Treasurer Scott Morrison has put ordinary Australian workers on notice that they should no longer expect to receive an age pension from the government when they retire.
Meanwhile, the very wealthy have been warned generous superannuation tax breaks are set to be reined in.
In a wide-ranging speech on Friday, Mr Morrison outlined the government’s vision for an overhaul of the country’s retirement income system designed to ease pressure on future federal budgets: by both reducing expenditure on welfare payments, and limiting the amount of revenue forgone through tax concessions.
Association of Superannuation Funds chief executive Pauline Vamos advocates a lifetime contributions limit of $1 million. Photo: Jeremy Veitch
The Treasurer said government would act next year to alter the Superannuation Act to clarify that the purpose of the country’s compulsory savings system was to enable most Australians to enjoy the “worthy prize” of an “independent retirement”.
“Becoming a self-funded retiree, I think, is one of the most important objectives of any Australian … it means you have choices and control over your life and your care,” Mr Morrison said.
Currently most people can expect to receive at least a part age pension payment from the government when they retire, with their super savings providing a top-up.
But the age pension should not be regarded as an entitlement for all, but rather a “welfare payment for those who do not have the ability to save enough to fund their own retirement”, Mr Morrison said.
More than twenty years since compulsory superannuation was introduced the system is not yet efficient enough at meeting its objective to “supplement or replace” the age pension, he said.
Mr Morrison said the age pension should remain “as a safety net”, and that people who take time out of the workforce to raise children or perform carers duties should not be left behind.
Treasurer Scott Morrison outlined the government’s vision for an overhaul of the country’s retirement income system. Photo: Alex Ellinghausen
Enshrining a definition of the purpose of superannuation in law, to better focus future policy changes,was a key recommendation of last year’s financial system inquiry led by former Commonwealth Bank boss David Murray.
The inquiry found that 10 per cent of Australians receive 38 per cent of super tax concessions, more than the combined benefit to the bottom 70 per cent of Australians.
Opposition spokesman for financial services and superannuation Jim Chalmers wants a low income superannuation contribution retained. Photo: Glenn Hunt
Crackdown on super tax cuts for richest
“Super was never designed to be an open-ended vehicle for wealth creation.”
He floated the idea of placing a limit on how much money people can put into super at the discounted tax rate of 15 per cent.
Mr Morrison also pointed to Mercer research that suggests the super tax concessions should designed to enable an income in retirement of 70 per cent of pre-retirement earnings. Opening the door to limiting tax concessions on super has drawn criticism from lobby groups for self-funded retirees.
The move represents a major u-turn, under Prime Minister Malcolm Turnbull, on a core policy promise made by his predecessor Tony Abbott and his cabinet.
Mr Abbott, his former treasurer Joe Hockey, and former assistant treasurer Josh Frydenberg all repeatedly pledged earlier this year “no unexpected or adverse changes to super taxes”.
Mr Morrison downplayed the backflip.
Perception of fairness politically important
“A number of the changes [to super laws] that occurred under the last [Labor] government were egregious, and undermined stability and certainty in the system, and that is why we, in this term of government, have been so hesitant about making any changes in this term,” he said.
Mr Morrison said retirees, and older workers approaching retirement, deserved stability and certainty.
“And yet we must also balance that right with the goal of shaping the superannuation system so it provides opportunity for more Australians, because until tax concessions in the super system are perceived to strike the right balance of fairness there will continue to be calls for more tinkering and changes”.
The Treasurer made the comments during a speech to the Association of Superannuation Funds of Australia (ASFA) conference in Brisbane on Friday.
ASFA chief executive Pauline Vamos said she supported the idea of restraining access to super tax concessions for the most wealthy and developing policies to encourage more people to save towards a self-funded retirement.
“At the one end of the spectrum super should not be treated as a wealth creation and estate planning vehicle, while at the other we must have a social safety net for the most vulnerable”.
Ms Vamos said the government should provide at least three years notice of any future changes to the rules to allow people time to plan, and that special allowances may need to be made for those already in or closely approaching retirement.
ASFA has called for a lifetime cap of $2.5 million on the amount of money people can accumulate through super.
“While limiting the tax concessions on those very high super balances would only affect about 70,000 people today and not ring in a huge amount of revenue for the government in the short term it would set us up for a fairer and more sustainable system over the next 20 to 40 years,” Ms Vamos said.
Criticism from Labor
Other groups have called for much lower caps.
The Grattan Institute this week proposed limiting pre-tax annual contributions to superannuation accounts at $11,000 per person and taxing investment earnings in retirement, drawing the ire of the self-managed super industry.
Earlier this month Deloitte called for the government to scrap annual limits on how much money workers can tip into their super at the reduced tax rate of 15 per cent in favour of a lifetime concessional contributions cap of $580,000.
On Friday Mr Morrison said there “needs to be more flexibility” in the rules to allow people, especially women, with broken work patterns to catch up – indicating the government is open to scrapping annual caps on contributions.
The government plans to consult more widely on possible changes next year.
Opposition spokesman for Financial Services and Superannuation Jim Chalmers accused the government of peddling a rhetoric of wanting to improve retirement outcomes for ordinary workers, while simultaneously pushing ahead with previously-announced policies that would make leave them worse off.
“While it was good to hear Mr Morrison talking about improving the adequacy of superannuation system, all he offered were thought bubbles,” Mr Chalmers said.
“Meanwhile the government is pushing ahead with plans to abolish the low income contribution scheme by 2017, it is stalling on raising the super guarantee, and has laws before the parliament to weaken penalties for employers who do not comply with their obligations to pay workers’ super.”
Labor’s plan is to introduce a 15 per cent tax on earnings from super in retirement, which are currently tax-exempt, once a person has drawn more than $75,000 a year.