Australia’s superannuation system is facing an overhaul, with the government looking at ways to block the early release of retirement money.
Treasurer Jim Chalmers proposed further protections for superannuation to safeguard retirement savings in a speech on Monday.
Australians pulled out about $36 billion from their retirement funds during the pandemic.
Chalmers said the early withdrawal of billions was a “disastrous policy” from the former coalition government.
The coalition policy was intended to give a financial buffer to those impacted by COVID-19 shutdowns.
The government will work towards enshrining the definition of superannuation in law to preserve retirement savings.
“This made us vulnerable to wrong turns and wrong decisions,” he said.
“It moved us further away from where we need to be – better living standards in retirement for as many Australians as possible.”
The proposed definition is: “The objective of super is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.
The treasurer said legislating the definition would provide certainty and a common objective for super funds.
The government has also been considering changes to super tax concessions that can be used to amass wealth and are weighing on stretched government finances.
The consultation paper released on Monday said the focus on delivering income “makes clear that the purpose of superannuation is not for minimising tax on wealth accumulation or enabling retirees to leave tax-effective bequests”.
The paper also outlines the importance of a “sustainable” superannuation system that “should be cost-effective for taxpayers in achieving retirement outcomes”.
“While all Australians can save for their desired lifestyle in retirement, this outcome is influenced by personal circumstances and expectations and is ultimately constrained by the need for equity and sustainability in the system,” the paper says.
“Beyond a certain level of income, additional government support through tax concessions is not necessary or appropriate.”
Under concessional taxation rules on super, anybody can pay money into their super fund, and it is taxed at 15 percent, which is much less than the 45 percent marginal rate high-income earners pay.
Some groups have been calling for a limit on how much can be saved within the super system to make the system fairer.
The Association of Superannuation Funds of Australia welcomed the proposed objective as “the next chapter in the Australian superannuation story”.
ASFA chief executive officer Martin Fahy said the proposed objective placed preservation, retirement income, equity, sustainability and a dignified retirement at the heart of superannuation policy.
“The government has proposed an objective that can underpin much-needed policy stability and help anchor future policy debates in ensuring our age pension remains affordable, that superannuation savings are preserved to retirement and that the system delivers in an equitable manner for women and low-income earners,” Fahy said.
