Stability of superannuation policy settings

Superannuation policy settings have undergone substantial change since the Wallis Inquiry. Regulation, taxation, legislation, and the development and refinement of broader policy settings have changed frequently (Figure 4.2). Submissions express concern about the frequency of policy changes.

Preliminary assessment


Superannuation policy settings lack stability, which adds to costs and reduces long-term confidence and trust in the system.

Long-term perspective

Constant change in superannuation and retirement income policy settings imposes costs on superannuation funds, which are borne by members. As a long-term savings vehicle, superannuation would benefit from policy stability to build long-term confidence and trust in the system and encourage long-term savings. This theme has been raised in several submissions. For example, AMP argues:

If the goal of public policy is to maintain confidence in superannuation as a retirement savings vehicle, predictability and stability in policy settings is a must.72

Almost half of individuals surveyed by Investment Trends in the accumulation phase and aged 40 years or older said they were worried about the effect of regulatory changes on their retirement.73 The Australian Institute of Superannuation Trustees suggests: “A focus on short-term policy change needs to be replaced by a long-term perspective”.74 Mercer argues: “A more holistic approach is required, taking into account both superannuation and the Age Pension, to make the sort of long-term policy needed to ensure Australians’ retirement security”.75

To ensure policy stability, the system needs to achieve, and be seen to achieve, its objectives efficiently and equitably, and the fiscal costs associated with the policy settings need to be sustainable. However, some submissions, coupled with other evidence provided below, cast doubt over whether current policy settings will stand the test of time.

Figure 4.2: Timeline of major superannuation policy changes

This  figure describes the major superannuation policy changes, including tax policy, that have taken effect or are due to take effect, between 1990 and 2024. 

(a) Broad indication of tax treatment of defined contribution schemes.

Submissions raise whether the superannuation and retirement income systems should have a clearer purpose. Dimensional suggests: “a priority should be to set a clearly defined objective for superannuation”.76 There may be value in the Government seeking Parliament’s agreement to the objectives of the superannuation and retirement income systems, so any future changes are judged against those objectives. ASFA argues: “at the whole of system level, there should be monitoring to ensure the system is delivering against its retirement objectives”.77

Superannuation tax concessions

As the population ages, the cost to Government of the current retirement income system is likely to be a major source of pressure to change policy settings. To credibly promise superannuation tax concessions in retirement and an adequate Age Pension for those who will need it in the future, a strong Government balance sheet and policy settings that do not disproportionately increase the costs to Government over time are important.

There should be a reasonable expectation that the objectives of the system will be achieved over the longer term. While not conclusive, some evidence raises questions about whether the current policy settings are efficiently targeted and robust.

For example, the large number of individuals with very large superannuation balances suggests the superannuation system is being used for purposes other than providing retirement incomes (Figure 4.3). The large number of accounts with assets in retirement in excess of $5 million could each receive annual tax concessions more than five times larger than the single Age Pension.78, 79

Figure 4.3: Superannuation accounts by asset size

This figure shows a small number of superannuation accounts hold a high proportion of superannuation assets: 2 per cent of accounts hold 30 per cent of assets, while 10 per cent of accounts hold 60 per cent of assets. 

Source: Treasury.80

Furthermore, the majority of superannuation tax concessions accrue to the top 20 per cent of income earners (Chart 4.3). These individuals are likely to have saved sufficiently for their retirement, even in the absence of compulsory superannuation or tax concessions. Some stakeholders question whether this is equitable. It is not clear that superannuation tax concessions for this income cohort will significantly reduce future Age Pension costs.

Chart 4.3: Share of total superannuation tax concessions by income decile

This chart shows the share of total superannuation tax concessions increasing progressively by income decile. The first income decile receives a negative share of total

Source: Treasury.81 Based on analysis 2009–10 ATO data.

Recent changes to concessional and non-concessional contribution caps and a higher contributions tax rate for very-high-income earners (30 per cent above $300,000) have attempted to achieve more equitable outcomes. Further adjustments to policy settings may be required.

Imputation credits and tax-free superannuation

A growing proportion of Australian equities has been, and is expected to be, held in superannuation accounts in retirement. The Inquiry notes that, due to refundable imputation credits and tax-free superannuation in retirement, a growing proportion of company tax collected could be refunded to superannuation funds and retirees over time. Although this is of enormous benefit to retirees, it may erode one of the largest sources of revenue for the Australian Government at the same time expenditure pressures are increasing.

The combination of population ageing and the projected growth in superannuation assets increases the urgency and importance of getting the right policy settings in place. Policy settings should be designed to minimise the need of future governments to change them to maintain confidence and trust in the system. Some of the settings could be considered as part of the Tax White Paper process.

72 AMP 2014, First round submission to the Financial System Inquiry, page 8.

73 Investment Trends 2013, December 2013 Retirement Income Report. Noted: Based on a survey of 5,730 Australians aged 40 years or older.

74 Australian Institute of Superannuation Trustees 2014, First round submission to the Financial System Inquiry, page 5.

75 Mercer 2013, Taxation & superannuation: The shortcomings of the superannuation taxation expenditures, Mercer, Melbourne. Attachment to Mercer’s first round submission to the Financial System Inquiry, 2014.

76 DFA Australia (Dimensional) 2014, First round submission to the Financial System Inquiry, page 4.

77 Association of Superannuation Funds of Australia 2014, First round submission to the Financial System Inquiry, page 22.

78 The calculations are based on a superannuation account in the retirement phase (0 per cent earnings tax).

79 In June 2012, around 8,500 individuals had balances above $5 million. Australian Taxation Office (ATO) 2014, Self-managed super fund statistical report — March 2014, ATO, viewed 25 June 2014.

80 Treasury 2014, data provided to the Financial System Inquiry, 11 June 2014. Analysis based on de-identified 16 per cent sample of personal income tax and member contribution data for 2011–12, sourced from the ATO. Some caution is required in interpreting these figures due to the larger number of accounts compared to people in the system.

81 Treasury 2014, data provided to the Financial System Inquiry, 11 June 2014.