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Super isn’t that super


Decades of adding layers of new rules, including some notable attempts at reform, has resulted in a superannuation regime that is convoluted, inefficient and continues to confound all users of the system. The current design of our superannuation law is so lacking in its ability to provide a sustainable retirement regime that the rules need a major overhaul, not another tweak.

By Robyn Jacobson, The Tax Institute 17 minute read

The Commonwealth has no express power to make laws on superannuation, so it has had to rely substantially on its taxation power under the Constitution to promote superannuation policy. The assortment of provisions in the Income Tax Assessment Act 1997 (ITAA 1997) has generally been used to provide incentives for superannuation.

The superannuation rules have been tinkered with in virtually every parliamentary term since the 1980s. Major reforms in the 1980s by the Hawke Government, followed by further changes in 2007 (Howard Government) and 2017 (Turnbull Government) have left the superannuation system bereft of clear, concise, workable rules. The labyrinth of complex legislative amendments, policy changes and voluminous quantities of provisions, regulations, rulings and legislative instruments is convoluted, inefficient and continues to confound all users of the system.

The Tax Institute will soon be releasing its discussion paper, The Case for Change which will identify the wide‑ranging issues with our tax and superannuation system and suggested pathways to reform and improve our law. We have also made a number of suggestions regarding superannuation in our pre-budget submission ahead of the Federal Budget 2021–22.


Indeed, the current design of our superannuation law is so lacking in its ability to provide a sustainable self-funded retirement regime that perhaps an overall revitalisation of the superannuation rules is needed. This could include removing the contributions caps and rethinking the taxing point in the life cycle of superannuation.

Caps, limits and thresholds

The current superannuation system is overly complex given it not only limits the amount that can remain within both accumulation and retirement phase, but also restricts how much a member can contribute in any given income year. It contains a plethora of caps and thresholds — most of which are indexed annually (although indexation does not necessarily result in an increase in the cap or threshold) — that require a major overhaul to make the system simpler to understand and administer.

The following dizzying list of caps, limits and thresholds is enough to make the most level‑headed mind spin:

  • $25,000 concessional contributions (CC) cap;
  • $100,000 non-concessional contributions cap;
  • $300,000 non-concessional contributions cap under the 3-year bring-forward rule;
  • $1.565 million CGT cap amount;
  • $250,000 Division 293 threshold;
  • $215,000 low rate cap amount;
  • $1.565 million untaxed plan cap amount;
  • Minimum annual payments for superannuation income streams;
  • $215,000 ETP cap for life benefit termination payments and death benefit termination payments;
  • $57,090 earnings per quarter maximum contribution base for superannuation guarantee (SG) purposes;
  • $500 maximum co-contribution entitlement;
  • $39,837 | $54,837 co-contribution lower and higher income thresholds
  • $500 low income super tax offset;
  • $1.6 million general transfer balance cap (TBC);
  • $100,000 defined benefit income cap; and
  • $450 monthly salary and wage amount for SG purposes.

Is all of this really necessary? While each cap, limit or threshold is designed to give effect to a policy outcome, provided targeted support to classes of individuals or address perceived loopholes, it has the collective effect of making the rules almost unnavigable.

The caps can even be detrimental, as in the case of the $450 monthly minimum threshold. The threshold may have been justified when the SG regime was first introduced, when contributions were made manually (often by cheque) and small payments imposed unnecessary compliance costs on employers. But in today’s digital world, where employers make contributions electronically using SuperStream and report information through STP-enabled payroll software, there is no longer any basis for denying the most vulnerable (low-income earning) workers from receiving employer superannuation support.

Inadequacy of contributions caps

Given the impact of the COVID-19 pandemic, with some superannuation balances being eroded by the severe economic downturn, individuals should be allowed to rebuild their superannuation balances (without any limits up to a lifetime cap), in order to safeguard and not place an unnecessary burden on the Government pension in the future.

This is particularly the case for those who have accessed their superannuation early under the Government’s COVID-19 economic response package, which has reportedly left more than half a million Australians with a nil superannuation balance. The $25,000 CC cap places an unnecessary limitation on these individuals who now face challenges to rebuild their superannuation balances.

The current CC cap is inadequate, inflexible and fails to acknowledge when individuals are best placed to contribute to superannuation. To achieve a superannuation balance of $1 million, without taking into account capital growth or earnings, an individual would need to contribute $25,000 each year (including SG contributions) for 40 years. It is not realistic to expect a worker in their 20s to contribute $25,000 a year to superannuation.

Individuals are best placed to contribute to superannuation when they are older, their mortgages are paid off, their children have left home, they have moved into higher-paid roles at work and have, generally, a higher disposable income than younger workers.

The current system also fails to support our most vulnerable workers, many of whom have been left without regular superannuation support. This includes:

  • those who work in the ‘gig economy’, which may prove even more popular post-COVID-19 as workers are forced to seek alternative income sources;
  • those who are beyond the reach of the SG regime which increasingly overlooks those working outside conventional employee or contractor relationships; and
  • many women who, according to a report commissioned by Australian Super, titled The Future Face of Poverty is Female, will retire with 42% less superannuation than men.

