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Feds under fire on super

THE Federal Government’s assumption that superannuation or the age pension will provide future retirees with a suitable standard of living is based on poor accounting, according to the Association of Superannuation Funds of Australia.

The ASFA last week attacked the Government for its defensive stance that current levels of super savings and age pension were sufficient for future retirement income.

In an address to the Senate Select Committee on Superannuation and Standards of Living in Retirement, ASFA CEO Philippa Smith said Treasury’s projections were reliant on individuals receiving average earnings being placed in the top marginal tax rate within 30 years because of tax and bracket creep.

“The rosy picture of higher retirement income will in fact be brought about by punitive taxation rates and reduced net wages prior to retirement,” Ms Smith said.

“It does not provide for an adequate income either before or after retirement.

“Can this really be the Government’s plan to deal with the ageing population – to have people on average earnings, or nearly 50 per cent of taxpayers, pay the top marginal tax rate?”

She believes that the treasury is taking a ‘smoke and mirrors’ approach, which is manipulative, misleading and offers false hope.

“Under this alarming assumption, the replacement ratio [the ratio of a person’s retirement income to their previous working income] is boosted by up to 10 per cent,” Ms Smith said.

“Any comparison between the standards of living before and after retirement looks better – because people will have less net income while they are working.”

Treasury figures suggest that an age pension of $19,266 is sufficient in 2032, while the ASFA’s minimum target is $25,000 per annum in current terms.

“If we had used treasury’s skewed methodology our targets of adequacy would need to be revised upwards to $40,000 per annum for a single person in 2032,” Ms Smith said.

The superannuation industry has been galvanised as the inquiry continues into the adequacy of Australia’s current superannuation system, run by the private sector.

The senate select committee, which is due to hand down its findings by September 26, has to date received more than 100 submissions from the superannuation industry, financial planning, and accountant and employer organisations.

In its supplementary submission to the inquiry, the ASFA offered a number of solutions to the Government’s tax grab on superannuation funds.

The association believes the Government could cap the revenue it collects from super at current levels and progressively cut the contribution tax rate in future years.

“This would keep government revenue steady in nominal terms, but would prevent the increase in superannution taxes as a percentage of gross domestic product and the drag on retirement savings that would otherwise occur,” the association says.

“Such a cut to contributions taxes would mean higher super balances for everyone, with the result that the tax collections on earnings and end benefits would be boosted.”

The Institute of Actuaries of Australia, a membership body made up of mathematical, economic and financial analysts, also targeted taxation as the number one concern eroding future retirees’ incomes.

In its submission it called for changes to both the level and structure of taxes, but also said it was important to integrate the superannuation and social security systems, which until now have been operating independently of one another.

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