There is always lots of talk about how Superannuation affects the government’s budget. High earners paying very little tax and putting all their money in super, women missing out due to taking time out of the workforce or only working part time, retirees pulling out lump sums to splurge on round the world trips.
The message that keeps being missed is that the whole idea of superannuation is to provide for retirement and therefore reduce the burden on the government of providing age pensions. If we apply this for purpose test here are some things the government could implement to improve superannuation:
1. Limit Lump Sum withdrawals
Superannuation is to provide an income in retirement – not fund things you couldn’t afford while working. Lump Sums should be to reduce other debt or pay for replacement of larger items. It is a reasonable idea that you may need to upgrade to a new vehicle to reduce running costs when you retire or be able to access your super to replace white goods. My suggestion would be to place a cap on how much can be withdrawn as a lump sum in a year as well as in a lifetime.
2. Scrap the $450 per month minimum earnings per super is paid
Superannuation should be payable from the first dollar you earn. There shouldn’t be a need to earn $450 in a month before getting super. This is an advantage to small businesses but it is only $513 extra in superannuation per year. This especially affects women and those in lower paid jobs that may only work part time.
3. Scrap the no super for under 18s
Many of us started working before we were 18. As the law stands at the moment there is no obligation for an employer to pay super for an employee aged less than 18. An apprentice may earn around $15,000 in their first year. That’s potentially $1425 they are missing out in super.
4. Crack down on “contractors”
Often our lowest paid workers are told they will only be employed as contractors. Many businesses thinks this gets them out of having to pay super. While this isn’t strictly true it also isn’t well policed or enforced. This is a whole area of lower paid workers missing out on superannuation that needs to be fixed.
5. Make it compulsory for the self-employed to pay some super
Often businesses are operated through structures such as partnerships and trusts or just as sole traders. In these structures there can be no need for the owners to pay superannuation for themselves as they are not employees. Potentially, using the tax assessments for self-employed individuals a superannuation charge could be levied. This amount needs to be tax deductible as it would be if they were working for an employer but there needs to be some form of compulsory retirement savings for all income earners – not just those covered by the superannuation guarantee.
While these measures wouldn’t reduce the federal government deficit in the short term it will help the budget in the longer term. The more we encourage and enforce the necessity for people to fund their retirement, especially the low to middle income earners, the less the fiscal burden will be in the future.
We are an ageing population - let's start to think how we pay for that.