Sign up for the latest news and insights
Sign up for the latest news and insights
Reading comments made by Superannuation Minister Senator Jane Hume regarding the currently legislated increase in the Superannuation Guarantee Charge (SGC) from 9.5% to 12%, in last Friday’s Australian Financial Review troubled me indeed.
Senator Hume was quoted as saying “people need to be confident to spend not hoard” and that “an increase in super would come at the expense of wages”. There were further comments made by so-called “experts” suggesting that annuity type superannuation income streams should be mandated to stop retirees living off the income generated by their superannuation and leaving capital balances to estate beneficiaries.
Former Public Service Commissioner Professor Andrew Podger, AO, was quoted in the article as “calling for the government to ensure that retirees draw down on their stock-pile of savings.”
How Senator Hume and her government colleagues can argue against an increase in the SGC to Australian employees when they receive a 15% equivalent themselves is beyond all logic and credibility.
It is important to look at the facts behind the SGC which was introduced by the Keating government in 1992. The SGC contribution began at 3% of wages to be funded by employers over and above an employee’s normal salary. Employers found to be funding the SGC through any reduction in wages were subject to severe penalties. To clarify, compulsory superannuation is government legislated but is NOT a government-funded system. It is funded by the employers with employees enabled to make further private contributions for which they may receive a tax benefit to encourage savings.
The suggestion that increased superannuation will lower wages is a furphy. SGC by law is separated from wages. Market forces dictate wage and salary levels and as a long-term employer I can attest that SGC has no influence whatsoever on determining the worth of an employee, what has had a major influence on a lack of wage growth over recent years is virtually negative CPI. So, if you are being paid a fair market rate and there is no inflation, how do you justify increased wages other than by increased productivity or self-improvement?
When completing my Financial Planning Master’s degree in the early nineties my thesis was based on the future viability of funding retirement in Australia and the importance of the future of the SGC. The fact is, the Australian Bureau of Statistics forecast that by 2030, there will only be two people employed for every one retiree in Australia. Without an effective retirement funding system, this would signal disaster for the Australian economy and the governments’ ability to fund retirement through social security payments. Therefore, for this reason alone it is imperative that the government desist from its short-term view and for the SGC to be taken to its ultimate projected rate of 12% to achieve its desired long-term effectiveness.
Having been a Financial Planner for around 35 years I have seen the effectiveness of the superannuation system from several points of view. Amongst our cohort of clients, there has been a progressive improvement of people being able to accumulate sufficient savings to comfortably fund their income needs in retirement. This is not just via SGC, but the growing awareness of the need to plan long term and accumulate savings over time to achieve financial independence.
This is something government should be applauding and encouraging, not looking at greedily as a “stockpile of savings “that they have the right to pump back into the short-term economy.
This leads me to the notion of multi-generational wealth transfer, something we strongly advocate to our clients. It entails the strategic planning to accumulate sufficient wealth that has the capacity to generate ample income to fund retirement lifestyle needs. In addition, capital growth that will cover capital expenditure requirements as well as retain capital value in real terms after CPI. According to the Minister and her colleagues, this is an outrageous proposition who, it would appear, would rather mandate the expenditure of Australians hard-earned retirement savings.
We find an increasing tendency for clients, where they can, to assist their children with buying their first home or to fund education to name just two. This is becoming more and more frequent and should be recognised as a huge benefit to the economy by encouraging the next generation to accumulate personal wealth and less government dependence.
So, please Minister Hume, give your fellow Australians some credit for taking the responsibility for their financial wellbeing and reducing dependence on the government in their retirement. Understand that superannuation is not your money and it is unacceptable that governments think they can change the rules to gain access to what they clearly see as a pot of gold.
It is my view, and that of my colleagues, that multi-generational wealth transfer is important to the future of the Australian economy and the financial well-being of its citizens.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email firstname.lastname@example.org or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.