Editorial - Superannuation e-news June 2012

Consistency please

The Treasurer's Budget speech confirmed the government's earlier leak and mentioned in the May 2012 Editorial, of a higher rate of contributions tax for very high income earners. Varying the contributions tax enters new territory, because it is at the contributions point that many taxpayers also make conscious decisions about their savings, leading to a sense of how their superannuation may be growing and consequently to super generally. Some parallels with the previous Superannuation Surcharge - abolished from 1 July 2005 - are eerily present, but that discussion was ultimately overtaken by Better Super and contributions caps. The fact remains that the Surcharge was largely discredited and seen as a major obstacle to super savings, but as we have pointed out elsewhere, in this case and unlike the Surcharge, it is more benign and will apply only to concessional contributions. Since the contributions tax rate is being varied under the current regime, the issue of a rebate for low income taxpayers on their concessional contributions tax was also a feature of the reform package of Stronger Super, which we clearly viewed as a positive measure for savers.

The government has argued its case on the grounds of fairness but this is at the expense of simplicity and of higher costs being incurred. In addition, it fails to offer a level of consistency in the argument supporting the other significant superannuation measure in the budget. Deferring the introduction of a higher cap for those with lower savings in superannuation undermines the equity argument. Both measures introduce a level of complexity too which will be alleviated to some degree once the new infrastructure necessary under Super Stream is introduced, albeit more so for the low savers cap than the high income tax increase. If we are to accept the need for an immediate introduction of the high income measure, then a deferral of the other for two years is patently inconsistent.

And while we are disappointed with a deferral of the higher cap for lower savers, the problems of identifying the relevant eligible lower super savers was always going to create difficulties. Why a more practical measure was not considered for the interim at least, before the deferral option was accepted is also disappointing. Nevertheless and despite some media coverage suggesting close to a collapse in our confidence in superannuation, we should remind members that superannuation remains one of the more attractive investment vehicles devised for retirement savings purposes -notwithstanding the higher tax for high income taxpayers. We need to recognise this and resist the temptation to throw the baby out with the bathwater as we might end up with a self-fulfilling prophecy about the ills of superannuation. The question remains however that governments may choose to make changes at the margin with superannuation, but in doing so they erode its simplicity and also introduce costs, diminishing a very sound product.

Members need to take note that the period set at the commencement of Better Super for completion of the higher transitional contributions caps for those 50 and over will occur after 30 June 2012. A lower general concessional cap of $25,000 will apply for all taxpayers in 2012-13. Those eligible for the higher cap this year are advised to make the most of this opportunity as all taxpayers face the lower cap next year. In addition, those who have set up salary sacrifice arrangements in the past, based on the application of the current higher transitional cap, should re-visit those arrangements. Where they fail to recognise that the new provisions apply from 1 July this year they may face the prospect of excess contributions tax. Given the lower cap itself, any adverse impact on retirement savings should be avoided, and with forewarning, this shouldn't be too difficult.