How do we make Super fairer?

[sptrawler]

So you're saying everyone who earns under 80K a year is slothful?

You're saying a partner in a marriage decides to work part-time so they spend more time with their children is slothful?

There are many reasons why people are not on high incomes, and from my experiences in life few of them are due to sloth.

The rich already get the lions share of capital gains tax relief, tax effective trusts.

I would say I have a higher average tax rate than most of them.

Well Syd, from someone who grew up in a poor familly to another.
You get out what you put in.

 

[sydboy007]

Can't comment on the fairness.

The reason it may not change is that it is in the governments best interests to offer these concessions.

1) Since the higher income earners are significantly increasing their super balances, more money stays in Oz super funds that is invested back into oz stocks and bonds. This goes back to the reasons mentioned before why compulsory super was created in the first place.

2) The high income earners are also more likely to employ tax reduction strategies as mentioned earlier. Better to get at least 15% ....?

3) I guess most importantly, the money stays in OZ and is at least taxed at 15%. So easy to "invest" overseas and in tax havens.

So while you are right about the cost to the economy, the measured cost is relative to full tax received from this super. This will certainly not happen so it would be good to see how much the cost is when discounting for some of the above points.

1 - I don't see buying shares as an investment per se. Buying new issues of shares, like the recapitalisation of some companies during the GFC, is what I would call an investment, or buying into an IPO, or buying corporate debt used to invest in the company's growth.

2 - This is true. How effective it would be, and how much risk they were willing to take is the question. A bit more might be spent on consumption, which would increase economic growth. A bigger economy would be able to fund pensions easier, at least in theory.

Still, I would like to see some form of financial penalty to stop people accessing their money early. If I understand it correctly working 2 years longer will extend your super for 5 years, and that's after age 60. If your hand's in the cookie jar at age 55 then the reduction in the amount of super you will accumulate would be quite large - compound interest means the last few years of earnings should generally be your largest.

I'm sure there would be some way to come up with a discounted cash flow model for the difference in super balance if you access it early, and then come up with a suitable % reduction in the maximum Govt pension you can receive. that way those willing to maximise their super balances aren't subsidising those that do.

I'd also love some legislation enacted so that fees need to be itemised on semi annual fund statements. At the moment there is little to no transparency. The ticket clippers would hate it, but I reckon if people saw $800-1000 in fees being ripped out of their fund they would question why and hopefully look around for a better deal.

 

[Bill M]

Still, I would like to see some form of financial penalty to stop people accessing their money early. If I understand it correctly working 2 years longer will extend your super for 5 years, and that's after age 60. If your hand's in the cookie jar at age 55 then the reduction in the amount of super you will accumulate would be quite large - compound interest means the last few years of earnings should generally be your largest.

You do realise there is already a taxation penalty for drawing out super before age 60 don't you? It really is starting to get on my goat that people/governments think they have the right to dictate when I can and can not have access to my own money. I have been working on a plan for the last 20 years to access my super at age 55. I abided by the rules set out 20 years ago, why should I be forced to wait longer now?

Just remember it is my cookie jar, I paid for it, I baked the cookies and I will eat them whenever I feel like it.

By the way a true Self Funded Retiree is someone who is totally reliant on ones self financially. In other words, not draw a government pension of any kind.

 

[sydboy007]

You do realise there is already a taxation penalty for drawing out super before age 60 don't you? It really is starting to get on my goat that people/governments think they have the right to dictate when I can and can not have access to my own money. I have been working on a plan for the last 20 years to access my super at age 55. I abided by the rules set out 20 years ago, why should I be forced to wait longer now?

Just remember it is my cookie jar, I paid for it, I baked the cookies and I will eat them whenever I feel like it.

By the way a true Self Funded Retiree is someone who is totally reliant on ones self financially. In other words, not draw a government pension of any kind.

No penalty if you do a TRP

No problem with you accessing your own money, just don't feel entitled to my taxes when your money's run out.

 

[Bill M]

No penalty if you do a TRP

You are wrong. Your withdrawals from a TRP are taxable at your marginal rate, however they give you a 15% tax offset on taxed sources.

ATO Source:
---
if you've reached your preservation age and are less than 60 years old, the taxable part of your income stream will be taxed at your marginal tax rate. If your income stream is paid from a taxed source, you will also receive a tax offset equal to 15% of the taxable part of the income stream

link: http://www.ato.gov.au/individuals/content.aspx?doc=/content/74219.htm&pc=001/002/064/007/007&mnu=0&mfp=&st=&cy=
---

So sydboy, how much more do you want to penalise the saver? They will already be paying the same taxes as those on salary.

 

[Julia]

You do realise there is already a taxation penalty for drawing out super before age 60 don't you? It really is starting to get on my goat that people/governments think they have the right to dictate when I can and can not have access to my own money. I have been working on a plan for the last 20 years to access my super at age 55. I abided by the rules set out 20 years ago, why should I be forced to wait longer now?

Just remember it is my cookie jar, I paid for it, I baked the cookies and I will eat them whenever I feel like it.

By the way a true Self Funded Retiree is someone who is totally reliant on ones self financially. In other words, not draw a government pension of any kind.

+1.

 

[Ves]

You are wrong. Your withdrawals from a TRP are taxable at your marginal rate, however they give you a 15% tax offset on taxed sources.

ATO Source:
---
if you've reached your preservation age and are less than 60 years old, the taxable part of your income stream will be taxed at your marginal tax rate. If your income stream is paid from a taxed source, you will also receive a tax offset equal to 15% of the taxable part of the income stream

link: http://www.ato.gov.au/individuals/content.aspx?doc=/content/74219.htm&pc=001/002/064/007/007&mnu=0&mfp=&st=&cy=
.

