Just leave super alone

The backbone of our world-class superannuation system involves the workforce directing a portion of their salary towards superannuation now, so that they have an asset base in the future from which to draw an income.

As an incentive to forego salary today so that it is used by your superannuation account tomorrow, the Government provides the system with a number of tax concessions. A key concession is that amounts contributed to superannuation from your salary are taxed at 15% (known as contributions tax), as opposed to your marginal rate.

This concession provides a huge incentive to contribute to superannuation because you can save a significant amount of tax by directing a portion of your salary to superannuation.

While our politicians continue to assure us that the superannuation system is a key component in funding the future of Australian families you can’t help but think what made the system so good is slowing being eroded away.

In 2007 the Government overhauled the superannuation system, calling it “Better Super”. One of the key changes under Better Super was to place a limit on the amount of contributions you could make to super each year.

In 2010 another round of reforms were announced under the title “Stronger Super”. Stronger Super has seen the level of allowable contributions drop further, so that in a few months time the most you will be able to put into super from your salary each year is $25,000.

While we have had some changes in the right direction; like the raising of the superannuation guarantee from 9 per cent to 12 per cent, it seems there could be more changes on the way which will negatively impact our world-class system.

Documents leaked to the media last week reveal that the Government may be looking to effectively increase the 15% contributions tax. According to these documents, instead of having your contributions taxed at 15% you could instead pay tax on your contributions at your marginal rate and then receive a 15% tax rebate at the end of the year. For those on the top marginal rate, this could result in an additional 16.5 per cent tax on your superannuation contributions.

I have to ask, why are our leaders reducing the effectiveness of superannuation when they should in fact be doing the exact opposite? With an ageing population we should be doing all we can to incentivise workers to save for their own retirement now, rather than penalising them for wanting to put more away.

Isn’t it time we just leave superannuation alone?