Are the government's super changes fair?
The low income earners super contribution (LISC) - worth up to $500 a year for 3.6 million Australians - has been scrapped by the federal government. The benefit was for superannuation fund members who earned $37,000 or less a year and are taxed at the marginal rate of 15%. It was designed to pay back the 15% concessional tax that is paid on all super contributions.
"The LISC is good public policy as it offsets the 15% tax applied to superannuation for those on very low incomes, who would otherwise receive the income tax-free," says Pauline Vamos, the CEO of the Association of Superannuation Funds of Australia.
The removal of the LISC will reduce a person's retirement savings by up to $27,000 in current dollars, says David Whiteley, chief executive of Industry Superannuation Australia.
"This will disproportionately affect women, who constitute an estimated two-thirds of those eligible for the LISC and who generally already retire with less." Andrea Slattery, CEO of the SMSF Professionals' Association of Australia, says a policy needs to be formulated to ensure that low-income earners do not face an inequitable outcome of having their compulsory superannuation contributions, which should be concessional, taxed at a rate higher than their income.
At the same time the government has removed the 15% tax on superannuation pension earnings over $100,000, which was estimated to be worth $313 million. The Treasurer, Joe Hockey, claimed that implementing the tax was too costly and complex.
Slattery says that the proposed 15% tax on $100,000 pension earnings could potentially apply to many more than the estimated 16,000 funds with $2 million of assets or more that the former government estimated it would extend to. "For instance, if the tax was to apply to the 2012-13 financial year, where many Australians enjoyed returns of around 15% on their superannuation assets, people with around $666,000 in superannuation would have been affected by the tax," says Slattery.
However, Vamos says there is still a conversation to be had regarding the appropriate tax policies to apply to retirees with account balances amounting to millions of dollars.
"The average Australian may think it unfair that all income in accounts with very high balances be tax free throughout retirement," says Vamos.
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