Editorials

Does this prove a false narrative?

superannuation tax benefits

New research has undermined the view that retirees are not spending down their superannuation balances, but it is unlikely to change opinions or policies.

In my last editorial I highlighted the messages stemming from parts of the superannuation industry, namely those other than the SMSF sector, regarding the overly generous tax benefits included as an incentive for individuals to contribute more to their retirement savings and how this characteristic of the system needed to be changed.

Basically, I laid out a case countering this argument based on the fact the majority of Australians don’t even maximise the level of contributions taxed at the relatively low rate of 15 per cent they to which they are currently entitled.

Well, figures from the Association of Superannuation Funds of Australia (ASFA) released this week reinforced this point and perhaps can lead us to question whether any of the recent retirement savings policies were really necessary.

ASFA made public ATO and APRA data as well as previously unpublished Household, Income and Labour Dynamics in Australia (HILDA) survey results – which is funded by the Department of Social Services.

Incredibly this data revealed, among other things, 80 per cent of people aged 60 and over who died in the period 2014 to 2018 had no super at all in the period of up to four years before their death, and for those aged 80 plus, over 90 per cent had no super in the four-year period before their death.

Further, the study showed for the age 80 plus group, only 5 per cent of that group had more than $110,000 in superannuation in the period of up to four years before their death, and even in the case of those who died aged 60 to 69, less than half had any super at all.

The figures led ASFA chief executive Martin Fahy to conclude: “We don’t have a systemic problem with retirees underspending or bequeathing their super – quite the opposite. The majority of Australian retirees run out of super well before the end of their lives.”

However, all of the messages emanating from Canberra in the past seven years, under the stewardship of a coalition government, has been about how on the whole people are holding too much money in their superannuation funds and how this situation must be addressed for the betterment of the system.

This was particularly aimed at the SMSF community as its members tended to consist of Australians with the highest retirement savings balances.

To this end the narrative actually went one step further with the government expressing its concerns in 2016 that superannuation funds being misused as an intergenerational wealth transfer vehicle.

In fact at that year’s SMSF Association National Conference, then Treasurer Scott Morrison highlighted this concern, stunning most attendees through his announcement “[Superannuation] is not is not a tax incentive for estate planning”.

Fast forward to the 2016/17 budget where it was announced a transfer balance cap of $1.6 million would be introduced into the super system that would effectively limit the amount of money a person could hold in the tax free pension account of their SMSF – no doubt designed as a hurdle for those who had and wanted to have more than this in these accounts.

And lower pension account balances would in general mean less superannuation money to bequeath to succeeding generations.

The introduction of the transfer balance cap has meant our retirement saving system has become infinitely more complicated particularly with regard to instruments such as death benefit pensions. In addition a whole new world of administrative hurt is about to be felt come 1 July 2021 when indexation is applied to this limit.

I questioned at the time if any SMSF trustees were deliberately parking their money in a super fund with the aim of passing it on to their children or grandchildren and the overwhelming response from practitioners was they were not.

The ASFA data has to lead us to question what information the government used to reach a conclusion that led to the introduction of this policy and whether or not the initiative was really necessary.

In particular, we can now wonder if Scott Morrison’s message in 2016 was a complete false narrative based on a false premise.

One thing is for sure. The government will not be admitting any fault with regard to this policy and as such we will not see it being wound back anytime soon.

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