AUSTRALIA - The Rudd government has committed to raising the employer contribution to superannuation funds from 9% of salary to 12% by 2020, a move that will mean an extra half a trillion dollars in superannuation assets under management by 2035.
The recommendation is part of a sweeping taxation review. The superannuation industry responded to the announcement, made Sunday, with enthusiasm.
"We're delighted that they're going to increase," said chief executive of the Australian Institute of Superannuation Trustees Fiona Reynolds. "We've been advocating for this rise for a decade. Although it's going to take until 2020 until we reach the whole 12%, we still think that it's a measured approach and that it means that businesses have plenty of time to plan for the first increase."
The report, colloquially called The Henry Tax Review after Treasury Secretary Ken Henry who led the enquiry, released a raft of taxation recommendations, a handful of which the government has committed. They include raising the so-called superannuation guarantee (SG) starting in the 2013 financial year with a 0.25% increase; a tax rebate for low-income workers to ameliorate the effects of the 15% contributions tax; leaving a cap of A$50,000 (US$49,209) annual contributions for those with retirement balances of A$500,000 or less; and extending the SG to age 75.
If enacted, the increase will add another A$500bn in assets to the country's superannuation bucket by 2035. The swell of additional contributions for investment will be directed across all asset classes, predicted CEO of the Association of Superannuation Funds of Australia Pauline Vamos.
"The industry is a fiduciary investor," she said. "It invests in all asset classes, both on the debt and the asset side. It means that it will have more money to invest in infrastructure, particularly infrastructure that needs to be built, because it's vital that Australia has ports, rail and road to really ensure that the economy keeps on going."
These measures will reduce the cost of retirement on the Australian taxpayer over the long term, Asia Pacific Retirement leader for Mercer Tim Jenkins said.
"We've conducted modelling recently that shows increasing the SG from 9% to 12% will reduce the cost of funding the Australian population in aging, even with the superannuation concessions and the aged pension."
The question of whether or not a 9% contribution rate is adequate to support Australians in retirement has been circling for months. In November, John Brogden, chief executive of the Investment and Financial Services Association (IFSA), and Chris Bowen, minister for financial services, superannuation and corporate law, that Australians would benefit from an increase in the mandatory contribution rate.
Also in November, AMP announced it would increase the pension contributions it pays for its employees to 12% from the mandatory 9% by 2014. (Global Pensions; November 18, 2009)
The People's Pension, Atlas Master Trust and The Cheviot Trust have been granted authorisation from The Pensions Regulator (TPR), taking the total number of authorised master trusts to 18.
Pension schemes have been warned they may now face a more challenging legal test if they wish to fix drafting errors.
The Greene King Pension Scheme has appointed XPS Pensions as its actuarial and investment adviser following a competitive tender process.
Professional Pensions has compiled a list charting the progress of master trust authorisation. View our list in full here...