+ About Olivia Long
Olivia Long is a Founder and Executive Director of Xpress Super. She is currently the Chief Executive Officer for SuperGuardian Pty Ltd, Xpress Super and PortfolioGuardian. She has had more than 16 years of experience in the Financial Services Industry predominantly in management roles and joined SuperGuardian in 2004. She studied a Bachelor of Communication (Marketing) and various courses with the Financial Services Institute of Australia. She is an active member of SPAA - The SMSF Professionals' Association Australia, a member of the Australian Institute of Company Directors and has over 9 years experience in self-managed superannuation.
Thursday, January 07, 2016
By Olivia Long
So you’ve decided to establish an SMSF.
Prior to establishing your SMSF, I recommend you consider whether you would prefer to work with an SMSF Administrator or your Accountant.
Most Accountants offer your traditional year-end style tax service where you are very much reliant on tracking contribution and pension figures manually yourself during the financial year. A good SMSF Administrator will provide you with online access to reports that give you this information daily (making it far easier for you to monitor).
Do your research because there are a number of SMSF Administrators providing free fund establishment. The process is highly systematised and it should be a quick and simple process.
Step 1 – Determine your trustee structure
Keep in mind each member in the fund must also be a trustee. You can choose from an individual trustee structure or a corporate trustee structure. If you select a corporate trustee, incorporate the company prior to establishing your SMSF.
Step 2 – Your SMSF Paperwork
Your establishment kit should contain:
1. Your SMSF trust deed
2. Application for Membership including the provision of tax file numbers and personal details for each member
3. Minutes for the initial meeting held by the trustees
4. The election by the fund to be a regulated fund by the ATO and the ABN and TFN application form
5. Paperwork to establish a bank account for the fund noting that the bank account will need to be in the name of the trustees ATF the super fund
6. An Investment Strategy for the fund
7. Nomination of Beneficiary forms to ensure your instructions for the balance of your members benefits are noted
8. Trustee declarations
Step 3 – Rollovers and Contributions
Once you obtain your new SMSF ABN, contact your existing superannuation provider and request rollover forms. Complete these forms to facilitate the transfer of your superannuation money from your existing provider to your new SMSF bank account.
Alternatively, if you are ready to make in-specie contributions of assets and/or cash, you’re ready to go.
Step 4 – Investment Strategy
Have you finalised your fund’s investment strategy? Important items to consider when formulating your strategy are:
• The overall investment objective of the fund
• Desired rate of return
• Risk profile of each member
• Risk profile of the fund
• Diversity of investments and asset classes
• Anticipated time of each member to retirement
• Insurance needs of each member
Step 5 – Implementation of strategy
Now that your fund is established and you’ve considered your investment strategy, it’s time to start investing.
The establishment process can take you up to 30 days as the ATO take anywhere from 7 – 28 days to provide the SMSF’s ABN number. One helpful hint – review the insurance cover you have with your existing super fund provider before rolling all of your super monies into your new SMSF. An SMSF can hold an insurance policy on your behalf but you most likely won’t be able to take the policy with you from your previous provider. You will need to establish a new policy. You don’t want to be stuck with no insurance cover!
Monday, January 04, 2016
By Olivia Long
The New Year is synonymous with resolutions – diet, exercise, alcohol (less, not more) and better work-life balance. Many of us make them; the anecdotal evidence suggests few keep them.
There’s a good reason for that – they’re hard to keep. We love to eat and drink, exercise is boring and the job (to saying nothing of the boss) keeps demanding more, not less.
Well, for SMSF trustees who make New Year resolutions, here’s some good news; a resolution that’s relatively easy to keep and, more importantly, is critical to your financial health; every January, without fail, review your fund with a particular focus on its investment strategy.
January is an excellent time for the task; your adviser/s should have more time on their hands for those necessary discussions, you know how the markets performed in the previous calendar year, and you can factor in any recent changes to your personal circumstances or those of any other members of the fund.
