SYDNEY (Reuters) — Australia's treasurer on Friday flagged reforms to the nation's A$2 trillion (C$1.92 trillion) "superannuation" or retirement savings system, targetting its use by wealthy Australians to minimize taxes.
Treasurer Scott Morrison argued in a speech that the mandatory savings system created under Prime Minister Paul Keating in 1992 was designed to help provide an adequate retirement income, not as an investment vehicle for intergenerational wealth transfer.
"While superannuation should ensure adequate retirement incomes, it should not be seen as an open-ended savings vehicle for wealthy Australians to accumulate large balances in a tax-preferred environment," Morrison said.
"It is not an estate planning vehicle nor was it ever intended to be."
Under the current system, Morrison said, a median income earner would achieve a replacement rate of about 80 per cent, 10 per cent higher than the 70 per cent suggested under the Mercer Global Pension Index.
The replacement rate is the percentage of a worker's pre-retirement income that is provided by a pension or retirement savings.
Morrison suggested using limits or other changes to the tax code to ensure that concessions result in a 70 per cent replacement rate.
The recommendations are based on a review chaired by former Commonwealth Bank of Australia head David Murray last year.
Murray's review found that the superannuation industry was inefficient due to a lack of competition and was failing to deliver expected benefits because of its high costs.
The government has already proposed a number of reforms aimed at improving competition, efficiency and transparency in the system to boost after-fee returns for fund members and help provide more retirement income products to retirees.
Australia's so-called super funds have, on average, returned 7.1 per cent over the past five years, according to government data.
Friday's announcement sets the stage for a political brawl with the opposition Labor Party, which slammed it as short on detail and urged Morrison to unveil concrete policies that could be debated in parliament.
"The Labor Party is more than happy to have a debate about tax and superannuation," Shadow Treasurer Chris Bowen told reporters. "We've dragged the government kicking and screaming to even acknowledge that there is a problem."
"Time for Scott Morrison to stop engaging in thought bubbles and to start engaging in proper policy."