyers, couldn’t we have a centralised set of rules governing all funds?
Hand in hand with all the complexity, we’ve got the brutal penalties. The only investors who end up with a tax bill more horrendous than those participating in nasty tax minimisation schemes are those who have had their employer accidentally make a small contribution in the wrong income year.
Sure, there’s a budget cost associated with not taxing people at close to 100 per cent if they make a small mistake, but shouldn’t we be, you know, fair?
One thing we know you politicians love is changing the rules. Admit it, when it comes to super, you just can’t get enough. So, next time a week passes without a change in super laws, and you get the itch, do you think we could try dealing with some of the big issues?
Firstly, there’s longevity risk. When we decided to go with the “self-funded retirement route” we introduced the risk that a whole bunch of people would run out of money. This is kind of a biggie.
Could we put this on the “to do list” before another change to contributions caps?
Next up is likely savings shortfalls. Many people can’t contribute year in, year out, which the design of our system requires. So it seems a lot are going to struggle to build up a decent super balance.
If you haven’t been able to contribute for a couple of years, couldn’t you carry your annual cap forward? Admittedly, this would be another hit to the budget but, again, it seems pretty reasonable.
About that whole tax thing. Our system has zero incentive for low income earners to save, tight contributions caps on middle income earners, unlimited tax exemption on pensions and the ability to withdraw your taxpayer subsidised savings at will upon reaching 60. It’s an odd mix of Mr Scrooge and Father Christmas.
This isn’t a call to “tax the wealthy” but a request for a bit of balance. Low income earners, for instance, could get a tax credit rather than a worthless deduction. Unfortunately, like other necessary changes, it probably won’t add to the budget bottom line over the forward estimates.
We could keep going but hopefully you’ve got the message. You guys love budget revenue and continual change. We’re just asking that you look a little further into the future and focus on simplification, risk reduction and other measures that will improve the lot of the average retirement saver, not just tax and restrict them.
The average saver