2008 Federal Budget - Russell Budget Superannuation Preview
No Guarantee of Increased SG Adequacy in the Budget
SYDNEY, 13 May, 2008 –In anticipation of the release of the Federal Government’s 2008 Budget on Tuesday, Russell Investment Group’s superannuation expert and director, actuarial and benefits consulting, Matthew Burgess, makes the following comments about what the Budget could mean for the superannuation sector and for individual Australians.
Matthew Burgess and other senior members of Russell’s Superannuation team are available this week to discuss in further detail the impact of the Federal Budget on superannuation. Please refer any inquiries to Russell’s media contact below.
Russell’s Superannuation team believes the current 9 per cent superannuation guarantee (SG) is unlikely to generate an adequate retirement income for many retirees - but that it is unlikely there will be major changes to the SG announced in this year’s Budget to improve SG’s adequacy:
Adequacy of SG contributions
- Recent statements by the Hon. Nicholas (Nick) Sherry, Minister for Superannuation and Corporate Law, inferred that an expenditure replacement ratio of 80 per cent at retirement would be adequate. He quoted the results of Treasury modeling, which showed that the current SG, together with the aged pension, would provide such a replacement ratio for a worker on median wages after 35 years of SG.
- He acknowledged that because most existing workers will not receive SG at 9 per cent for 35 years that there will be a “gap” in retirement income levels.
- Russell does not believe the Budget will include measures to reduce this retirement incomes “gap”. Russell believes that this is unfortunate, as while the present SG may be sufficient for some individuals, this will not be the case for the majority of existing workers.
Same sex couples – public sector super funds
- Federal Government recently announced that it would take steps to remove same-sex discrimination in Commonwealth laws.
- Any changes could include the extension to interdependency relationships of eligibility for reversionary pension benefits under the Australian Government’s defined benefit superannuation schemes.
- The annual cost of this change will be relatively minor, at least initially; however, the increase in the Commonwealth’s unfunded superannuation liability will be significant.
- True cost of this and other same-sex changes remains uncertain, but the Senate Budget Estimates Committee in May last year quoted a figure of $2 billion.
Other policy matters – the ‘Wild Cards’
- Automatic transfer of lost superannuation and superannuation for temporary residents – Russell believes that additional money from the Federal Government will be needed if this is to be managed by the ATO properly.
- Governance of SMSFs – Russell clients invested in SMSFs will need to be aware of and understand any additional governance obligations announced under the new Budget. Also, there will probably need to be additional funding for the ATO if its supervisory powers are increased.
- Financial literacy – Russell believes in a more financially aware population regarding superannuation issues and strongly supports any Government plan to increase funds for new initiatives in this area, which will hopefully be the case when the Budget is released.
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