Question

In: Finance

a. What is the three pillars policy? What tax incentives drive the third pillar? b. What...

a. What is the three pillars policy? What tax incentives drive the third pillar? b. What was the purpose of the introduction of compulsory superannuation contributions and the government’s superannuation guarantee scheme? c. Do you consider the superannuation guarantee scheme has significantly contributed to its objective?

Solutions

Expert Solution

a: As per the three pillars policy the first pillar is taxpayer funded age pension. The second pillar is employer contributions to superannuation for their employees which is compulsory and the third pillar is tax incentives given for voluntary contributions to superannuation.

The tax incentives which drive the third pillar are as follows

1. Concessional contributions which are tax deductible

2. Co contribution of government

3. Spouse Tax offset.

4. Superannuation earnings are taxed at 15%.

5. Capital gains are taxed at 10%.

b. The superannuation compulsory contributions was introduced with the objective of encouraging retirement savings by individuals. Since the superannuation is also guaranteed by the government at length a high level of security to the contributors

c. The superannuation guarantee scheme has had a significant impact. The superannuation balances have grown multifold. However this growth has been at the expense of non superannuation financial assets and so in totality it can be said that there has not been too much of an impact.


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