ASFA calls for reform of superannuation system

Nest egg, superannuaiton, SMSF, retirement
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ASFA reform super systemThe Association of Superannuation Funds of Australia (ASFA) has called for fundamental changes to the superannuation system to put it on track to meet ASFAs 2050 goals:

  • Cost of age pension and super tax expenditure to be less than 6% of GDP
  • Less than 20% of retirees relying only on the age pension
  • Retirees to have a replacement income of over 65%
  • At least 50% of retirees to have a ‘comfortable’ retirement

This is contained in the policy framework release by ASFA, called The future of Australia’s super: a new framework for a better system.

As part of these reforms ASFA has recommended removing the minimum threshold of $450 per month for superannuation guarantee contributions.

“Given the increasing number of people working casual hours and the trend towards more people working part time, the existence of the $450-per-month threshold for the payment of SG penalises low-income earners, those who are permanent part-time workers and those with multiple jobs, who receive little or nothing in the way of SG contributions.”

ASFA says that this would benefit around 250,000 people, predominantly women.

To further reduce the gender gap in superannuation ASFA says employers should be exempted from anti-discrimination legislation so they can contribute more superannuation for female employees.

On the other hand ASFA also recommends further limiting the ability to contribute to super based on age.

“Given the purpose of superannuation is to provide income in retirement, there is an argument that there should be a ‘line in the sand’ whereby contributions to superannuation should cease.”

Under ASFAs plan, other than mandated employer contributions, super funds would not be able to accept contributions for members once they are 5 years older than the age pension age. This would replace the current system based on age and hours worked.

ASFA also wants compulsory superannuation to be extended to the self-employed. “Around 50 per cent of the self-employed do not have significant business or other financial assets,” said ASFA. However it is unclear on what basis this would be implemented, with ASFA suggesting it could be based on the Medicare surcharge with an amount payable “unless a minimum amount of taxable income is contributed to superannuation.”

The superannuation guarantee rate should also be increased to 12% “as soon as possible.” However as 12% “may not be sufficient for a number of consumers,” this should be supplemented by an additional 3% on an opt-in basis. ASFA also wants the Low Income Superannuation Contribution (LISC) to be “retained permanently.”

The policy paper says that the gap between the superannuation preservation age and the age pension age “gives rise to a risk that people will deplete their superannuation savings quickly, and then fall back on the Age Pension.” To combat this the preservation age should be set at 5 years less than the age pension age, up to a maximum of 62 years of age.

ASFA recommends death benefit beneficiaries should be given “an incentive” to retain the amount in superannuation rather than taking it as a lump sum. This would take the form of a “tax incentive to roll-over a death benefit into the superannuation fund of the beneficiaries.”

“We have a very good superannuation system in Australia, but there are gaps that need to be addressed. Better catering for the unique circumstances that these groups often find themselves in will ensure the system delivers across our community more broadly,” said ASFA CEO Pauline Vamos, on the release of the policy framework.

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