Should politicians be making the big decisions about superannuation?
With more than $3.5 trillion under management, the reality is, superannuation has become too big for politics, and an apolitical approach is needed to protect our retirement savings. I'm calling it!
Note this story is for our Aussie readers - but many of our stories will be more widely relevant so hang in here!
It's no surprise that the Australian Labor government is testing the waters with a proposed tax on superannuation balances over $3 million. They started discussing it during the election. But it raises a larger issue: should politicians be the ones making changes to superannuation rules, or do we need an independent governing body to manage and review changes objectively?
As the first generation to retire with decent superannuation balances, we need to consider what we want for our superannuation system that is now 31 years old and in June 2021, counted at $3.4 trillion dollars and it’s going to get a lot bigger. In contrast the annual Australian Federal Budget expenditure is $589 billion dollars. That is what our politicians are employed to manage. To me, there is an increasingly important debate to be had around establishing an independent governing body to prevent super from becoming a political football that will protect people from unnecessary change?
The superannuation system is our best national asset. It's a huge and diverse industry, and thanks to two major enquiries in the last 15 years, the superannuation companies are rigorously overseen by four governing bodies. Yet politicians still have the power to change tax law in a single political cycle, with only limited oversight from Parliament and the Senate. And if they have the balance of power well ... look out.
Over the years of its growth, Superannuation has become a sexy target for politicians and this year is no different. Federal Treasurer Jim Chalmers has declared that he wants to tinker with it, saying his main focus is defining what superannuation was for, proposing that Australia introduce a law that enshrines that “the objective of super is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.
But should that be the job of our politicians? I’m pretty sure we know what super is for and we just need to protect it for our future.
The Henry Tax Review recommended an independent entity to review the superannuation system's efficiency, effectiveness, and fairness. This entity could assess proposed changes and report on the system's effectiveness to the public. However, this was never implemented. Both governments got a chance to do so.
Who governs the government on Superannuation changes now that this system is too big for politics?
It's a question we need to challenge the current government with, particularly as they propose a tax on income generated from balances over $3 million that they could push through parliament quite quickly current and future retirees who are too late to revisit their plans. While this change currently only affects 1.1% of the population, getting it through easily could lead to a wave of other changes that could significantly impact retirement planning and the amount of money people have planned to live on in their later years.
It's alarming to consider that a change in superannuation tax laws or other concessions by the government could significantly impact an individual's retirement planning and their anticipated income for 20-40 years of retirement ahead.
There really should be non-political national oversight that can apolitically manage the consideration of the potential impacts to any ideas that will change Superannuation. This board can manage outside the political cycles what will inevitably be a more lengthy process of consideration of the impacts of any and all changes before bringing them to Parliament with full ratification and independent review. Then, after they are approved this group can also oversee the slow work-through of the implementation, so the rollout of the changes really respects any impact on individuals, wealthy or not, giving them years or decades of warning to manage the impact and potentially consider grandfathering existing and incoming retirees from changes so the ground doesn’t change beneath them.
Superannuation changes may be too big and too important for politicians to manage. We need an independent governing body to prevent politics from interfering with our retirement planning. Let's start a national discussion and consider the impacts of any proposed changes.
Time for a chat
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Decoding Australia's superannuation tax concessions: contributions and income explained
For those of us planning for, approaching and in retirement, the superannuation tax concessions are a crucial reason why we contribute the amounts we do, and why superannuation will be valuable to us when we retire.
Understanding the different tax concessions on contributions and income in super can help each of us make informed decisions about how to invest for before and during retirement.
It is a subject of significant debate right now as the government looks to tinker with the tax laws, so let’s make sure we all understand them no matter what our stage of life.
Read about all the superannuation tax concessions you can access before, during and after retirement here. Read more
Smile it’s Sunday
This funny little interlude was sent into our Epic Retirement Facebook Group which you can join here.
Two little old ladies
Two little old ladies, Niamh and Tara, were sitting on a park bench outside the local town hall in Limerick, where a flower show was in progress.
The short one, Niamh, leaned over and said, "Life is so boring. We never have any fun anymore.
For €10 I'd take my clothes off and streak through that stupid, boring flower show"!
"You're on!", said Tara, holding up a €10 bill.
So, Niamh slowly fumbled her way out of her clothes. She grabbed a dried flower from a nearby display and held it between her teeth.
Then, completely naked, she streaked (as fast as an old lady can) through the front door of the flower show.
Waiting outside, her friend soon heard a huge commotion inside the hall, followed by loud applause and shrill whistling.
Finally, the smiling Niamh came through the exit door surrounded by a cheering, clapping crowd.
"What happened", asked Tara ?
"I won €100 as 1st prize for 'Best Dried Arrangement'!"
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I definitely agree that an independent, overarching body needs to be in place and definitely in the near future. The bigger the pot of money, the more imperative this is.