There are many ways of doing this, but what I find handy with my SMSF is having a short checklist of critical questions based around my desired rate of return, acceptable risk, asset allocation, any changed personal circumstances, and administrative issues.
For many trustees, especially in the accumulation phase, it’s largely about the fund’s rate of return. You should set a target each year and then review it at the end of the year to see if you meet it. If not, why not? Was it realistic by being within the broad band of how the markets performed?
Fund performance, of course, reflects asset allocation. The beginning of the year is the right time to assess whether your asset allocation is correct for achieving those twin goals – a set rate of return within risk parameters that reflect your personal circumstances. It’s not always easy to do.
For example, you are nearing retirement and believe a more conservative asset allocation is the way to go. After speaking to your adviser, the decision is made to trim your equity investments and add some cash and fixed interest. But the shares have been performing well. In effect, you will have to sell some “winners” – and perhaps incur capital gains tax for doing so. The rational decision is to sell the shares; behavioural analysis about how people invest suggests they struggle to sell “winners”. In a very real sense, they develop an emotional attachment to them.
For this reason alone this is why I suggest most trustees get professional advice; these decisions are made that much easier when you get independent analysis that’s emotionally detached. Even if you are comfortable making your own decisions around asset allocation and investments, getting professional input just once a year can provide an excellent safety net.
Aside from the investment strategy, give some time to consider all other aspects of the fund. Are you happy with your advisers? The SMSF sector is becoming highly competitive, giving you more choice. Again, the evidence suggests people often stay with an adviser even when dissatisfied – the “devil-you-know” attitude.
On the personal front, has anything happened that could materially change the fund? Has somebody retired recently? Transitioning to retirement? Changed financial circumstances? Do you need to update your nomination of beneficiary documents? Is the nomination binding? If so, review the date of signing as they need to be reviewed every three years if they are not a perpetual binding nomination.
To slightly misquote Sir Winston Churchill, “the price of running an SMSF effectively is eternal vigilance”. Using January to conduct a thorough review is an important step down this path.
Friday, July 10, 2015
By Olivia Long
I have lost count of the number of clients who think their self-managed super fund (SMSF) trust deed is like those blue-chip shares they bought two decades ago – you can put it at the bottom of the drawer and forget about it.
Nothing could be further from the truth.
The fact is your trust, the document that oversees the operation of your fund, is a living, breathing document that you need to keep revisiting to ensure it remains up to date and that it gives the trustee the authority to carry out his/her duties within the framework of the superannuation legislation.
It’s worth remembering that the rules governing SMSFs are onerous, and that the regulators expect people who decide to manage their own superannuation to play by the rules of the game. It might be “your money”, but it’s “their rules”.
So how do you know whether your deed needs updating? To begin with, practically every deed drawn up before 2008 needs to be amended to take account of the changes implemented under the Simpler Super reforms. If your adviser hasn’t told you about these changes then they have been remiss, and it certainly should be top of mind when you see them next.
Post 2008, and you are still not out of the woods. Over the past seven years there has been any number of changes, whether it be regulatory, legal, taxation or legislative, that could require you to update your trust deed. Again, you need to ask your adviser.
There is no shortage of examples of where legislative change could put the actions of a trustee under a cloud. They can relate to: someone remaining a fund member past 65 years of age where the deed requires their benefits to be paid out; substantial changes in the areas of temporary disability benefits and in-house asset tests; and the payment of reversionary pensions.
This list is far from exhaustive. And, let me assure you, the changes will keep coming, so remain vigilant.
On the flipside, failure to update your trust deed can limit your actions as a trustee in many ways. Let me give you some examples. The fund continues to operate even though the deed quite clearly states it should be wound up because of a certain event has occurred, such as the death of a fund member.
Other examples include: accepting payments from fund members outside the parameters stipulated by the deed; entering into a limited recourse borrowing arrangement when the deed does not provide for this; allowing a fund member to enter into a transition to retirement arrangement when the deed specifically forbids this; and stopping a pension where internal roll-back is not allowed.
