The Lucky
Superannuation System
Superannuation System
“The European Union, once a model of economic vigour and financial probity, faces a time bomb in its generous pension system. Put bluntly, even the most affluent economies in the world cannot afford them. As birth rates decline and the numbers of aged people increase, Germany, France, Italy and Spain are struggling to introduce reforms – but against the well organised opposition of a significant proportion of their population.” Starts John McIlwrath’s article in November 2003 issue of ASFA’s “Superfunds” magazine. The article raises the alarming question of how the European Union countries will be able to support, at the current pension levels, the growing number of retired people with rising life expectancy and having at the same time declining birth rates.
“There are currently 35 people of pensionable age for every 100 people of working age in Europe, but by 2050, on present demographic trends, there will be 75 pensioners for every 100 workers”.
Unlike Australia, The European Union countries collect the money for age pension from general taxation and from some sort of compulsory savings arrangement made from worker’s wages. In Australia we also have voluntary savings and a well-developed compulsory retirement saving model. By introducing compulsory savings and allowing for voluntary contributions, Australian governments have taken the right steps towards creating funding for its ageing population. The Australian superannuation model is now being considered as one of the best in the world, and studied by the Europeans.
Talking about the Australian superannuation model, backdated to 1st of July 2003, the Government has introduced the co-contribution Bill. The Co-contribution into a fund means that for each dollar of personal undeducted contribution into a fund, the Government will pay $1 into the fund, up to maximum of $1,000 at an annual income rate of $27,500, reduced by 8 cents for every dollar between $27,500 to a maximum of $40,000.
Also, the Surcharge rate reduction Bill has now also been passed in the Senate with the maximum surcharge rate reducing to 12.5% over 3 years.
The other good news on super is, that the Government has released its response to the report by the Senate Select Committee on Superannuation, on the Taxation of Transfers from Overseas Superannuation Funds, which was tabled in July 2002.
Under the current arrangements, an individual transferring a pension benefit from an overseas superannuation or pension fund to an Australian superannuation fund, incurs a tax liability (individual marginal tax rate) if the transfer occurs more than 6 months after the individual first became an Australian resident. In some cases, the individual has been left with no viable option other than to leave the benefit in the overseas fund, as it would have been impossible to raise the money to pay the tax resulting from the transfer of assets.
The Government has now indicated its support for several of the Senate Committee’s recommendations. It will amend the law so that the Australian superannuation fund will become liable for tax when the benefit is actually transferred, not at the time of the member’s relocation. This will remove one of the major barriers from transferring benefits into Australia.
It is encouraging to know that the Australian super model is being recognized in the world by the countries who haven’t managed to develop it as successfully as us. Also, having in mind that the model is working, there is always room for improvement and simplifying the system. One of the improvements surely lies with the removal of the superannuation surcharge altogether, and having the system made more fair by proportionally increasing the tax for the high-income earners. The burden of administering the superannuation surcharge is many fold, being costly and really missing the point entirely.
We are still living in the “Lucky Country”, certainly one of the luckiest in the world, the time has come to make it a “clever” one too if we want it to stay "lucky".
Sincerely,
Zdenko Simonic
Founder & CEO of SuperEasy Pty Ltd
Read more articles by Supereasy.
Read more articles by Super Investor Journal.
Get data to manage your superannuation.