Minister for Small Business and Assistant Treasurer Kelly O’Dwyer says an agreed objective for super is critical.The Turnbull government says Australia’s superannuation system should not be used as an unlimited wealth creation vehicle for high-income earners, or for estate planning.
It says the primary objective of super is “to provide income in retirement to substitute or supplement the Age Pension”.
It has proposed enshrining that objective in legislation so policymakers, regulators and industry know what super’s fundamental purpose is, following a recommendation from the Financial System Inquiry.
Assistant Treasurer Kelly O’Dwyer released a discussion paper on Wednesday, called “The objective of superannuation”, explaining the reasons for the proposal.
“Superannuation has a very practical focus, it should be used to increase self-sufficiency in retirement,” Ms O’Dwyer said in a speech to the Association of Superannuation Funds of Australia, in Melbourne.
“It’s not intended to be support for the accumulation of wealth that can be passed down to subsequent generations.”
The move paves the way for a significant lowering of the caps on contributions that people can make to their super without those contributions being taxed.
At the moment, the annual pre-tax cap for super contributions is $30,000 for most taxpayers, and $35,000 for those over the age of 50.
The Turnbull government has been considering cutting the cap to $20,000.
It has also been looking at tightening the separate, so-called non-concessional cap that allows contributions out of after-tax wages of up to $180,000 per year.
Shadow Treasurer Chris Bowen welcomed the proposal to enshrine super’s objective in legislation, saying Labor has been calling for this for almost a year.
“Australia’s superannuation system is the envy of the world, and an agreement on the objective of superannuation could help provide a path forward for the continued strengthening of super in the decades ahead,” Mr Bowen said.
He said he hoped the government would try to reach a bipartisan agreement on the objectives of superannuation.
The Association of Superannuation Funds of Australia also welcomed the news, saying it will provide an “enduring reference point” to guide decision making by all policy makers.
“Once the purpose and principles of the system are enshrined, we can have a conversation about the tax concessions that support the system,” ASFA chief executive Pauline Vamos said.
Financial Services Council chief executive Sally Loane said a clearly defined objective for super was “a very positive step”.
In February, Treasurer Scott Morrison said he thought super should be used for retirement incomes rather than estate planning.
The Financial System Inquiry recommended a “dual purpose” for the super system – to provide income in retirement to substitute or supplement the Age Pension.
The Turnbull government says it accepts their recommendation and proposes to enshrine that objective in legislation, either in the preamble to a major piece of super legislation, or in a stand-alone Act.
The Grattan institute has recommended that the concessional contribution cap be lowered to $11,000 a year, from the current $30,000, because 80 per cent of contributions above this level come from people likely to retire with enough assets to be ineligible for an Age Pension even without such big super tax breaks.
“Tax concessions cost the budget more than $25 billion a year in foregone revenue, and most of the benefit goes to those who don’t need them,” Grattan Institute chief executive John Daley said.
“More than half the benefit of current superannuation tax breaks flows to the wealthiest 20 per cent of households, who already have enough resources to fund their own retirement.”
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This story Administrator ready to work first appeared on Nanjing Night Net.