As the federal Labor government looks to cut back superannuation tax breaks and concessions, research released by consultancy firm Mercer shows Australia’s superannuation system is not overly generous.
The research compared the Australian superannuation system with the retirement savings systems in Canada, Chile, Denmark, Netherlands, Sweden, Switzerland, the United Kingdom and the United States of America.
The comparison found that six countries have tax regimes more generous towards retirement savings than Australia’s approach.
David Knox, senior partner at Mercer, told SmartCompany the only countries where members got a worse deal were Denmark and Sweden.
“So when you compare Australia with similar countries, our tax system does not compare favourably,” he said.
“Let’s stop tinkering with the system because what we want is long-term confidence; people are putting money away for decades and they want to know that the system is stable.”
The research also found that the current Australian contribution caps fall significantly short of all the other countries, with Australia having the lowest cap at $25,000.
Knox says Australia’s contribution cap is about 35% of the average wage, in the USA the cap is 94% of the average wage, and in the UK it is 127% of the average wage.
“Not only are the tax arrangements in Australia not generous, they are capped as well,” he says.
“What we are trying to do in Australia is to build up people’s superannuation so in the future they will not be on the age pension, with low caps and relatively high tax rates that does not make a lot of sense.”
Knox says reports the government will target superannuation accounts with more than $1 million in them are worrying.
“That will be very difficult to administer as we still have many retirees in defined benefit schemes, including many politicians, and my first question is how do you define a pension value in a defined benefit scheme?” he says.
“Administratively it just does not make much sense, as well as $1 million in super is probably going to give you an income in retirement of $50,000 a year, which is well below the average wage.”