As I said at the beginning, there can be dire consequences for acting outside the parameters of your trust deed. You could attract the (unwanted) attention of the Australian Tax Office and that could lead to financial sanctions. They could even decide to wind up your SMSF.
There is the possibility of losing tax benefits as well.
The trust deed is the engine room of your SMSF. It sets the framework for its smooth operation. Like every engine it needs a regular fine-tuning by an SMSF specialist to ensure it’s in smooth running order. So the question to ask is: when is my trust deed’s next check-up due?
Tuesday, June 09, 2015
By Olivia Long
The 30 June is fast approaching and for SMSF trustees that means one thing – getting your fund’s affairs in order before the end of the financial year. There’s quite a bit to do, especially for those trustees who assume much of the responsibility for running their fund. Remember, too, penalties can apply if you transgress.
So what’s to be done? The following list is not exhaustive, but it’s a good starting point for all those boxes you have to tick.
Make sure your contributions are up to date, including your employer’s final Superannuation Guarantee payment for the June 2014 quarter that has to be paid in July.
Some contributions are tax deductible, some aren’t. As a rule of thumb, employer contributions are deductible; those you make on your own behalf aren’t, although there are exceptions to the latter.
Remember, there are limits on how much you can contribute on a concessional basis. For those who were under 49 at 30 June 2014 it is $30,000, and for those 49 or over it is $35,000. For non-concessional contributions the cap is $180,000. The Australian Tax Office (ATO) takes a dim view of people who exceed these caps.
Have the assets in your fund valued. The ATO, as helpful as ever, has published a booklet titled Valuation Guidelines for SMSFs to guide you through the process. It’s well worth a read, and if you still have any doubts consult your adviser.
If you haven’t been salary sacrificing throughout the financial year, you might have missed the bus. Take extra care when making any necessary adjustment to reach your concessional limit ($30,000 or $35,000 depending on your age), as inadvertently overstepping the mark can draw unwanted attention from the ATO.
If your spouse wants to contribute, he or she must do so before 30 June for you to be eligible to claim a tax offset on these contributions. To qualify for this benefit, your spouse’s income must be less than $13,800 in the financial year (to get the full benefit this income must be less than $10,800).
Don’t forget the superannuation co-contribution, and, more importantly, the eligibility requirements; permanent residency of Australia, not yet 71 years of age at 30 June, and earning at least 10% of your income from a job or business. If you meet these criteria, the government tips 50 cents for each $1 of your non-concessional contribution to a limit of $1000.
Finally, make sure your SMSF has paid the minimum pension amount by 30 June in order for you to qualify for the tax exemption. And a tip to young(er) players – if you are getting the pension as part of your transition to retirement, don’t exceed the limit.
Monday, May 25, 2015
By Olivia Long
A common misconception in superannuation is that self-managed super funds (SMSFs) are treated more favourably than APRA-regulated funds. In part, it’s a notion that’s been deliberately (and mischievously) fostered by some in the industry; it’s also a product of a simple lack of knowledge.
The simple fact of the matter is that there is very little difference, whether it is contributions, benefit payments, tax or investment rules. And certainly there is no bias towards SMSFs.
Let me say from the outset that’s how it should be. Whether people are in an SMSF, or a corporate, industry, retail of public sector APRA-regulated fund, they should all be playing on a level playing field.
It is, however, worth exploring those few areas where there are differences, if only to lay to rest the myth that they constitute the rule, not the exception.
The most obvious difference is the regulatory bodies. As the term APRA-regulated denotes, those funds come under the umbrella of the Australian Prudential Regulation Authority (APRA). SMSFs report to the Australian Taxation Office (ATO), a body far better structured to handle a constituency that has more than 500,000 individual funds.
Some critics of SMSFs argue that all funds should be overseen by APRA, but it’s a not a responsibility that regulator seeks, realising the logistical nightmare of handling such a large number of funds.
Different regulators aside, where are the other differences. Well, on contributions there is none, whether they are mandated, government-sponsored or voluntary.