Age limits

Currently, an individual cannot contribute to superannuation if they are aged 67–74 unless they satisfy the work test. They cannot contribute to superannuation if they are 75 years or older at all, with the exception of downsizer contributions and SG contributions made by their employers.

Why should employees aged 67–74 be subject to a work test? With the pressure on Australians to save for their retirement and the Government’s desire to dissuade reliance on the age pension, it is difficult to understand why the law prevents individuals from being able to contribute to superannuation beyond age 74 and restricts their ability to do so from age 67.

Australians should be encouraged to provide for their retirement. With more people living and working longer, there is no basis for restricting the age beyond which personal contributions are allowed to be made.

At the other end of the age spectrum, part-time or casual employees aged under 18 miss out on employer superannuation support due to another archaic rule. It should be repealed.

Transfer balance cap

The recent indexation of the general TBC from $1.6 million to $1.7 million from 1 July 2021 has been met with a predictable chorus of criticisms that the proportionate indexation for those who had already commenced an income stream will make the system overly complex. Many of the concerns were first expressed when the TBC rules were introduced in 2017, foreshadowing the difficulties that proportionate indexation would bring.

Proportionate indexation of the TBC means that thousands, if not hundreds of thousands, of superannuation fund members will have a different TBC. This complication, together with the inability to access timely TBC data from the ATO, will make it very difficult for advisers to provide accurate advice.

SGC rules

Introduced with effect from on 1 July 1992, despite dozens of amendments, the SG law has not been substantially reviewed or overhauled in its 29-year history.

The issues with the SG regime are plentiful, perennial and warrant a separate column for a more thorough discussion. However, here’s a snapshot of the key issues:

  • The ATO estimates that the SG gap for 2017–18 is 4% or $2.4 billion.
  • The design of the rules and draconian disproportionate penalties dissuade employers who want to avoid penalties or losing deductions for late or unpaid superannuation.
  • An employer who pays one day late is treated the same as an employer who never pays superannuation for their employees.
  • The notional interest component ends upon lodgment of the SG statement with the ATO, not the payment of the late contribution.
  • There is a lack of awareness that company directors can be personally liable for unpaid SG charge liabilities.
  • Some employers wrongly treat late contributions as non-deductible solely for reason of being late (without also paying the SG charge and lodging the SG statement).
  • There is heated debate in political and industry circles as to whether the legislated increase in the rate of SG to 12% by 1 July 2025 should proceed.
  • Employers are often confused as to the meaning of ‘ordinary time earnings’ (OTE).
  • There is a lack of harmonisation of the base for SG contributions (OTE) and the broader base for calculating the SG charge (total salary or wages).
  • There are perennial issues with correctly classifying workers as contractors versus employees.
  • Due to annual indexation, the maximum contributions base (currently sitting at $57,090 of quarterly earnings, or $21,694 in SG contributions) is sitting within uncomfortable reach of the $25,000 CC cap.
  • The differing treatment on the timing of contributions made through the ATO’s Small Business Superannuation Clearing House (SBSCH) versus commercial clearing houses.
  • Due to the COVID-19 pandemic, many employers in lockdown or with greatly diminished cash flow were not in a position to avail themselves of the SG Amnesty which ended on 7 September 2020. A further amnesty is needed.
  • The extensive array of penalties and sanctions are not completely effective in addressing the most egregious of employers.

Navigating the maze of programs and incentives

To add to the confusion, the system attempts to cater to a wide range of personal and familial situations through the availability of the following programs and incentives:

  • Government co-contributions;
  • Low income superannuation tax offset;
  • Spouse contributions tax offset;
  • Carry forward concessional contributions;
  • Bring-forward rule for non-concessional contributions;
  • Employees with multiple employers (SG employer shortfall exemption certificate);
  • Downsizer contributions;
  • First home super saver scheme;
  • COVID-19 early access.

Notices and reporting

Trustees and members need to ensure they comply with all the notice requirements, including member statements, income stream documentation, investment strategies, s 290-170 notices advising of intent to claim a deduction for a personal contribution, elections under the small business retirement exemption and SG statements where an employer has an SG charge liability.

Then there is the array of reporting obligations through SuperStream, STP reporting, the use of the ATO’s Small Business Superannuation Clearing House (SBSCH) or commercial clearing houses, annual accounts and audit reports, the transfer balance account report (TBAR), reporting excess contributions and commutation authorities.

Final observations

The above lists provide an insight into how ridiculously complex our superannuation laws and regulations have become. Reform is vital for the long term sustainability of, and confidence in, our system, if the majority of Australians are to fund their own retirement. The Tax Institute’s The Case for Change will contain a number of suggested pathways for the Government to remove barriers to saving for our retirement, provide greater support for those most vulnerable in our society and strip away the complexity. Super isn’t that super after all.

 Robyn Jacobson, senior advocate, The Tax Institute

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