Introduction to Superannuation

Superannuation can be defined as a tax effective way to help one save for their future retirement. It is similar to a managed fund where a person’s capital or money is pooled with other peoples or member’s funds where this money is used for investments on behalf of the owner by a professional investment manager. In Australia the superannuation law and policy have received recent changes which have affected different areas of the laws and policy. These includes: an increase in taxation for some superannuation earnings, stricter contribution limits and allowing rollover of unused concessional contributions. This has brought different impact on the people and has led to different discussion forums where many have tried to explain the impact the new changes have on the members. It is important to analyze these changes and help one clearly understand whether these changes are for the benefit of the members or do they do more harm to the members.

Increase taxation of some superannuation earnings

This has been one of the major concerns for the workers in the superannuation plan. Due to the increased taxation on some earnings, most of the people find the plan less effective and has led to the rising need of the people to try and avoid the plan. This ends up making the plan more harmful to the people. A research carried out by Long which conducted a random survey on the public tried to get the actual responses from the people on how the new changes affected their attitude toward the increase in taxation of some superannuation earnings. Most of the participants requested for an alternative while other opted for a way out of the plan. The high taxations we considered to be more effective to the government than the people. For the participants who had higher income and were categorized as high-income earners had to incur additional contribution tax. This ends up affecting the main purpose of the entire plan, since a larger percent of the funds set a side for later use by the members is spent on taxes rather than the retirement plan it was intended for. Other research also shows that most of the people felt that the government is illegally generating revenue from the people since they found no need for taxation of funds they kept aside for future use. An increase to the taxation makes the entire venture more reluctant for the members to contribute.

Increase Taxation of Some Superannuation Earnings

The move by the policy makers to increase the taxation is also faced by an ethical struggle where most of the tax payers felt that they had the right to keep what they have legally earned.  An increased taxation of some superannuation earnings implies more cut from the members saved funds which clearly provides no clear intent or need. This significantly effects the productivity of the people since most feel that the policy makers are directly extorting them. Most of the members feel that the high increase of taxation is not for the better future for the members but for the policy makers. The policy makers have also been accused of some of the investment taken and they have been termed as questionable. Several claims have been raised that some investments have been for the benefit of particular parties and not the investors.

In Australia most of the house holds rely upon a range of assets and income sources to support their retirement but not the superannuation alone to provide this or even give comfortable retirement plan as demanded by the super industry demands. For any superannuation debates or policy making forums to take place, it is important to first identify how household in Australia save for their retirement and why. After these questions are clearly answered then it is evident that policy makers can effectively make superannuation laws and policies more effectively. In research conducted by Gill et al., superannuation savings account for only 15% of the wealth in most households, in most households within the country, assets apart from the superannuation are in most cases larger than the value of their homes. An increase in taxation for such a program means mote tax on an income that is slightly effective to the public. For the policy makers, an increase in taxation implies that the government makes more revenue for the country and not for the benefit of the people. Under the consideration of this study and the life style of the people, it is more effective if the government reduces the taxes so as to increase the value of the super earning of the people hence increasing its value on the house hold. The image below shows the house hold retirement savings in respect to age.

       

An Increase taxation of some superannuation earnings comes with it multiple advantages as well which for this case are worth mentioning. One of the most important need for an increase in the taxation is to increase the government revenue. As of 30^th  September 2017, Australianas had $2.53 trillion in superannuation assets, this made Australia the 4^th largest holder of pension fund assets in the world. For the country to generate more revenue from this, it needs to impose more taxes which in return increase the revenue for the country. With increased revenue, it becomes possible for the country to achieve more goals and make it possible for the country to further its development plan. This can be looked at as a positive strategy by the government since the development in the education system for instance helps I securing a brighter future for the countries growing generations. As on could say a pressure on saving the future via effective policy making. The governments intent with the Increased taxation of some superannuation earnings was to enable it do more for the people. This means the people of the members should see the greater picture behind the increase in the taxes.

Effect on Household Retirement Savings

From the analysis of both the pros and con of the increase taxation of some superannuation earnings, it is evident that the policy is not effective for the members o the people. The policy makers had not taken into account several of the matters addressed in the paper and multiple other matters covered under the impacts of increasing taxation. As seen most of the households tend to have other retirement plans ass provided in the diagram above, this means most of the house holds in the country do not see the need for their money being deducted from them, this money has already been taxed then after the deduction it is later on taxed again. Ethically as well it does not make much sense for an increase to the taxation while the retirement plan seems to be an immaturely thought through retirement plan for the people. The government should consider most of these cases before carrying out the policy approvals.

A study by Edmond et al., also shows that non-super savings will remain large. There are different reasons behind this such as the most common one where host house holds would need to use their savings before turning 60. With this at the back of their minds non-super savings tend to over weigh supper savings, an increase to the tax on the super saving makes it more difficult for the household to abide with the policy. This also indicates the unreliability of the government with the changes of the superannuation rules before they retire. 

Superannuation have been significant themes for the commonwealth government since federation and in Australia the same has been practiced over the past years and more changes have been made in relation to this. Some of the most recent changes touching on the stricter contribution limits. There have been further talks in relation to the new changes in relation to the stricter contribution limits. With the economic changes within the country it has resulted to the government to try and preach a more secure future for its people. Through the super contribution this is a promised future although most of the people feel that the super contributions have not been well thought of. A stricter contribution limit implies that every person viable to contribute has a specific limit they should meet annually. The limit has been set after an extensive future planning by the government. There are different types pf contributions which are concessional (before tax) which are inclusive of the employer contributions such as the superannuation guarantee. Also, any amount your salary sacrifices into super and personal contributions that you claim a tax deduction. This provides an annual cap of $25000 and effective for all ages. The other type of contribution being the non-concessional (After tax) contribution. This is a personal contribution for which one does not claim an income tax deduction and spouse contribution hose annual cap is $100,000. Stricter contribution limits by the policy makers for the new reforms were aimed at providing a more consistent standard of living across the peoples lives. The strict contribution limit forces people to save while they are working so that they have more to spend in retirement. The more they safe while they are in a position to work the secure their retirement plan becomes. This can be seen as the broader picture for the Stricter contribution limits. To some point such a policy can be seen to carry more positive than negatives although from conducted research a flip side of the policy has been highlighted.

