Labor are proud of their superannuation legacy. In a recent release, Treasurer Wayne Swan boasted that “Labor is the party of superannuation — we established it, we have nurtured it and grown it, and we will protect it … Australians are living longer and in this context the superannuation system needs to be fair and it needs to be sustainable.”
Yet the general view of most impartial commentators (the few who are neither rich, nor working in finance and super) is that the system is neither fair nor sustainable.
There are many bases for critiquing the unfairness of the policy, most of which focus on concessions for the rich. However, more serious for future needs is its failure to serve the groups with limited workforce attachment.
This can be seen in the gender bias implicitly built into its structure, Women earn less than men do, both in average hourly earnings (18 per cent) and average time in paid work. Without arguing the reasons for the differences, they result in distortions in any design for retirement income that is based on a 9 per cent or 12 per cent compulsory contribution as these will, at a minimum, reproduce the inequality of lifetime earnings.
Some will argue that this difference is just the reflection of existing inequalities and women should increase their paid work time or put up with the difference. The Age Pension also provides a safety net of sorts — albeit a limited one.
If the scheme were not compulsory, that argument may have some traction. But it is, and needs to show it is fair as claimed by the current government.
Such an assessment would also have to include many other substantially unfair aspects of the policy. These include a range of tax incentives that bribe higher income contributors for their lack of access to the money until they turn 60 at least. They would also need to explain why such bribes are not available for the lower income groups. Low income earners have, in fact, been overtaxed and most are women.
The way these tax concessions work is inherently grossly unfair. Contributions and fund earnings are taxed at a flat 15 per cent, well below the top tax rate of 45 per cent — so it becomes a de facto public subsidy of 30 per cent of their contributions.
Relatively few women benefit as they are not likely to be in the top tax bracket. However, there are many more women whose earnings either fall below the tax threshold, or may be taking time out of paid work, who are being overtaxed 15 per cent on their contributions and/or their earnings on accumulated funds. This rip-off has been in place for more than 20 years!
There may be light on the horizon. From 1 July, they will be rebated on at least their contributions. However, the Coalition has promised to abolish the Low Income Superannuation Contribution which it is claimed will benefit 3.6 million Australians on low and modest incomes rebate, for up to $500 per annum.
Apart from the unfairness of the tax concessions, there are other issues for low income earners. The policy should think through whether all low income people can afford to save 9-12 per cent of what is essentially their pay packet.
Most workers believe that it is the bosses that pay into their super — and technically it is — but the rises, including the proposed extra 3 per cent, are negotiated as part of wage packets and do reduce take-home pay.
For the very low income earner who may be a single mother, there are questions on the fairness of forced savings, particularly with little or extra tax concessions.
I question the push by some women’s advocates who want get rid of the exemption on contributions for those who earn less than $450 a month. Low income earners get no tax advantage from the savings and may need the extra money each week.
It also casts doubt on the push for super contributions to be paid for those on maternity leave, as recipients will derive little or no benefits if they are low income earners in the long run.
Some of the pressures for extra payments come from concerns that the average super balances for many women are about a third of male ones. About a quarter of all women have no super at all, so far more women than men are, and will continue to be, fully dependent on the Age Pension.
That said, given the biases in the tax concessions and costs of administration on small balances, the question of more retirement income needs to have much more serious changes on offer.
The questions of fairness in the superannuation and retirement income areas will become increasingly urgent as we age. Current savings incentives will not reduce the numbers on pensions significantly. The income/asset tests are very generous.
The alliance between the finance and superannuation industry and the union movement's industry funds is seriously problematic. The media coverage favours the powerful and neglects the needs of older people without some superannuation and dependent on private rental housing. Increasingly, older women who have had limited workforce time will find they are living in serious need.
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