Provided by Mercer: 6/5/08
Quick fix solutions to Australia’s superannuation system, such as tax cuts delivered as superannuation contributions, are not enough to ensure Australians have enough savings for a comfortable retirement. Nor will they do anything to encourage people to remain in the workforce longer, according to leading superannuation and human resource consultancy Mercer.
A week before the first Rudd/Swan budget, Mercer is calling for the Federal Government to develop a long-term goal for Australia’s superannuation system.
Mercer encourages the Government to resist the temptation for a quick fix, but instead formulate a superannuation policy that ensures the system can continue to positively impact employees, employers and the nation over the next twenty years.
Head of Mercer’s retirement business, Mr Tim Jenkins, pointed out that Mercer was not expecting all the answers in the impending budget, but felt it essential that the long term policy direction was clarified. In particular, he urged the Government to establish a clear objective for the role of superannuation in Australia’s retirement income system.
“We believe the essence of the existing superannuation system should be retained, including the Superannuation Guarantee tax concessions, and income-tested co-contributions. However, this is not enough to really make a difference for many Australian workers,” said Mr Jenkins.
Mercer’s suggestions for further superannuation reform include:
1. Compulsory member contributions phased in over several years for individuals earning over $30,000 p.a, to be paid on either a pre or post income tax basis. Post-tax contributions would receive a tax deduction, easing the financial pressure particularly on Australian families.
This would supplement employer contributions (Superannuation Guarantee) and Government contributions (tax concessions and co-contributions) and provide an incentive to save.
2. Improve fairness in the system by effectively abolishing contributions tax for individuals earning under $30,000 p.a, providing a clearer incentive to save for their retirement.
3. Gradually increasing the age at which superannuation benefits can be accessed tax-free from 60 to 65 to encourage higher participation within the workforce amongst older workers.
4. Creating a standardised benefit projection requirement for fund members to compare their current savings strategy with that required to provide an appropriate retirement income. This would encourage better retirement planning.
Mr Jenkins said the need for further superannuation reform was two fold.
“Firstly, we know Australia’s productivity, and many Australian businesses’ viability, is being threatened by an ageing workforce. Superannuation is a lever that can be used to increase workforce participation, and play a part in addressing the increasing business risk of a deepening skills shortage.
“We acknowledge that Better Super remains a valuable tool to engage with the older workforce, but research we recently released profiling the Australian workforce in 2012 proves that it is simply not enough to have any significant impact on keeping enough people in the workforce longer.
“Secondly, the harsh reality is that the current nine percent Superannuation Guarantee contribution is simply not enough for many Australians to retire in comfort, let alone be self reliant,” he said.
According to Mercer the Australian superannuation system is rightly held up as an innovative and well respected retirement savings system around the world. It has helped Australians grow savings, raised financial awareness, and helped the nation grow investments and national wealth. It has, in short, been a key component of Australia’s growth story over the last two decades.
Mr Jenkins pointed out that times, though, are changing. “Individuals are living longer. Fewer people are entering the workforce. Employers are struggling to attract and retain skilled staff and not looking at superannuation as part of the remedy is a missed opportunity,” he said.
“If we don’t somehow increase superannuation savings in this country there could be severe economic and social implications in the future. More Australians becoming more reliant on the age pension will put increased pressure on the public purse,” said Mr Jenkins.
“We are encouraged by the Government’s focus on superannuation, and in particular the willingness of the Minister for Superannuation and Corporate Law to consider the potential impact of further reform.
“There are three levers that can be pulled in the superannuation game: the government, the employer, and the employee. Currently in Australia the first two levers have been played to a much greater degree than the third. It is time to turn our attention to the role of member contributions over the longer term in the next series of superannuation reform,” he said.
For more information, contact:
Libby Woolnough
Mercer
Phone: (03) 9623 6923
Kyahn Timms
Media Consultant to Mercer - Buchan
Phone: (02) 9866 4722
This information has been prepared by Mercer (Australia) Pty Ltd ABN 32 005 315 917 for general information only. The information does not take into account your personal objectives, financial situation or needs. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult a licensed or appropriately authorised financial adviser before making any investment decision.