On benefit payments, both SMSFs and the APRA-regulated funds are on the same page when it comes to a tax free pension over the age of 60, a tax-free lump sum over 60, or Superannuation Industry (Supervision) Regulation pension payment standards.
Where there is a difference is in the area of anti-detriment payments on death. Here, the APRA funds have the edge because large funds can fund these payments from their member base. For SMSFs, however, it has to come from their investment returns or reserves. So chalk one up for the APRA-regulated funds.
On the tax front, it’s the same for the 15% tax rate and tax-free pension income. Where there is a difference – and, again, it benefits the APRA-regulated funds – it relates to capital gains tax. Those funds under the APRA umbrella can roll over their capital gains when they merge with other funds. There is no equivalent roll-over for SMSFs that merge.
It’s only when you get to the investment rules do the SMSFs get a break where it relates to business real property. In this instance they are allowed to acquire business real property from related parties such as other members of the fund.
It’s an important concession to our sector because it allows small business people to help fund their retirement via a business real property. For many trustees, it’s fair to say it’s typically the single-largest asset in their retirement portfolio.
However, in two other investment areas, a prohibition on borrowings and accounting standards, the fall of the dice favours the APRA-regulated funds. In the case of the former. the exemption that allows funds to borrow up to 10% of the fund’s value on a short-term basis clearly advantages larger funds that are able to gear up significantly simply due to their size.
With regards to the latter, the accrual accounting used by larger funds is a benefit as it allows them to inflate returns due to tax benefits in the short-term. SMSFs, however, are confined to using cost accounting standards. On all other rules governing investment, there are no differences.
Quite clearly SMSFs are not getting a free kick from the legislators or regulators. If anything, they operate at a slight disadvantage. But I for one am not complaining. I just wish this furphy of SMSFs getting the kid glove treatment could be laid to rest.
Wednesday, May 13, 2015
By Olivia Long
Self managed superannuation funds (SMSFs) are a form of trust – and every trust must have an executed trust deed. A trust deed is a legal document that sets out the rules for establishing and operating your SMSF; such things as the fund’s objectives, who can be a member and how benefits are paid. The trust deed and super laws together form the fund’s governing rules.
If your fund has a corporate trustee, the fund can pay lump sums or pensions. If your fund has individual trustees, the trust deed needs to state that the fund’s sole purpose is to pay retirement benefits.
As a trust deed is a legal document, you need to have it prepared by a qualified person. There are three ways to do this. One is to engage a specialist lawyer to consider your individual needs and tailor a deed to your personal situation. But this can be costly and possibly unnecessary for the average SMSF.
You can buy a trust deed or deed upgrade online at a competitive fee. But this can be risky as it’s difficult to know which deed provider is appropriate and just how good they are.
The third way is via an SMSF administrator. Most have established a relationship with a legal specialist and can endorse the quality of deed and provide it at a competitive cost.
A trust deed needs to be regularly reviewed and updated. Indeed, an often-asked question is: “How often should a deed be upgraded?”
The conservative approach would be to upgrade it annually to reflect any changes to legislation during that period. At the very least, trust deeds should be upgraded when there are legislative changes to superannuation that are not reflected in the existing deed.
With the introduction of the Simpler Super legislation in 2007, a significant number of deeds were upgraded at that time, but many have not been updated since.
Out-of-date provisions guiding the actions of trustees could have adverse effects on members’ benefits, and, with the recent introduction of administrative fines for SMSF trustees, potential monetary penalties.
For example, one of the provisions not covered in older trust deeds is non-lapsing binding death benefit nominations, meaning that some SMSF members may have inadvertently created three-year lapsing nominations.
The implication of this is that many SMSF members may either have an invalid nomination, or may die without a valid nomination if three years have passed since it was last updated. We often hear of situations where there has been a relationship or marriage break down, where the remaining trustee gains control of the death benefit by default and ignore the wishes of the deceased. Imagine working your entire life and contributing to super only to have it accessed against your wishes when you die due to a technicality.
