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Hands off our super

Super funds have vowed to fight the federal government over yet more proposed changes to super.

The government is considering plans to start taxing superannuation payouts on accounts with balances of over $1 million, in a bid to shore up its budget. With super tax concessions expected to cost the government $45 billion in 2016, perhaps it’s no wonder that the government has its eyes on that sector.

More changes means confidence in super as a retirement system is at an all time low, according to Andrea Slattery, chief executive of the Self Managed Superannuation Fund Professionals Association (SPAA). “The continued reduction in superannuation concessions is damaging the effectiveness of super as Australia’s key retirement savings vehicle,” Ms Slattery has told The Australian.

Almost 1 million Australians now invest in around 460,000 self-managed super funds, with assets worth more than $460 billion. That’s over 30% of the $1.4 trillion invested in super, and more than the $387 billion invested through retail funds offered by the likes of AMP Limited (ASX: AMP), BT Investment Management (ASX: BTT), Perpetual Limited (ASX: PPT) and Platinum Asset Management (ASX: PTM).

Investors are reportedly looking at other strategies to provide for their retirement, thanks to a raft of changes and upheaval to the super system in recent years. Caps on contributions mean $15 billion less is being contributed to super, according to Ms Slattery. People over the age of 50 used to be able to contribute up to $100,000 a year into their super, without being hit with excess tax, but that limit was dropped to just $25,000 in 2009.

So where has that $15 billion gone?

Ms Slattery reckons the low super caps are leading consumers to spend rather than put the funds into super – possibly one reason why sales of new cars have passed 1 million vehicles a year. It may also be the reason that the big four banks can now rely on term deposits for around 60% of their funding requirements, as investors leave their funds in the bank, rather than transferring it into their super fund.

Foolish takeaway

More changes to the super system appear could result in more people becoming reliant on government pensions in future, because their super balances aren’t enough to sustain their retirements. It could also mean more funds are paid to financial advisers, as the system becomes too complex for ordinary Australians to manage themselves.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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