Changes sap super: analysts

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This was published 14 years ago

Changes sap super: analysts

By Eric Johnston

THE Rudd Government's clampdown on superannuation could cost financial services companies such as AMP and AXA Asia Pacific as much as $3 billion in annual fund flows, amid claims that changes to retirement savings are short-term measures designed to plug the federal deficit.

A recommendation by Treasury boss Ken Henry to maintain compulsory superannuation contributions at 9 per cent also took the industry by surprise, as many had expected it to rise.

Another key change outlined in the budget included capping the amount workers can salary-sacrifice into their superannuation at $50,000 for those over 50 and $25,000 for those under 50. This is forecast to recoup $4.2 billion for the Government over the next four years.

"Superannuation is paying for the budget," Credit Suisse analyst Adnan Kucukalic said yesterday. Based on the brokerage's calculations, the tax changes could result in superannuation inflows dropping by about $3 billion annually, or about 10 per cent of net flows.

The changes "now mean that individuals will have much less capacity to top up their retirement savings after their children have completed their education and they have paid off their mortgage", said Watson Wyatt managing director Andrew Boal.

The result could be more people being unable to support themselves in retirement and falling back on an age pension, he said.

Treasury said that although an increase in the compulsory super contribution rate from 9 per cent would lift the retirement incomes of most workers, the present rate was "adequate". The recommendation on contributions is part of a strategic update on Treasury's review of the tax system. The final report is to be released at the end of the year.

Treasury argued that, combined with lifting the retirement age to 67, the plan struck a balance for most workers when it came to splitting income between consumption and compulsory saving for retirement.

The review, led by Dr Henry, argued that any increase of super contributions above 9 per cent would have a greater impact on low-income workers.

"While only a recommendation, this is contrary to expectations that the review would recommend that a higher superannuation guarantee rate was necessary to improve retirement income adequacy," said BOA Merrill Lynch analyst Andrew Kearnan.

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AMP is among those that had called for an increase in the compulsory rate. However, it recently calculated that on top of the 9 per cent contribution, Australians contribute on average 4 per cent of their income to super voluntarily.

But since June, the financial crisis had curbed the rate of voluntary contributions, AMP said in its recent submission to the Henry tax review.

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Recent analysis by actuaries RiceWarner shows that the average superannuation account had just $74,700 last year, which many regard as inadequate to fund a retirement.

Despite the changes to tax incentives, Deutsche Bank analyst James Coghill said the growth dynamics of the super industry remained attractive over the long term. "Discretionary flows may suffer as super loses some appeal, but this is unlikely to materially change the funds under management growth profile of super," he said.

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