The role of legal personal representatives (LPRs) of a deceased SMSF member has also changed, with the acknowledgement now that their role in protecting a member’s death benefits may be a moot point due to the time taken to receive probate.
As an LPR cannot be appointed until probate is granted, a time delay of three months or more is common, during which time the remaining trustees could have distributed the death benefits anyway they chose.
Many older deeds use the LPR as a safeguard for a deceased member, but new alternatives, such as a death benefit guardian, better protect the interests of SMSF members. A death benefit guardian is a person appointed during the member’s lifetime who steps in immediately to protect the member’s interests on their death, therefore eliminating the timing issue associated with legal personal representatives.
These are just a few examples of why ensuring your trust deed remains up to date. Certainly we recommend you consider your trust deed and any other superannuation changes annually as part of your overall SMSF review.
Monday, April 27, 2015
By Olivia Long
On reading about the Labor Party’s recent superannuation policy announcement, I was reminded of that famous Sir Winston Churchill quote – “Those that fail to learn from history, are doomed to repeat it."
It was when Labor was last in power that Superannuation Minister Bill Shorten locked on to the idea that taxing earnings above a certain level in the pension phase was a potentially good revenue source. The earnings figure mooted then was $100,000, and all sorts of numbers were bandied about as to how much revenue it would generate for the Government’s coffers.
This proposed tax never saw the light of day – an incoming Coalition Government took one look at it and abolished it.
But Labor in opposition obviously still likes the idea – it must appeal to their notions of equity. This time around they have proposed a 15% tax on earnings in the pension phase above $75,000.
Based on their back-of-the envelope number of an average return of 5%, it means the tax will begin for those with super balances of at least $1.5 million. It’s expected to affect about 60,000 people and the “kick” to revenue is estimated at $1.4 billion a year or nearly $10 billion over the next decade. It would not affect eligibility to the part pension.
The first question that came to my mind – why 5%? That’s a very conservative return estimate. Last year the average APRA fund enjoyed a double digit return (about 12%) and since the inception of compulsory superannuation in 1992, the average fund return has been about 7%.
Using a 7% return, it means the funds needed to generate $75,000 of earnings is a tad below $1.1 million. And when the average return is 12%, then that figure drops to $625,000. Hardly a super sum to suggest someone in retirement can live the life of Riley – especially when the average life expectancy is now in the mid-80s and rising.
I suspect I know why 5% was chosen – Labor didn’t want to frighten the horses. When you drop the number to $625,000 suddenly the net widens – dramatically – as does the number of voters.
For many SMSF trustees, the principal asset in their fund is often lumpy in nature; for example, their business premises placed in the fund as their retirement nest egg. Obviously the sale of such an asset will generate a high return in the year it is sold. The question, therefore, is should they suffer the 15% tax regime because of a one-off sale? To my mind, no.
People will look for other ways to invest for their retirement (and in retirement) outside superannuation if they think it will minimise their tax obligations. To think otherwise is naïve.
I read recently that there have been 66 reviews and reports that have had an impact on superannuation in the past 13 years. And governments wonder why people lack confidence in the system.
What they system needs now, more than ever, is stability. A key recommendation of the Financial System Inquiry was for all participants to finally determine superannuation’s principle objectives, and only after achieving that, should specific issues such as tax concessions be considered.
Labor would have been far better served outlining the principles it wants to underpin the system, instead of isolating some supposedly easy tax pickings. Once again the wrong message – that superannuation is about government revenue, not people’s retirement savings – has been sent.
Monday, April 13, 2015
By Olivia Long
Cast your minds back two years ago when the Labor and Liberal parties, with an election looming, promised to put significant changes to superannuation on hold – at least for the life of the next parliament.
Well, they might still meet that promise, although changes to super in May’s budget would not surprise. All the signs are now pointing to a fundamental rethink about how our system works, and sooner rather than later.
When Treasury Secretary John Fraser tells a conference that there is a need for a "fundamental rethink" of the links between super, pensions, housing and welfare, you know some serious thinking is going on in his department.