Advantages of Increased Taxation

The government ignoring the non-super savings carried out by the people in Australia, has led to them forcing people to save more through the superannuation. This can be seen to strain other retirement plans practiced by the people. It is also evident that the stricter contribution limits have been imposed on low wages. This has been the main worry for the people. The policy has not made any changes on the wages people are receiving but instead added more pressure on the small wages they are receiving. This results to the un inevitable condition among the people which is a low living standard for the people today for a promise of a better retirement plan. With this being addressed one is left wondering if the policy is strategically effective or more had to be put into account during the formulation and passing of the policy. Different approaches towards the Stricter contribution limits have been seen and one of the most effective approach is the improvement on the low wages paid to the people. If the economic state of the country is factored in the wages paid to the country do not need the Stricter contribution limits. The people need to be in a position to clearly play a role in the setting the super contribution limits. This becomes a problem when one considers a family set up. The superannuation contributions limits have been set as predefined while multiple factors are not considered. Factors such as the family changes of a member which implies that needs among other things will need financial changes among other requirements. With this at the back of once mind Stricter contribution limits make it hard for the members personal life today hence also affecting the family.

On the other hand, it is important for one to understand the need for the Stricter contribution limits. The whole need for the superannuation policies its to help secure a better retirement plan by letting financial expert invest productively with your funds. With Stricter contribution limits it makes it easy for the investment plans among other operations run smoothly. It is evident that if such a policy is not laid down in place, the program would have already failed since it is in the nature of many to prefer a greater today forgetting of the coming tomorrow. This greatly points out the need for the Stricter contribution limits. From the analysis of both the cons and pros of the policy, it is evident for the securing of a better retirement plan for the future, Stricter contribution limits is an effective policy by the policy makers and has the interest of the people.

Stricter Contribution Limits

This has been one of the most effective policies of all the changes made to the Super policy. This has been from a review carried out by. From 1^st July 2018 members will be able to make a carry forward concessional super contribution if they have a total superannuation balance of less than $500,000. They will be in a position to access their unused concessional contributions cap space on a rolling basis for five years. And for the amount carried forward that have not been used will then expire after the five years. One of the main reasons for the policy is to improve the flexibility of the super system. This has been one of the leading drawbacks to the super system, where the flexibility of the system has seen most of the members opt for other options rather than the policy. It is important for one to understand a rollover so as the significance of the policy can be identified. A rollover is when a member transfers some or all their existing super between funds. This has given the people more control over the concessional contributed funds unlike before. This has seen a slight change in the pressure exerted by the super system before the changes. From the policy changes, super-stream will be extended to include SMSFs. This means that the members are in a position to initiate rollovers between mainstream funds and their SMSF electronically which makes it easier and faster.

The policy was designed to favor different people especially the women within the workforce, for instance when they would be temporarily off work the policy was designed to help them top up their super saving the once they report back to the work force. This directly reduces the burden of meeting the set goal annually. A good example to help examine this would be the case of an employer and an employee. For example, when one’s employer only makes concessional contributions of $20000 I the 2018-19 which is less $5000 from the predefined $25 000 concessional gap, the policy changes have provided the possibility of carrying forward the balance to the next financial year where the expected sum will be $30000. The policy has allowed for any unusual amount to be carried forward on a rolling five-year basis but can only be used your TSB is less than $500000. The policy has made it possible for house-holds to also venture into the other retirement plans. This is due to the flexibility offered by the super system. The flexibility helps the members grow significantly since an oppressing system of operation has been set aside. A survey shows the impact associated with the policy as one of the most effective strategies. From the understanding of the policy: Allowing rollover of unused concessional contributions the policy makers have significantly impacted the member concessional contributions hence making the super system more favorable and flexible for use.    

References

Edmonds, Mark, Christian Holle, and Wendy Hartanti. “Alternative assets insights: Super funds- tax impediments to going global.” Taxation in Australia 49, no. 7 (2015): 413.

Fairbrother, Peter, Michael Rafferty, Nigel Douglas, and Lena Wang. “Retiring Hurt? The Long- term Costs of Structural Conflicts of Duty and Interest in the Superannuation Industry.” (2018).

Gill, Derek, Mike Hensen, and Peter Wilson. “Retirement income policies in Australia and New Zealand: Facing the fiscal challenge from an ageing population.” (2018).

Long, Brendan, Jon Campbell, and Carolyn Kelshaw. “The justice lens on taxation policy in Australia.” St Mark’s Review235 (2016): 94.

Mackenzie, Gordon. “Superannuation tax reform: The new fairness measures.” Tax Specialist 21, no. 2 (2017): 73.

O’Dwyer, Kelly. “Myth-busting the Turnbull government’s super changes.” Investment Magazine 129 (2016): 16.

Potter, Michael. “Don’t increase the super guarantee.” Policy: A Journal of Public Policy and Ideas 32, no. 3 (2016): 27.

Taylor, Philip, Catherine Earl, and Christopher McLoughlin. “Recent public policy and Australian older workers.” Australian Journal of Social Issues 51, no. 2 (2016): 229-247.