Voluntary Superannuation

People First will advocate that contributions to superannuation is voluntary, and instead allow workers to take their superannuation as wages. This would put money back into the hands of hard-working Australians and allow them to decide how best to secure their future.

Superannuation is not working. After 34 years of compulsory superannuation, over half of retirees are still on a full pension which is the same as it was in 1992 when superannuation was made compulsory. As per ASFA, the median superannuation balance for women aged 60-64 is approximately $174,000, and $236,000 for men which is well short of the required circa $333,00 for single pensioners to even get off the full pension, and nowhere near the circa $745,000 to get off the part pension.

People should be able to control the way in which they manage their finances. They should be able to save for a home, pay off their mortgage or HECS with their savings rather than be forced to put it into superannuation.

It is clear that superannuation is not reducing the cost of the pension at all. The cost of the pension is approximately $64 billion, yet superannuation tax concessions cost almost $60 billion and most of these concessions go to the highest 20% of income earners. This means that working Australians have to pay $4,000 more in income tax to subsidise tax concessions for superannuation. 

Superannuation is estimated by the productivity commission to cost 1% of fees under management or around $40 billion a year to shuffle paper assets. Australia needs to fund real engineers not financial engineers, to build real infrastructure not paper castles.

By allowing people to keep their superannuation as wages it will help people save for a house and pay off their home loan faster. Someone on a salary of $80,000 including superannuation will have their savings capacity cut by half because of superannuation. Assuming a person needs $50,000 to live on, then after tax of $16,000 they can save $14,000 for a house deposit. Because of superannuation, their taxable income will reduce to $70,400 and their after tax income to approximately $57,000 leaving only $7,000 to save for a house.

Assuming someone needs $50,000 for a house deposit, because of compulsory superannuation it will take twice the time to save for a house. Given the median house price is approximately $1 million, the extra 4 years required to save for a home will mean that house prices have risen. Assuming the average gain is $200,000, then the person will be required to borrow more money and pay more interest on the extra loan. This will offset any gains from superannuation. In short, the taxpayer subsidies superannuation through higher taxes on their wages, so that banks can charge more interest. 

This is borne out by the fact that 40% of people today retire with a mortgage which is up from 10% in 1992. As a result, many people have to cash in their superannuation when they retire to pay off their mortgage and go on the pension making the superannuation fees they paid an unnecessary cost burden.

People First will still offer Superannuation as a tax effective tax strategy. People will be allowed to contribute or withdraw as much money as they want. All contributions will be non-concessional. The first $25,000 earned in Superannuation will be tax free but earnings over that amount will be taxed at the marginal tax rate.

Savings made from the reduction in Superannuation tax concessions will fund a lift in both the income thresholds for the pension and the amount of the pension. These amounts will be further clarified when fully costed by Treasury.