This follows a comment by Fraser’s boss, Treasurer Joe Hockey, that the system today is facing challenges not on the radar when compulsory super was established in 1992 – most notably longevity. In 1992 a man could expect to live, on average, to 72, and a woman about two years longer. Today that figure is in the mid-80s for both sexes and rising.
Then we had the release of the Federal Government’s Tax Discussion Paper that will inevitably fuel furious debate about the tax settings for superannuation and retirement benefits.
Finally, there was the establishment of a new policy forum to take a holistic look at Australia's retirement income system. With the former Secretary of the Department of Prime Minister and Cabinet, Dr Michael Keating, in the chair, as well as other super industry heavyweights, such as Professor Bob Officer and Dr Vince FitzGerald, this body has the potential to influence public policy.
All of this happened in the past week; someone with a cynical frame of mind might suspect there was an orchestrated campaign underway.
But even if the timing of this commentary is purely coincidental (and I suspect it is), there can be no doubt that in Canberra’s corridors of power our superannuation system, and its linkages to our tax and pension systems, is under the microscope.
In essence, there is nothing wrong with public policy being reviewed. That said, I think it’s critical that all our policy makers appreciate three important points.
First, every review of superannuation creates uncertainty; a system that thrives on confidence is undermined every time it is publicly challenged. That’s not an argument to say the system should be set in stone; it must evolve. But the never-ending reviews, the political point-scoring, and, to be fair, the industry infighting that causes self-inflicted wounds, often damage the system for no discernible benefit.
Second, the current system has now been in place for nearly a quarter of a century. People nearing, or in, retirement have calculated their futures based on this system, having taken to heart the philosophy underpinning superannuation – to be self-sufficient in retirement. Nowhere has this responsible attitude been more self-evident than with trustees and members of self-managed super funds. To now “punish” them for doing what they were urged to do would be a reprehensible step. At the very least, any future change must be grandfathered.
Third, it seems to me that longevity demands reinforcement of the current system; as people live longer then surely the need for them to be self-sufficient in retirement becomes even greater.
By all means let there be a public debate about super; let’s look at the retirement age, lump sums, its tax treatment, and the link to the pension and health care systems. But let’s do it in a holistic, and as far as possible, non-political way. And once it’s completed and the changes made, let’s put the cue in the rack for at least five years.
A forlorn hope. Maybe. But it’s what those people who have assumed responsibility for their retirement income rightly deserve.
Monday, March 30, 2015
By Olivia Long
You have been given a 12-month reprieve. But the deadline is now fast approaching. From 1 July, SuperStream comes roaring to life – the new payment system that demands employers make their superannuation contributions electronically to SMSFs. At this stage, it will only apply to medium or large-sized companies, with smaller companies (less than 20 employees) having another 12 months’ grace.
So what’s involved? Actually, quite a bit. For employees who are trustees, they have to give their employer their electronic service address, SMSF bank account details and Australian Business Number. And, no, not on 29 June; it needs to be done now.
In practice, that means by the end of May at the latest, because although we live a computerised world, the reality is it usually takes payroll departments about a month to update information, especially in larger companies. And that is probably being generous.
According to the Australian Taxation Office (ATO), about 60% of SMSFs have taken the necessary steps to become compliant – but that still leaves a hefty number who have not got their act together.
If trustees fail to do so, the consequences are quite simple – the money ends up in the employer’s default fund, the opposite of what people aim to achieve when they set up an SMSF – being self-reliant by having full control over their retirement income savings. [Trustees will be able to roll over super money that has gone into a default fund but it will be time-consuming exercise. Far better to get it right in the first place.]
In addition, there is also the potential for penalties for trustees who are non-compliant after 30 June, including a $3400 administrative penalty. Ouch!
There should be no issue with trustees providing their employer with their bank account details and Australian Business Number, but there could be some confusion around the electronic service address.
These addresses can only be obtained from SMSF service providers and trustees will need to sign up with one of them as soon as possible to obtain it.
