Why have the self-employed been treated so shabbily when it comes to super?
As I wrote in a recent Smart Investing, new research by the Association of Superannuation Funds of Australia (ASFA) found that 28% of the self-employed have little or no super. And a further 53% have less than $40,000 in super. (See: Smart Investing: “Out in the Cold” and ASFA Reports)
I am confounded by quite a few aspects about the self-employed and super.
Why, for instance, was full deductibility for contributions – within the standard annual dollar caps – extended to the self-employed for the first time from 2007-08?
Yet FBT-exempt, salary-sacrificed super contributions have long been among the cornerstones for investing by the employed. The difference in this treatment between the employed and self-employed was nothing short of inequitable.
And why was eligibility for Government co-contributions to super only extended to the self-employed from 2007-08? Yet – wait for it – the co-contribution system was introduced from 2003-04 to encourage low-income earners to contribute to super.
My final question is the most telling and most fundamental: Why doesn’t a compulsory super contribution scheme also exist for the self-employed? The challenge for the Government would be to try to ensure an income is properly calculated on which to base the 9% compulsory contribution rate by a self-employed person.
Sadly, many of the self-employed would earn low incomes for at least much of their working lives and then face a below-average standard of living in retirement. It’s not a pretty picture
By Robin Bowerman
3rd July 2008
Principal & Head of Retail, Vanguard Investments Australia