Retirement income policy and the taxation of superannuation in Australia

Superannuation is a form of savings for retirement. The savings are invested and earn income, but the proceeds are generally not available until the beneficiary reaches retirement age} The federal government's retirement income policy has three components, two of which relate to superannuation: the age pension, which provides income support to men aged 65 and over and to women aged 62 and over.2 The pension is means tested and does not depend on previous labour force participation or individual contributions; a compulsory superannuation scheme (under the Superannuation Guarantee Charge (Administration) Act 1992 (SGA Act)), which requires contributions to be made by employers on behalf of all employees, whether full-time, part-time or casual;3 and encouragement, through the taxation system, of voluntary contributions to approved superannuation funds.4 In May 2002, the government released a report, the "Intergenerational Report", 5 which identifies issues associated with Australia's ageing population and considers the fiscal implications of those changes. The Report noted that a steadily ageing population is likely to place significant pressure on government finances. It also noted that one of the key priorities for ensuring fiscal sustainability should be "maintaining a retirement income policy that encourages private saving for retirement and reduces the future demand for the Age Pension". 6 The main way the government has sought to encourage that private saving is through the tax system, primarily by the use of tax concessions. Over the past 20 years, however, the taxation of superannuation has grown in an extremely ad hoc manner and is now inequitable, inefficient and overly complex. This article suggests that the taxation of superannuation in Australia is in urgent need of a complete review. The article further asserts that, if an appropriate framework can be devised, changes could be introduced as budgetary pressures allow.

Evaluating the impact of financial literacy programs on the retirement savings of superannuation fund members

Currently, in Australia, the age pension, paid for out of Commonwealth government taxes, forms the basis of Australia’s retirement income system, however, given the reality of an ageing population has compelled the government to undertake a number of measures to shift the responsibility for saving to the individual, forcing them to accept an increasing level of responsibility for their financial decision-making. In the light of the changing retirement environment, it would be expected that Australians’ would ensure that they became financially literate, however, despite the amount of information and advice available in the market place, this is not the case, and they do not appear to be appropriately prepared for their retirement. Recognising the importance of financial literacy, an increasing number of government agencies, employers, superannuation funds and schools are implementing financial literacy programs in Australia. This article provides an overview of the impact that attending a financial education seminar has on the retirement decisions and settings of participants. Evidence is provided from this research that in the short term, providing financial education programs make a difference to an individual’s intended retirement settings. However, the impact of these education programs in changing investment behaviour is less conclusive.

Return-based style analysis in Australian funds

This study applies return-based style analysis to a sample of Australian managed and superannuation funds, seeking to compare their asset allocation strategies across different style groups. Style analysis is performed using a rolling window estimation technique. As expected, riskier fund classes are more exposed to the riskier benchmarks. Further, differences in institutional and legal settings lead the managers of managed and superannuation funds to invest differently, with the latter employing a more conservative investment strategy despite having longer investment horizons.

Financial planning education: turning intention into action

Most superannuation funds in Australia conduct seminars in financial literacy in the belief that they make a difference to their members when considering their retirement strategies. The investment intentions of seminar attendees was captured at the end of the seminar, and this was followed up three months later to see whether the intentions expressed at the end of the seminar had been implemented. The results were mixed, with expressed intentions not necessarily translating into action. The implications of this research is that while such seminars are valuable, they should be specifically targeted

Does financial education influence retirement savings? An examination of Australian employees

In order to ensure a financially secure retirement, Australians will need to plan and save for their retirement many decades before they retire.

The age pension, paid for out of Commonwealth government taxes is currently the backbone of the retirement system, but will not replace as much pre-retirement income in the future as it does today. Given the shift from the defined benefit style to the accumulation style, superannuation funds involve considerably more uncertainty, and as such, one might have thought that individuals would be saving more on their own. But personal saving outside of superannuation plans is virtually non-existent. Combine the retirement income crunch with the dramatic increase in life expectancy, and the need for careful retirement planning and sacrificing current consumption for later consumption becomes imperative for ensuring the financial security of older Australians. The hard question is whether individuals will be prepared to make the necessary sacrifices today to ensure a more secure financial future in retirement? This paper explores the willingness of individuals to make these sacrifices, and whether financial education can influence individuals in this difficult decision.

An analysis of the antecedents of satisfaction for superannuation fund members

The factors influencing the satisfaction of superannuation fund members are poorly understood at present, due to a paucity of research. This study looks at the relative influence that five key aspects of the offering of a mid-size Australian Superannuation Fund have on overall satisfaction. Despite the long-term nature of the product and efforts to educate members to think otherwise, short-term financial performance remains a strong influence on member satisfaction. With financial returns varying annually and to a large degree being out of the control of fund managers, the focus on this aspect as the main influence on satisfaction levels is problematic. The evidence suggests that shifting the focus of members towards longer period assessments (eg returns over the past five years) and towards aspects of the funds' offering that are points of differentiation (eg enquiry handling) is the only way to prevent large fluctuations in satisfaction levels and possible defections.

The influence of educational resources on superannuation investment choices

This paper reports on an investigation of whether educational resources supplied by a superannuation fund provide members with the required information to assist them in making informed choices regarding their superannuation investment funds. The data indicated that certain demographic groups are less likely to utilise the resources provided by their superannuation fund and other information sources. Females, younger individuals, those with low superannuation balances or limited knowledge of financial matters were the key groups identified as less likely to utilise the educational information offered to them.

