Government co-contribution

8.74 If a low-income earner aged under 71 years makes a voluntary contribution to his or her superannuation fund, the Government makes a matching co-contribution. The ALRC recommends that eligibility for the co-contribution be extended to people aged up to 75 years. This would be consistent with the present restrictions on voluntary contributions generally, and would be a workforce participation incentive for people aged between 71 and 75 years.

The current law

8.75 Low-income earners making personal after-tax superannuation contributions may be eligible for co-contributions under the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 (Cth). The purpose of government co-contributions is to help low-income earners save for retirement.[93] The co-contribution amount depends on the personal contribution amount and the individual’s income. In 2011–2012, the maximum co-contribution amount was $1,000, but it is expected to be $500 in 2012–2013.[94]

8.76 The co-contribution is subject to both a work test and an age limit. A co-contribution is only payable if 10% or more of the person’s total income for the year comes from work or carrying on a business.[95]

8.77 People aged 71 years and over are ineligible for government co-contributions.[96] The age restriction affects workers who are aged 71 but under 75 years (because people 75 years and over cannot make voluntary contributions to their superannuation funds). It is possible that the exclusion of those aged 71–74 years was unintentional: the co-contribution bill had its second reading in October 2002, only a few months after the age limit on voluntary contributions moved from 70 to 75 years.

Should the restriction be removed?

8.78 The proposal to remove the exclusion of workers aged 71–74 years[97] was widely supported by stakeholders, both on the basis that it would be a workforce incentive,[98] and to avoid discrimination.[99] AIST reported, moreover, that women interviewed on their experiences in retirement confirmed that the government co-contribution was, in fact, an incentive to remain in the workforce.[100]

8.79 One word of caution was offered by the Law Council. The Council noted that low income earners over 71 years may also be entitled to access the Age Pension and ‘funding of the Co-contribution without any age limit might create complexities in term of avoiding a duplication of entitlements’.[101] The Australian Industry Group also considered that the proposal should be more thoroughly assessed.[102]

8.80 The ALRC is not able to calculate the cost of extending eligibility, but it is not likely to be high. In 2009, only a quarter of people eligible for the co-contribution made voluntary contributions.[103] In the year to June 2011, there were only 94,400 people over 70 years still in the labour force.[104] The ALRC recommends that the age restriction should be removed on the basis that it would be an incentive to workforce participation for people on low incomes. It would bring the age limit for the co-contribution in line with the age limit for voluntary contributions, contributing to system coherence and simplification. Finally, it would avoid unnecessary age discrimination.

Recommendation 8–2 Section 6(1)(e) of the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 (Cth), which provides that government co-contributions are payable only for people aged under 71 years, should be repealed.

[93] Explanatory Memorandum, Superannuation (Government Co-Contribution for Low Income Earners) Bill 2003 (Cth), [1.4].

[94]Superannuation (Government Co-contribution for Low Income Earners) Act 2003 (Cth) s 10. The Tax and Superannuation Laws Amendment (2013 Measures No 2) Bill 2013, that reduces the maximum co-contribution, was introduced into Parliament on 21 March, 2013.

[95] Ibid s 6(1)(b), (2).

[96] Ibids 6(1). This restriction is intended to limit the cost of superannuation tax concessions: The Treasury, Australia’s Future Tax System: The Retirement Income System—Report on Strategic Issues (2009), 32.

[97] Australian Law Reform Commission, Grey Areas—Age Barriers to Work in Commonwealth Laws, Discussion Paper 78 (2012), Proposal 8–6.

[98] Government of South Australia, Submission 95; National Seniors Australia, Submission 92; Financial Services Council, Submission 89; Australian Institute of Superannuation Trustees, Submission 77; Brotherhood of St Laurence, Submission 54; COTA, Submission 51; Superannuated Commonwealth Officers’ Association, Submission 14.

[99] Government of South Australia, Submission 95; National Seniors Australia, Submission 92; COTA, Submission 51.

[100] Tom Garcia, Policy and Regulatory Manager, Australian Institute of Superannuation Trustees, personal communication, 18 January 2013. The interviews were conducted as part of a survey. The results were reported in AIST, Super-poor but surviving. Experiences of Australian Women in Retirement (2011).

[101] Law Council of Australia, Submission 96.

[102] Australian Industry Group, Submission 97.

[103] The Treasury, Australia’s Future Tax System: The Retirement Income System—Report on Strategic Issues (2009), 30.

[104] Australian Bureau of Statistics, Retirement and Retirement Intentions, Australia, July 2010 to June 2011, Cat No 6238.0 (2011), Table 1.