The latest proposed changes have certainly divided opinion and caused a flurry of commentary from many sectors of the community. Despite the debate, it’s important to understand how they impact individuals and the retirement system more broadly.

Proposed changes to superannuation – good or bad?

The major points announced by Treasurer Scott Morrison are as follows:

1. Enshrining the objective for superannuation

In October 2015, the Government announced that it would develop legislation to enshrine the objective of superannuation, as part of its response to the Financial System Inquiry (FSI).

The objective they put forward for consideration was, “to provide income in retirement to substitute or supplement the Age Pension”.

Surely the objective of a robust retirement savings program is more than simply replacing the government welfare burden? This is a self-interest driven and narrowly focussed objective that it serves to undermine the true objective – that is to encourage savings and enable Australians to self-fund in retirement to the extent of sustaining their lifestyle as well as reducing or eliminating reliance on the Age Pension.

2. Reducing the concessional contribution amount to $25,000 per annum for all taxpayers

The base funding of superannuation is via the Super Guarantee Charge (SGC). In addition, taxpayers may contribute additional amounts for which they receive a concessional tax treatment. This was a way to encourage Australians to boost their retirement savings.

Placing restrictions on concessional contributions removes this incentive and discourages Australians from using their superannuation as a way to save, ultimately reducing people’s retirement nest egg.

3. Applying a life-time cap of $500,000 on non-concessional contributions back-dated 10 years

Superannuation is an important part of an individual’s long term life savings plan. For politicians to continually change the rules in order to suit their short-term fiscal needs is unacceptable and unfair. But to make retrospective changes to the rules is even worse.

In my opinion, the proposed cap is too low and does not encourage people to add to their retirement savings.

4. Applying a cap of $1.6 million to the establishment of tax-free pension accounts for individuals. Surplus balances must be returned to accumulation with earnings taxed at 15%

When former Treasurer Peter Costello introduced unlimited tax free pension accounts, we thought to ourselves at the time – this is too good to be true. And it was.

Honestly, I have little problem with superannuants holding multi-million-dollar account balances paying 15 per cent tax on investment earnings over a certain level. Whether $1.6 million is the appropriate level is debateable but I think it is a reasonable proposal in principle. Let’s face it, the alternative is marginal tax rates.

The verdict

Despite the slew of changes the superannuation industry has undergone since its inception, what we know for certain is that the Australian superannuation system works. It has been embraced as a good vehicle for retirement savings and is considered world leading by many of our global counterparts.

While there is always room for improvement, the constant and excessive meddling by government we have seen in recent years is a massive problem. It creates uncertainty and undermines confidence and trust in the system.

It is time we de-politicised the control of the superannuation system and put it under the control of a bi-partisan charter that cannot be altered by the ‘government-of-the-day’ to suit its own short-term or idealistic agenda.

We need certainty and continuity and a clear understanding of the guidelines governing the superannuation system.

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