The superannuation conundrum in Australia: bring on a CSC

Bring on the Council of Superannuation  Custodians!

Bring it on with clear guidelines and adequate authority.

Get politicians out of the way of the retirees (whether ‘fabulously wealthy’ or otherwise) managing their nest-eggs in a transparent and stable legislative and regulatory environment.

jam jar savingSince 1992, when compulsory superannuation was introduced with the long-term goal of reducing the burden on taxpayers in funding the welfare of retirees, governments of both persuasions have made various ‘adjustments’ (1) to its structure – and the anticipated benefits.

Not all of the adjustments have caused financial detriment to the members holding their future retirement assets within the system: indeed many of them have liberalised the ability to contribute; and how the funds can be invested. The bogie in the closet is becoming the fact that there is ‘change’ happening – and the citizens for whom the system was designed are the least comfortable with change as a general rule: particularly change that is perceived to have an impact on –

  • the taxation implications of accessing their retirement benefits;
  • the taxation costs of contributing to their superannuation;
  • impediments to the accumulation of an adequate amount to fund a comfortable retirement lifestyle; and
  • uncertainty as to the stability of the legislative/ regulatory environment that dictates the operation of these accounts.

The conundrum for Australian governments is that they have:

  1. established the system with a view to relieving future pressure on the welfare system (that would have to be paid from the taxation collections of a proportionally diminishing workforce);
  2. to sacrifice a portion of the current taxation collections by way of concessional treatment of both the contributions to superannuation accounts – and to earnings on the funds accumulating in them; and
  3. when making the ‘adjustments’ they see as necessary to keep the system fair and equitable, avoid the risk of  being seen to impose a retrospective taxation system. (2)

Where the system has failed is that it started in 1992, addressing the retirement funding needs of the so-called ‘baby boomers’ – many of whom were already within ten years of entering the post-productive years of workforce participation: and no statutory requirement or provision made to address that until the disastrous ‘million dollar’ event of 2007. (3)

Australian governments have had 21 years to tweak the system: they should by now, be able to step back and allow an independent body (such as the proposed Council of Superannuation Custodians) to manage it – and to make recommendations for improvement without fear of electoral influence, or backlash.

(1) During 2007 it was estimated that there had been sufficient amendments to the Superannuation Industry Supervision (SIS) legislation, to have averaged one amendment for every working day of the previous ten years.
(2) Superannuation account holders contribute over a very long period of time, doing so on the basis of the rules for contribution – and for access in due course – understanding that certain taxation provisions will apply. They consider the changes made along the way to be retrospective because they haven’t yet been able to benefit from that access.
(3) In an attempt to encourage the late contributors, especially the self-employed who had notoriously been unable to contribute because of business working capital pressures, the Howard government allowed a once-off contribution opportunity to contribute up to a million dollars to a superannuation account; followed by some two-tiered contribution plans for the follow-up years. Some borrowed, but all who contributed saw huge losses of their capital within eighteen months as a result of the little-forecast GFC that hit during 2008.

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