Superannuation was introduced in Australia in the 1990s as a way of helping the population to achieve a more comfortable retirement. Back then, the mandatory contribution rate for employers was three per cent. Now, it is 10.5 per cent and on its way to being 12 per cent by 2027.
Over the years, the industry has grown to become a $3 trillion “supersector”. There are dozens of different providers as well as the option to take control and self-manage your super.
To ensure superannuation continues to serve its original purpose, Australian Treasurer Jim Chalmers recently outlined his vision for the country’s retirement savings.
Keeping in mind that we are not trying to sway your political opinion, here are some of the key points Dr Chalmers raised in a speech in Sydney in February:
Keeping super for retirement
During the pandemic, the Morrison government allowed people to dip into their super, which they did, to the collective tune of billions of dollars. In response to this, the Treasurer said he wants superannuation to remain for people’s futures.
Treasure Chalmers described his predecessor’s policies as “contradictory, sometimes counterproductive and often costly”, saying his government will take a different approach.
The agenda for super in 2023 is to try to end the ‘super wars’ and make sure that future changes to the system align with a ‘true north’. Dr Chalmers said this will be achieved by embedding superannuation’s purpose into law.
To prevent money from being withdrawn prior to retirement and ensure people have better living standards when they stop work, Dr Chalmers promised to introduce a consultation paper, with the objective of “preserving savings and delivering income for a dignified retirement alongside government support in an equitable and sustainable way.”
The goal behind this is not to narrow super’s role in the economy, but to elevate and broaden it. Dr Chalmers said he wants to achieve good results from superannuation for members and the nation as a whole.
Addressing inequalities and preserving super payments during paid parental leave
An issue that has been repeatedly raised by women’s advocacy groups is that women lose a great deal of super when they take time out to have a child, plus they miss out on super due to the gender pay gap. Based on compound growth, the loss of a year or more’s worth of superannuation payments can be worth many tens of thousands of dollars.
As reported in Accountants Daily, the Treasurer has previously said that, “We all see those quite shocking gender disparities at retirement, and we will fund the super guarantee on paid parental leave when the budget circumstances permit that.”
In his recent speech, he talked about working within the system to address underpayments and non-compliance, to ensure that super entitlements are respected and that unpaid balances are recovered more easily. He also mentioned that when budget circumstances allow it, the super guarantee will be funded on paid parental leave as well.
Super tax concessions may change
There is a raft of tax breaks when it comes to putting money into superannuation. For example, provisions allow people over the age of 55 to sell their home and put up to $300,000 of the proceeds of the sale into their super (conditions apply).
Dr Chalmers shared doubts that the $52 billion a year worth of tax breaks in Australia’s retirement system are consistent with the Government’s economic goals. He pointed out that Australia is on track to lose more money to super tax concessions than it spends on the age pension by around 2050.
It’s not clear how tax breaks will change, however there is a suggestion for a $5 million cap on super accounts, which may result in people having to pay more tax once their super exceeds this threshold.
Financial advice and digital solutions are integral
The Treasurer also spoke about the need for a “steady pipeline of high-quality financial advisors”.
He said that the Government is responding to this need by providing a clear path for experienced providers to stay in the industry and for new entrants to come in as well.
According to Dr Chalmers, “As Australians retire with more income than ever before, it is vital that they have access to quality and affordable advice, especially when 3.6 million are heading towards retirement in the next ten years.
This means a growing number of Australians will need information and strategies to plan for the retirement they deserve and rapidly, and that’s where digital can play a role. If it’s used well with the correct consumer protections, it could offer new ways to provide high quality, cost-effective advice at a larger scale.”
Super and you
As Treasurer Chalmers stated, super is the game of long-term investing. While the Government makes decisions with the goal of ensuring a “secure, dignified retirement”, you have the potential to maximise your super with the help of a clear strategy and the advice of an expert.
If you have your retirement in mind or even if it seems too far away to think about, make an appointment to speak with a financial advisor today. The earlier you take action, the sooner you can watch your super grow.
Want to grow your superannuation in 2023? Talk to Landen today.