When the compulsory superannuation system was introduced, the federal government included associated tax concessions to encourage people to contribute more money into their super funds so they could be self-sufficient in their retirement years.
However, since its introduction the criticism aimed at the retirement savings framework has been incessant, labelling the favourable tax treatment contained in the system as overly generous. In fact, there was a time when Treasury labelled SMSFs as people’s tax avoidance vehicle of choice as a result of the said granted concessions.
When mounting an argument either in the positive or negative toward something, it is always useful to have some factual backing for it. In this case, many SMSFs with high balances of say $10 million-plus were used as proof positive individuals were using superannuation as a tax rort.
In subsequent years we have learned about the dangers of relying on atypical funds to prosecute a particular opinion and this has never been so evident than when a deeper analysis was performed on the cost of running an SMSF.
When the data polluted by funds with high balances was used by agencies such as the Australian Securities and Investments Commission to conduct this cost analysis, it resulted in the conclusion that the average annual cost to run an SMSF is $13,900.
Of course, when the expenses associated with SMSFs were analysed in a more granular and more representative way by Rice Warner, it was found the annual running cost of one of these funds is more like $3700 – quite a discrepancy.
If we now apply the same experience to the claims that the superannuation tax concessions are too generous and allowing too many Australians to gain an unfair advantage, we can see a similar scenario unfolding – a situation highlighted by of all things the ability for individuals to access their retirement savings early as a COVID-19 financial hardship measure.
Arguments have been flying left, right and centre about how damaging this measure has been and how people who used it will have a huge hole in their super balance that will be hard to repair. Okay, then surely some unique contribution rules should be introduced that are linked to the coronavirus early release provisions to help repair this hole.
Enter the government, which quickly scotched any thoughts of introducing such rules. And why? Because the reality is the majority of Australians have not been using the concessional, and non-concessional, contributions caps to their fullest extent.
This means the super system is already providing the means for the greater proportion of taxpayers to make contributions to their retirement savings, if they have the money available, that will compensate for any benefits accessed early. To this end, one of the main levers available is the ability for individuals whose total super balance is lower than $500,000 to roll forward their unused concessional contributions cap for a five-year period.
If you join all of these dots together, this excess contribution capacity indicates the accusation the superannuation tax concessions are too generous is a furphy. Surely, if it was true, most Australians would already be maxing out all of their contributions caps and a special contribution provision to compensate for the COVID-19 early release of super would be justified.