Superannuation Changes- What Labor’s Proposed Changes to Superannuation Are Really About

All the Talk about Superannuation

Lately, you may have noticed that a lot of media attention has been directed at the Gillard Government’s proposed changes to Australia’s superannuation scheme.  Unfortunately, certain sections of the nation’s media have resorted to alarmist coverage that has left some people concerned the safety of their super.

The History Australia’s Superannuation System

Before we consider what the proposed reforms are aimed at it’s important to remember the origins of Australia’s super system, which is the envy of countries around the world. 

In the 1980’s the situation was very different.  Only about 40 per cent of workers had any super savings at all and most of these people were in the public sector or the top tiers of industry.  Realising that change was necessary, then Prime Minister Bob Hawke and Treasurer Paul Keating signed an accord with the Australian Council of Trade Unions that provided a clear path towards universal super.  After a challenge to this accord was defeated in the High Court, it was a new Prime Minister Keating who introduced mandated super contributions 21 years ago.

As a result of Labor’s foresight and perseverance, Australia’s national pool of total super savings grew from $140 billion in 1992 to $1.5 trillion last year.  Believe it or not, this is fifth largest super pool in the entire world even though our population doesn’t fall within the world’s top 50!  It is an incredible achievement that we should be proud of.

The Reforms – What Do They Mean For You?

So now that you know a little about the history of super in Australia - what are the proposed reforms really about and how will they affect you?

Well, you may be surprised to learn that one important change to Australia’s super was passed by Parliament several years ago and is already underway.

In 2010, the Government announced a package of tax reforms which, amongst other things, increased the Super Guarantee from 9 to 12 per cent.  What this means for you is that a 30-year-old on average full-time wages who retires at age 67 will have around $118,000 extra in their super account when they retire.  I think you’ll agree with me when I suggest that an extra $118,000 will go a long way to improving the quality of life and peace of mind of those retiring in the future.  On July 1 this year, we’ll see the first increase in the rate – from 9 to 9.25 per cent – and it will go up bit by bit until it reaches 12 per cent before the end of the decade. 

In addition to this, these same 2010 reforms included a measure to support 3.6 million Australians (including 2.1 million women) on low and modest incomes. The Low Income Superannuation Contribution refunds up to $500 of contributions tax for people with income up to $37,000, so they don’t get hit with any tax on their compulsory contributions.

But of course I probably don’t need to tell you that the reforms to have dominated the news recently are those first announced last week, which are designed to ensure the concessions for super remain fair. 

Basically, the current system is allowing a fraction of the population with millions of dollars to receive more government assistance than Australia’s Age Pensioners.  You may be surprised to learn that under current arrangements, all earnings on assets supporting income streams for the retired (super pensions and annuities) are tax-free.  This is in contrast to earnings in the accumulation phase of super (i.e. the period of time when you are earning money and amassing super before you retire), which are taxed at 15 per cent.

This means that many retirees with millions of dollars in super can now get more government support through tax concessions than someone on the maximum Single Age Pension.  For example, the maximum rate of the single Age Pension is currently $21,076 per year.  In comparison, tax-exempt earnings of $100,000 receive a minimum tax concession of $26,447 each year.  That means that an individual with around $2 million in super (assuming a 5 per cent rate of return) currently receives more government assistance than someone on the maximum rate of the single Age Pension.  A retiree with $20 million in super with typical returns would receive more than 20 times the government support provided to someone on the full Age Pension (over $438,000 compared to $21,076 a year).

To make the system fairer and sustainable, we will cap the tax exemption at $100,000 of future earnings for each individual each year while payments from super accounts for those over 60 remain tax-free.  Note also that earnings over and above that $100,000 threshold will still be taxed at the reduced rate of 15 per cent so the 16,000 Australians who will be affected by this measure will still be receiving significant concessional tax treatment. 

So you see, once you ignore alarmist media commentary and accusations of class warfare being hurled at the Government, it is clear that these reforms are necessary because current arrangements are simply not sustainable.

I am proud to live in a country that secures the future prosperity of its citizens through a well-designed super system and you should be too.  Labor is the party of superannuation – we established it, we have nurtured it and grown it, and we will continue protect it through reforms such as those announced last week.

If you would like to learn more, why not check out the following website

It explains in greater detail just what the proposed reforms are all about and explains how you can benefit from improvements to the nation’s super system.