TLAW 303 Taxation Law- Superannuation System

regarding age pension expenditure yearly/annually. Also, the savings are expected to increase as the system matures. Subsequently, this is contrary to the widespread myth that superannuation does not help in reducing the government spending with particular regards to the age pension. Superannuation has proved to be a complementary technique to age pension since it boosts incomes and provides a lifestyle in retirement. Statistics point out that 32% of individual aged 65 in 2013 were comprehensively fully self-funded in retirement in retirement up from the 22 per cent in 2000. It is projected that the number will rise to 43% by the year 2023. According to this year’s report released by an Intergenerational report (IGR), the reliance of younger retirees on a scale of full age pension is quickly dropping. However, this statistics is not a reflection of the reliance on the age pension falling. Technically, this is because the Intergenerational Report examines all retirees and not just those that turn 65. It is likely that the tightening of the asset test will reduce the percentage of retirees that receive the age pension. One particular challenge that is encompassed in the system is ensuring retirees have sufficient adequate superannuation in retirement. This is in particular regards to the later years of the retirement of the retirees. Reforms like increasing the superannuation guarantee from 9.2 to 12% as well as the development of longevity products will automatically add the pressure to the age pension.

• As a result of people having superannuation savings, approximately $7 billion annually is cut from the age pension. The figures, however, are expected to increase in the future years as more Australians continue to retire with superannuation balances. Subsequently, this includes:
• Approximately $1 billion in savings from 150000 people an inclusive of many defined benefits schemes.
• Over $3 billion in yearly savings from 160000 people with super balances who are eligibly fully self-funded.
• Around $3 billion in the form of savings from 500000 individuals that receive $5000 on average    

Current tax concessions advantage on high wealth individuals

Although there some counter arguments that argue that its majorly high-income earners that benefit from government support regarding retirement. On the contrary, it is true to say that financial assistance for retirement that is provided by the government can be considered broadly comparable across the personal income tax brackets. The nature on the ground is that all Australians get access to financial support for their retirement through either tax concessions to fund their retirement through superannuation or age pension. At times, individuals use a combination of both. True to say, all Australians receive approximately $300000 across all tax brackets. Subsequently, this is a direct contribution of the government to their retirement. The main difference, however, is embedded in the timing and vehicles through which it is delivered. A relevant example is that the full age pension for a single person is technically at $22,542 annually.

Tax concessions for superannuation technically are for smaller annual amounts that are spread over some years. Simply put, all individuals receive the same government assistance regarding retirement benefits. The only difference is that the timing and vehicle through which the same is delivered comprehensively differs. To extensively explain this further, a lower income person will receive the compensation in the form of age pension, low-income superannuation contribution and confessional taxed contribution. On the other hand, an individual in the top income tax bracket receives the compensation as tax concessions for super. Most of the times, many individuals receive a set combination of all of these. Also, it is important to point out that government assistance that is set aside for very high-income levels has been reduced through what has been referred to as lower caps for concessional tax contributions to super.

Regarding current tax concessions being advantageous for high wealth individuals, in contrary to the common myth that a bulk of tax concessions for superannuation is directed to high-income earners, the authentic scenario is that the bulk of tax concessions contributions benefit middle-income earners most. Usually, the tax concessions in connection to superannuation concessional contributions are skewed towards the bulk of the community in the working category to save for their retirement. According to an analysis by ASFA, approximately 73% of tax concessions was directed to those paying either middle-income marginal tax rates stretching across 30-38% as well as those who earned between $37000-$180,000 annually in the years from 2011-2012. Relatively, this is an indication that the contribution gaps have substantially lowered and is also working to enhance the reduction of concessional contributions which is comprised of upper-income earners. Subsequently, this continuously will provide support to many Australians through helping them save for retirement. Another important aspect to analyse however that is some individuals accumulated high superannuation balances as a result of contributions and the transfers effected before the contribution caps was legalized . In relation, ASFA recommends that the tax treatment of those more than $2.5 million in the pension phrase should be examined as the starting point for discussions on the future sustainability and equity of the entire system.

Recommendations focusing on the tax system about what Australia should do to provide for its aging population’s retirement

The following section will comprehensively discuss insights and recommendations about what Australia should adopt to provide for its aging population retirement. Superannuation is a vital component that will play and will continue to play a fundamental role in providing the foundations of the economic activities as well as prosperity. One of its primary advantages is that it lifts household savings by around two points regarding GDP with the increase in compulsory SG from 9-12%. In relation, this helps the government and Australian business to finance investment and infrastructure without particularly relying on aspects such as foreign savings and investment. One of the central suggestion that can be employed by the state to provide for its aging population is advocating for higher levels of domestic savings which will in return reduce the cost of capital in the country. As a result, this will influence and lead to stronger economic growth for the country as a whole. As people move into retirement, supernatural benefits such as insurance payouts and pension payments demand over a total of $50 billion annually; this is expected to quadruple by the time 2040 approaches. Relatively, the aging population is most likely to be the cause of a slower rate of GDP growth. Technically this is where the concept of superannuation joins the conversation. This is because, without the availability of superannuation, the reduction is likely to be much intense. The primary ideology behind this is that superannuation provides business with the consumers of the future. As a result, this is expected to deliver a boost which in return will benefit all Australians.  

Another important aspect that Australia needs to work on revolves around improving the system to better align with its principles and goals ideology. Policies need to be adjusted to ensure the operational system delivers for the targeted groups of Australians. Although this is a general recommendation, more specific recommendations include:

• Setting superannuation preservation age at five years younger than the normal age pension age which is at a maximum of 62.
• Applying the SG to substantiate income replacement payments.
• Building a review mechanism concerning SG rate into the Inter-Generational Report.  
• Allowing access to the income stream from ages such as 55-60 specifically to those who have been unemployed for a specified duration.

Policy principles intervention is also an important aspect that needs to be comprehensively examined. In the past decades, superannuation systems have been subject to a degree of policy inconsistency. As a result, this has led to reduced confidence in the reliability of the system. Technically, the position of superannuation as a long term investment, it is critical to maintaining consumer confidence. To create such an environment, it is vital to have the underlying policies defined on which the system is expected to be based. One primary argument by ASFA on the same is that principles such as adequacy should underpin retirement income policy decisions.  

In this case, the primary purpose of having a retirement income policy should be embedded on ensuring many people have an adequate income in their retirement. Subsequently, the underlying goal is to minimize the number of retirees that live in relative poverty or poverty and alternatively maximize the number of the retirees that live in comfort and dignity.

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