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Issue #1680      April 15, 2015


Superannuation: Hands off workers’ retirement funds

The Superannuation Guarantee contribution rate was set to rise in small half-yearly increments to 12 percent by 2019. Following its election the Abbott government wasted no time in freezing the rate at 9.5 percent until July 2021. In the same mean, anti-worker spirit, Treasurer Joe Hockey also plans to abolish the Low Income Super Contribution in 2017. The LISC is a government superannuation payment of $500 for workers on incomes below $38,000 to help them save for retirement.

Hockey is also pushing for new laws to allow people to dip into their super savings for the purchase of a first home and other big budget items such as health or education. Not only would this eat away at workers’ retirement savings but it would drive up the price of housing as more first home buyers could enter the market or would have larger deposits.

The financial company Merrill Lynch estimates that on retirement the superannuation savings of a young home buyer drawing $40,000 from his or her super fund for a home deposit would be reduced by $140,000 (at current prices) – $100,000 of that loss being compound interest.

One of the main aims of the introduction by the compulsory superannuation guarantee system was to wind back the age pension. Labor is concerned that not enough people would have an adequate income from their savings, which would put the age pension under pressure.

Housing solution

Housing has become unaffordable for most people. The main reason is the shortage of properties on the market and lack of public housing. The way to solve this problem is to build more housing, in particular, public housing and bring in rental controls.

It is almost taken for granted now that rental or mortgage payments could take 50 percent or more of a worker’s income. There was a time when banks limited loan repayments to no more than 30 percent of income.

Super could be used for housing but not by workers dipping into their savings. It should be made obligatory for a certain percentage of superannuation savings (industry, retail or self-managed) to be used for building public housing.

This would be a far better solution than workers eating up their retirement savings. Higher wages, a reversal of the casualisation of the workforce and abolition of TAFE and university fees would also help. But the Coalition is not concerned whether retired workers can live in comfort and with dignity. After all, what use are they to employers who have a younger fitter workforce to exploit? Their focus is solely on facilitating maximum profits for the corporate sector.

Super rort

While super is hardly likely to provide workers with enough savings to retire on, for the wealthy it is one big rort. They might be paying up to 47 percent (including Medicare levy) on income outside a superannuation fund, but on income on investments in the fund they pay little or no tax at all.

The official rate on income “earned” within a fund is 15 percent but the overwhelming majority of those with self-managed superannuation funds (SMSFs) are on higher incomes. They avoid tax by investing in shares delivering franked dividends – where the company has already paid tax on the income. They are credited as having paid that tax and deduct it from tax liable on their other income.

Close to 60 percent of SMSF members are over 55 years old. If they retire and begin drawing on their pension, they are exempt from tax on income from and inside the fund.

In 2013 there were 500,000 SMSFs holding almost $500 billion (net) worth of assets and 28 percent of these held more than $1 million.

Reform of the super system is long overdue. It is time to end the rorting and to stop robbing workers.

Next article – Message to journalists re: metadata

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