The Association of Superannuation Funds of Australia CEO, Dr Martin Fahy has said that last year’s age pension assets test changes are “helping contain future growth in age pension expenditures” and have also reduced the tax assistance upper income earners receive.
Additionally, the overall amount of tax concession for super contributions has been cut by about $1.25 billion a year.
While these changes have “impacted most on upper income earners,” ASFA argued that the “substantial” changes have the power to make the age pension “fiscally sustainable” while ensuring the majority of retirees don’t suffer too great a hit.
“This will be reinforced by rising superannuation account balances at retirement as the compulsory system matures,” Dr Fahy continued.
“However, any further tightening of either the asset or income test could leave many Australians in retirement worse off.”
Noting that ASFA was calling for “no more meddling”, Mr Fahy said reliance on the age pension should decrease as super balances increase. This trend would also be reinforced by firmer age pension tests and longer working lives.
He said: “Super is working and will do more of the heavy lifting to deliver retirement outcomes into the future.”
Mr Fahy marked the release of ASFA projections which suggest that by 2025, about 20 per cent of 67-year-olds will be in paid employment, and another 40 per cent will be self-funded, or not eligible for the age pension.
That’s compared to the approximate 70 per cent of people older than 65 currently receiving a full or part age pension. Of those, about 60 per cent receive the full age pension.
However, ASFA predicts that 30 per cent of those 65 and older will be on the full age pension by 2025. By 2055, that number could drop below 25 per cent.
Mr Fahy contended: “ASFA believes tax and age pension settings are working and now is the time for consolidation.”
Further, he noted that changes to super tax concessions had reduced the proportion of the total concession for contributions reaching those in the top income tax rate. The reduction was from 13.3 per cent to 10.8 per cent.
As that occurred, the proportion of concessions on contributions going to those on the medium income bracket increased from 34.7 per cent to 36.9 per cent, while those in the $18,201-$37,000 bracket saw the proportion they received of concessions on contributions rising from 11.9 per cent to 12.4 per cent.
“Changes to the level of tax concessions for investment earnings in super accounts, including changes to transition to retirement pension arrangements, a tighter cap on non-concessional contributions and a $1.6 million transfer balance cap, have saved the budget a further $1.1 billion a year, with most of the impact on taxpayers in the top two income brackets,” ASFA said.
Highlighting that the changes have decreased the overall amount of tax concession for contributions by about $2.35 billion a year, ASFA said: “[The reforms need] to be bedded down. Stability needs to be achieved in order to maintain confidence in the system.”