Superannuation retirement balances: A surprising outcome

Aim: Although the guaranteed superannuation system is believed by many to provide a safe and adequate source of funds in retirement, some will be unpleasantly surprised. The aim of this paper is to demonstrate the significant effect of the economic cycle on the final accumulated balance in superannuation retirement accounts. Method: A Monte Carlo simulation is used to illustrate the variance in outcomes that can be expected for a hypothetical individual. Results: The expected accumulated superannuation balances for two hypothetical individuals are estimated. The spread of outcomes is used to illustrate the problem of using only the mean of the distribution as a predictor of wealth in the retirement years. Conclusions: Many retirees rely on superannuation to fund their retirement. However regular contributions to superannuation does not ensure a predictable outcome, and active management of contributions is required if retirement goals are to be met.

Partner-scale economies, service bundling and auditor independence in the Australian self-managed superannuation (pension) fund industry

Using proprietary Australian Taxation Office (ATO) data, this study examines audit pricing, service bundling and independence issues in the self-managed superannuation fund (SMSF) sector, the fastest growing and largest segment of the Australian $2 trillion retirement savings industry. We consider the impact of partner-level scale effects for a large sample of SMSF audits for the three years to June 2010. After controlling for factors known to determine audit fees, we find evidence of fee discounting by partners with large client portfolios. However, when the dependent variable is redefined to the total 'bundle' of services (including audit and non-audit fees), the firms of partners with larger client portfolios are shown to earn bundling fee premiums. This finding suggests industry specialists price strategically using audits as a conduit to supply higher margin non-audit services (NAS) to clients with more resources. Last, we find no evidence the supply of NAS impairs auditor independence, alleviating joint supply concerns raised in the Cooper Review.

Super Blooper? Time to halt the superannuation juggernaut?

The superannuation industry has increased almost exponentially in Australia over the past decade. The main reason for this is because government  regulation compels employers to pay a fixed portion of employees’ salary  towards superannuation. In this article we suggest that the unremitting  government policy of coercing money towards superannuation is flawed. Superannuation is wrong at two levels. First, on an economic analysis, the evidence does not suggest that (i) individuals who invest in superannuation are necessarily better off than those who apply their income elsewhere; and (ii) there is no evidence that absent a coercive superannuation scheme the government will be unable to sustain people into their old age. Second, at the human and societal level, studies of human well-being show that coercing people to make spending decisions is inimical to human happiness. People flourish best when they are in control of their activities, including their finances. Left to their own devices, many people will not save for a rainy day; however, on balance it is probably better off to be a bit poorer in retirement than to have been deprived of the opportunity to spend 9% of one’s income over the period of one’s working life – when one’s needs are the greatest. Compulsory superannuation should be abolished. Money currently paid as a compulsory superannuation contribution should instead be paid to the employee as a salary.

Superannuation and the ageing myth

The ageing population rationale, which was the central plank underpinning compulsory superannuation, is flawed. The increase in individual wealth in the future more than compensates for the increasing number of older people. In addition to this, compulsory superannuation contributes to the ageing population problem because it provides less money to couples who wish to raise children and hence provides a disincentive for people to have children. The most appropriate method for dealing with the ageing problem is to encourage people to work longer - not because they need the money, but because it is good for their psyche and self-worth.

Identifying competency requirements for the financial planning industry in Australia: implications for educators

Compulsory superannuation was introduced in Australia in July 1992, and has led to significant growth in funds under management.  Reserve Bank of Australia data (2004) shows that in September 2004 Australians has AUD$ 767 billion invested in managed funds.  A large portion of this investment is based on the recommendation of financial planners.  This paper provides a brief history of the development of the financial services industry in Australia, with particular reference to the development of the role of the financial planner in investment decisions.

The paper focuses in detail on the set of professional skills required by financial planners given that the widely reported ASIC survey (2003), identified gaps between client expectation and competencies of financial planners.  Birkett (1996) described professional skills as the dominant individual attribute that describes a competent professional.  The individual attributes of a financial planner includes two categories: cognitive and behavioural skills.  The paper provides strong support for the view that financial planning educators should ensure adequate development of behavioural skills to enable financial planners to meet the needs of the investors they serve.

Raising the funds - spending the funds: a case study of the effectiveness of both roles of NGO's

Non-governmental organisations (NGOs) must be effective in both raising funds and using these funds to implement programs in order to improve the circumstances of the poor. This chapter presents a case study of World Vision Australia's (WVA) fundraising and programming responses to the Asian Tsunami. The initial stages of the fundraising campaign were largely unplanned and reactive. Yet WVA received over $110 million for its tsunami appeal in just a little over three months. This is incomparable with other recent large-scale disaster fundraising campaigns. The experiences of how the initial phases of the response were implemented arc gauged through a qualitative analysis of interviews conducted with twenty-one staff members who completed short-term secondments during the initial tsunami response. These interviews extract a number of reflections of WVA's programming and provide a number of lessons for WVA for future complex humanitarian emergencies. This chapter thus reviews the effectiveness of both roles of NGOs - raising funds and expending these funds to implement programs.