Superannuation: Who really needs it?

If you exclude cyclones, refugee babies and Donald Trump’s relentless political successes, the catchiest news item over the weekend would have to be the suggestion by “an unnamed industry group” that lower paid workers should be allowed to opt out of superannuation. Instead, it is suggested that employers pay the compulsory superannuation contribution directly to the employee as additional wages.

As the details of the submission were not readily available, I assume the logic was that the extra $60+ per week for workers on $37,000 (the magical cut-off number) will help meet the increasing cost of living which seems to be rising faster than average wages growth.

Being a cynic when it comes to these types of arrangements, I cannot imagine a government already desperately looking for more revenue to quietly allow the loss of the 15% contributions tax payable on superannuation contributions. Currently, these low-income earners receive a refund of the contributions tax but that is scheduled to cease on June 30, 2017.

Alternatively, the additional cash could be regarded as income and taxed at marginal rates. Whatever the result, you can be confident that the full value of the opt-out would not flow to the struggling worker.

But, the major issue here is not the mechanics of how it could be implemented. The total disregard for the fundamental purpose of our superannuation system displays an appalling example of fiscal short-sightedness.

Funding the retirement needs of an aging population is a global challenge for governments. The Australian model is regarded as an aspirational goal for many foreign governments who have adopted the “we won’t be here when it gets really nasty” approach.

While we know our system is not perfect, it does make a significant contribution to solving the problem. Numerous commentators have identified that the system is flawed for women who choose to leave the workforce (for whatever period) to raise a family and low-income workers.

This submission, if accepted by the government, would merely amplify this problem by increasing the number of retirees with insufficient means to provide at least partial financial support in retirement.

Writing this submission off as just another example of pre-Budget stupidity would be dangerous. One online poll I saw indicated that one third of respondents supported the opt-out idea. Even allowing for the statistical shortcomings of online polls, it is clear the mentality of a significant portion of the population (and at least one unnamed industry group) does not embrace the concept of saving/investing for the future.

Consuming all possible current resources and relying on future generations of taxpayers to subsidise retirement lifestyle would create a major challenge for future governments. The motive behind any move to encourage the current government to adopt a narrowing of the superannuation coverage of the current system must be seriously questioned.

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