To change or not to change, reform or not.
That's the big discussion going on in the media lately. And there's plenty at stake.
End of the rainbow?
Australia's superannuation system was worth $2.05 trillion at the end of March 2015, and is set to reach $5 trillion in 2025 and $10 trillion in 2032, if it keeps growing at an average rate of 10% each year.
For governments struggling to balance their budgets, taking just a small percentage of that could swing a deficit to a surplus and it's mighty tempting at times when government revenues are falling, or when government wants to spend to keep the economy from falling into recession. Remember, just 1% of $10 trillion is $100 billion.
The problem is, as with any system, is that it doesn't suit everybody and there need to be exceptions and that applies equally to our current super system in Australia. Many people feel disadvantaged by the current rules and laws governing super – does it favour the rich over the poor? Those currently in retirement, or those still accumulating funds for retirement? Women over men and the list goes on. Unfortunately, it can also be used politically, given its importance to so many of us.
Since the compulsory super system was introduced by Paul Keating in 1992, federal governments have tinkered with the system to try and fine tune it, making it more equitable for more people – but also keeping it attractive as a vehicle for retirement savings.
Higher purpose
And that's the main thrust of super.
Given a rapidly ageing population, future Australian governments won't be able to support everyone over the retirement age, without cutting huge spending in other areas such as health care, education & infrastructure. Therefore, we need the super system to be able to support as many people as it can in retirement, without sending Australia broke beforehand.
And that's where the problems start. Make super too attractive, and many more people will find ways of stuffing as much as they can into super. Make it unattractive – and the government risks facing higher and higher future social payments in the form of aged pensions.
What many Australians dislike though is the uncertainty created by constant changes to super where rules are relaxed or tightened. Now the current Liberal government has promised no more changes, but it's a stance that not everyone is happy about.
The government has most recently come under attack from Financial System Inquiry head David Murray for refusing to make changes to the super system – which is seen to be giving the wealthy a leg up and not having to pay tax.
As Ms Cassandra Goldie, CEO of Australian Council of Social Service told the Australian Financial Review, "Currently over 50% of the tax concessions on superannuation go to the top 20% of income earners, so clearly they are targeted at the wrong cohort". Whether that's right or wrong remains to be seen, but the current system most likely will have flaws in it.
Foolish takeaway
Australians as a whole also need to take a pragmatic approach. Rather than arguing against changes to the super system that might impact us negatively, sometimes we need to step back and consider the future of Australia, our children, our children's children and so on. That may mean getting used to constant changes to our super system and working with it, rather than against it.