It’s not difficult. The ATO website has a list and it’s a simple, one-off procedure.
For trustees who have not had any problems with their employment payments in the past, this might all seem like unnecessary red tape. The old “if it ain’t broke, don’t fix it” adage.
Normally, I would have a lot of sympathy with this attitude – anyone in this industry knows just how much red tape we have to deal with.
But in this instance I have some sympathy with the regulator – and for this reason.
Just think of the numbers. There are now more than one million trustees and members in more than half a million SMSFs; it is a mammoth regulatory task and one, I suspect, that can only be handled by the ATO. [Calls by other industry superannuation sectors for SMSFs to come under the jurisdiction of APRA are nonsense on this numerical basis alone – but that’s another article.]
What it means is that it will be far easier for the ATO to monitor that very small percentage of employers who do not do the right thing by their employees/trustees and fail to make their regular superannuation payments.
The ATO says it will make it far easier to oversee the system, and on this occasion I am in their corner.
So what are you waiting for – get compliant now.
Monday, March 16, 2015
By Olivia Long
First, the good news. We are living longer, healthier lives. That is the only conclusion to draw from the evidence contained in the 2015 Intergenerational Report (IGR), handed down by Federal Treasurer Joe Hockey.
For example, by 2054-55 there will seven million Australians aged between 65 to 84, compared with around 3.1 million in 2015, and that 5% of the population will be aged over 85.
On the life expectancy front, from birth it is projected to increase from 91.5 years in 2015 to 95.1 years in 2055 for males, and from 93.6 years in 2015 to 96.6 years for females. Further life expectancy at age 70 is projected to increase from 16.9 years in 2015 to 21.3 years in 2055 for males, and from 19.3 years in 2015 to 23.1 years for females.
It’s a rosy picture. Until, of course, you pose the next obvious question – how are we going to fund all these people living in retirement? Then the news is not so good. In fact, it’s downright scary.
Why? Because at the very time the overwhelming evidence suggests we need to be doing more to ensure people are self-sufficient in retirement, we have never seemed to be so ambivalent about our compulsory superannuation system.
When the system was legislated for in 1992, it was considered one of the most significant social and economic policies introduced in this country. For the first time, every employee was going to be entitled to superannuation. No longer was superannuation to be the preserve of the public sector and private sector management.
The carrot to get people to forgo income now, to fund their future retirement, was to be tax concessions.
Back then it seemed everyone was onboard, especially when the Coalition signed up to the system in the run-up to the 1996 election.
But today, when the evidence of the need for compulsory superannuation has never been more compelling, we seemed to be plagued by self-doubt about its social and economic merit.
Let’s be clear about one thing: compulsory superannuation was established with the sole purpose to provide income streams for people to fund their retirement; there was no mention of first homebuyer schemes or further education.
What is skewering the debate is that despite the fact we have now had compulsory superannuation for more than 20 years, most people are still reliant on the age pension. In other words, the argument that superannuation savings would replace the need for the pension, based on what’s happened to date, is flawed.
But that’s not an argument against compulsory superannuation; all that demonstrates is that we haven’t implemented the right policies to encourage a lesser dependence on the age pension. Indeed, I would argue this simply highlights the need for people to retire on higher balances (lifting the concessional caps for people later in their working lives is an obvious example) so they do have the opportunity to be more self- sufficient inretirement.
It can be done. Interestingly, the SMSF sector is showing what can be achieved in this area with more than 90% of retirees in the draw-down phase taking their savings via an income.
There are other measures that can be considered. The IGR’s call for increased participation by older workers has obvious merit. If this happens and more people opt to work past the retiring age, we need to ensure that the superannuation system allows these workers the opportunity to keep saving through superannuation.
The industry, too, has been slow to develop appropriate financial products to encourage people to take an income option as opposed to a lump sum.
None of these problems is insurmountable. But to address them in any meaningful way we first need to re-establish, across the political divide, a bipartisan commitment to the primary purpose of superannuation – to fund people’s retirement.