Final Report: Detailed Analysis
A2. Retirement incomes
Superannuation funds play a significant role in the economy as a provider of capital. Some submissions have argued that superannuation funds could play a greater role in investment in infrastructure in Australia.
The Review Panel notes that the Cooper Review will consider the issue of superannuation fund investment in infrastructure assets and whether things should be done to facilitate greater investment in this asset class. In principle, barriers (if any) that prevent superannuation funds from making suitable investments in infrastructure should be removed. The Cooper Review is the most appropriate forum to consider this.
However, specific tax concessions should not be provided to superannuation funds to encourage such investment.
In its retirement income report, the Review Panel recommended against extending the superannuation guarantee to the self-employed due to the diverse and varying risks and circumstances of business and entrepreneurship. However, the Panel stated that it wanted to consider further the treatment of contractors within the superannuation guarantee system.
It can be very difficult to distinguish whether a contractor is engaged in an arrangement that is similar to an employer–employee relationship or on a genuine independent contractor basis. Embedding this distinction in legislation would set an arbitrary line between those inside and outside the superannuation guarantee arrangements. This would allow people to arrange their affairs to remain outside the superannuation guarantee and would result in greater complexity for genuine contractors.
The definition of an employee also affects issues outside the superannuation guarantee system, such as tax, industrial relations and workers' compensation schemes. It is difficult to make recommendations on the superannuation aspects of this question without understanding how they may affect these other areas.
The Taskforce on Reducing the Regulatory Burden on Business, chaired by Mr Gary Banks, recommended that the definition of 'employee' and 'contractor' in the Superannuation Guarantee (Administration) Act 1992 (SG Act) be aligned with the provisions that apply for PAYG withholding purposes (Australian Government 2006). The SG Act has a broader definition of employee. The taskforce found that the fact the two definitions were not aligned was resulting in a high level of non-compliance with the superannuation guarantee. The Board of Taxation also found that the distinction between employee and independent contractor for superannuation guarantee purposes was leading to higher compliance costs and was acting as a deterrent to employing staff (Board of Taxation 2007).
The Banks Taskforce found that most employers were well aware of their PAYG withholding obligations. For this reason it recommended aligning the SG Act definition of employee with the PAYG definition to reduce compliance costs and also help to overcome the problem of unwitting non-compliance. Aligning the definitions would also be consistent with the proposal to bring superannuation contributions within the PAYG withholding system. This would make it easier for employers to adjust to this proposal.
The Taskforce recognised that altering the superannuation guarantee definition would mean that some contractors currently covered would fall outside the system. However, it considered that the effect would be small. This impact should be considered in any decision to align the definitions.
The preservation age for Service Pensioners should remain at 60 as it is already legislated to align with the eligibility age for that pension. An increase in the preservation age should apply to people who currently have a legislatively prescribed retirement age.
In the retirement income report, the Review Panel recommended that the preservation age should be increased to 67 years to align it with the Age Pension age. In making this recommendation, the Panel stated that it wished to explore other issues associated with this alignment, including the effects on people in occupations with mandatory retirement ages and on Service Pensioners.
As noted in the retirement income report, the preservation age provides an important social signal about retirement expectations. Increasing access ages for retirement benefits is also consistent with many other OECD countries. Iceland, Norway and the United States have increased the access age to 67 years, and Denmark and Germany are in the process of increasing the access age to 67 years while the United Kingdom is increasing the access age to 68 years.
While certain occupations may have mandatory retirement ages below age 67, a community-wide standard for the preservation of superannuation savings is fundamental to preserving the link between retirement expectations and the preservation age. Also, retirement from one occupation does not necessarily mean retirement from the workforce.
Any exceptions to preservation age legislation for particular groups or occupations would be inconsistent with:
- the Review Panel's view that retirement ages should reflect increasing life expectancies; and
- the actions of successive governments to abolish employment practices that potentially discriminate against older workers.
On this basis, there should be a consistent preservation age across all occupations. The recommended increase in the preservation age beyond 60 is not proposed to commence until 2024. This should provide sufficient time for organisations to adjust their mandatory retirement ages where appropriate.
The already legislated increase in the preservation age to 60 will align the preservation age with the eligibility age for the Service Pension. Therefore recipients of this pension should still be allowed to access their superannuation from age 60.
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