Tuesday, June 29, 2010

While repudiating Rudd, here's an idea for Gillard -- keep super at 9%

It comes from Karen Maley in Business Spectator.

As she says increasing contributions to 12 per cent helps no-one, other than the super industry.

And by the way, Kevin07 promised not to do it; Henry found there was no need to do it.

And I would like to decide for myself when I need to spend and save, thank you very much.

Here's Karen:

"As Julia Gillard and the miners edge closer to agreement on winding back the resources tax, our new Prime Minister would be well advised to drop the superannuation sweeteners the resources tax was supposed to fund.

In the first place, it’s bad politics. Most of us care so little about our retirement savings that we can’t even be bothered to tick any of the boxes when it comes to choosing how we’d like to have them invested. We’re certainly not going to change our vote because of the proposed changes.

In fact, the only people likely to care about the removal of the superannuation sweeteners are those working in the country’s $1.2 trillion superannuation industry...

They’re keen on the government’s proposed changes because they’ll earn extra fees from the tens of billions of dollars that will flow into superannuation savings as a result of the government’s plans to raise compulsory superannuation contributions from 9 to 12 per cent and to top up the superannuation accounts of low-income earners.

The trouble is, the government’s tweaking of the superannuation system is bad policy. In his detailed review of the country’s retirement system that was delivered to Swan just over a year ago, Ken Henry had a close look at whether the compulsory super contribution rate should be increased from 9 to 12 per cent. His verdict? Leave the rate at 9 per cent.

There are strong budgetary reasons for doing so. The Federal Government loses a lot of revenue as a result of the extremely generous tax concessions that apply to super contributions. Increasing the rate to 12 per cent will deprive it of even more revenue. And superannuation is a bad fiscal deal for the government, because it loses more in the tax revenue it foregoes than it saves from future spending on the age pension over the longer term.

But beyond the fiscal impact, Henry simply didn’t see the need to increase the compulsory super savings rate. He estimated that when the super system is fully matured in the late 2030s, a person on an average income of $60,000 a year could look forward to enjoying a comfortable retirement income of around $43,000 a year (both figures in today’s dollars) as a result of combining the old-age pension and their super savings. And – this is important – Henry estimated that the age pension would still account for just over half of this person’s income.

Henry also concluded that compulsory super contribution rate of 9 per cent struck the right balance between giving people a reasonable disposable income, while still requiring them to build a retirement nest egg. He estimated that high-income earners would feel little impact if compulsory super contributions were lifted to 12 per cent, because they’d probably just reduce some of their voluntary savings to compensate. But he worried that low- and middle-income earners would have to cut back on their current spending in order to afford these extra contributions.

And Henry pointed out that the bulk of the massive tax benefits from compulsory superannuation flowed to high-income earners, while the lower tax rates were of little benefit to low-income earners.

But in their enthusiasm to construct an election-winning package funded by the resources tax, Rudd and Swan ignored Henry’s recommendations. They forged ahead with a lift in super contributions from 9 to 12 per cent. And, on the equity side, they decided to top up the super accounts of low-income earners by $500 a year. They also allowed those nearing retirement to make additional use of the generous tax concessions to top up their super savings. The cost of these supposed benefits was supposed to reach $2.4 billion over the next four years.

Now that Gillard is preparing to scale back the resources tax, it seems only right that she should drop the idea of using some of the expected proceeds of the tax to fund an ill-considered makeover of the country’s superannuation system."

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. The stairway to super

. "Six out of ten Australians support 12% super and will pay for it"

. Message to Australia's banking industry, real estate industry, super industry...

. Henry on Super