Just remember there are two sides to this.

You are correct about the tax coming out - but it is worth mentioning that if you have a TRIS (or as you called it TRP) you are also paying no tax inside the fund on the investment earnings that are applicable to the pension.

Some people start a TRIS / TRP for the sole purpose of tax minimisation. Of course this doesn't work under all scenarios, but it commonly does.

My post is intended to be completely objective - I am not taking sides in this debate as I am really unsure of my own thoughts at this point in time.

 

[FlyingFox]

1 - I don't see buying shares as an investment per se. Buying new issues of shares, like the recapitalisation of some companies during the GFC, is what I would call an investment, or buying into an IPO, or buying corporate debt used to invest in the company's growth.

2 - This is true. How effective it would be, and how much risk they were willing to take is the question. A bit more might be spent on consumption, which would increase economic growth. A bigger economy would be able to fund pensions easier, at least in theory.

Still, I would like to see some form of financial penalty to stop people accessing their money early. If I understand it correctly working 2 years longer will extend your super for 5 years, and that's after age 60. If your hand's in the cookie jar at age 55 then the reduction in the amount of super you will accumulate would be quite large - compound interest means the last few years of earnings should generally be your largest.

I'm sure there would be some way to come up with a discounted cash flow model for the difference in super balance if you access it early, and then come up with a suitable % reduction in the maximum Govt pension you can receive. that way those willing to maximise their super balances aren't subsidising those that do.

I'd also love some legislation enacted so that fees need to be itemised on semi annual fund statements. At the moment there is little to no transparency. The ticket clippers would hate it, but I reckon if people saw $800-1000 in fees being ripped out of their fund they would question why and hopefully look around for a better deal.

1) Well I was thinking more along the lines of corporate and government bonds. While it is true that a lot of money in super is in equities, people at the higher end of balances are also more likely to be looking at capital preservation strategies rather than earning capacity. Heck it might also be the best ways to do estate planning etc.

 

[Garpal Gumnut]

You are wrong. Your withdrawals from a TRP are taxable at your marginal rate, however they give you a 15% tax offset on taxed sources.

ATO Source:
---
if you've reached your preservation age and are less than 60 years old, the taxable part of your income stream will be taxed at your marginal tax rate. If your income stream is paid from a taxed source, you will also receive a tax offset equal to 15% of the taxable part of the income stream

link: http://www.ato.gov.au/individuals/content.aspx?doc=/content/74219.htm&pc=001/002/064/007/007&mnu=0&mfp=&st=&cy=
---

So sydboy, how much more do you want to penalise the saver? They will already be paying the same taxes as those on salary.

Well said Bill.

Taxation and Super cannot be compared to Social Welfare.

The last is given as a safety net.

gg

 

[sptrawler]

You do realise there is already a taxation penalty for drawing out super before age 60 don't you? It really is starting to get on my goat that people/governments think they have the right to dictate when I can and can not have access to my own money. I have been working on a plan for the last 20 years to access my super at age 55. I abided by the rules set out 20 years ago, why should I be forced to wait longer now?

Just remember it is my cookie jar, I paid for it, I baked the cookies and I will eat them whenever I feel like it.

By the way a true Self Funded Retiree is someone who is totally reliant on ones self financially. In other words, not draw a government pension of any kind.

This is to answer Sydboy, not a response but in support of Bill

I am under 60, retired and am living on savings, it makes more sense than drawing a pension at this stage.
I also have a friend who retired 5 years ago at 55, he has only just commenced an account based pension at 60.
I tend to think your assumptions are somewhat flawed, changing your fund from accumulation to pension has ramifications.
For a smart young 40year old, you really do need to make sure you are not burning a bridge you may have to cross.
Just because someone is trying to manipulate outcomes, by throwing around numbers doesn't mean it is to improve your situation.
Maybe the outcome they want, you haven't even dreamed of.

By the way I think superannuation was the best thing Labor has ever done for the 'average working class person'

 

[Garpal Gumnut]

This is to answer Sydboy, not a response but in support of Bill


By the way I think superannuation was the best thing Labor has ever done for the 'average working class person'

good post trawler. Agree.

gg

 

[Bill M]

By the way I think superannuation was the best thing Labor has ever done for the 'average working class person'

+1 in a big way.

 

[sptrawler]

Sydboy, just a PS to the previous post.
ALL the people I personaly know who are self funded or expect to be self funded, without exception expect to never recieve a government pension.
The only people I know who talk about the government pension, are the ones that have not had a plan in place and are now hitting 50 and realisation hits.
Maybe you should be pushing for "anyone who hasn't enough capital cannot withdraw amounts over x% "
However this leads to the problem 'Joe average' has. One of my nearest and dearest friends is going through a marriage break up, he is 57.
During our chat he mentioned he hopes she doesn't take some of his super as it is nearly $100k. So are you saying a normal guy, can't withdraw that to possibly pay off a mortgage, because he might get a pension.
No he should be able to draw 4% that is $4000 plus full pension, plus rent assistance, plus welfare housing.
Seems like trying to fit a square peg in a round hole to me.
However Labor recently have been very adept at trying to do this.

 

[sydboy007]

You are wrong. Your withdrawals from a TRP are taxable at your marginal rate, however they give you a 15% tax offset on taxed sources.

ATO Source:
---
if you've reached your preservation age and are less than 60 years old, the taxable part of your income stream will be taxed at your marginal tax rate. If your income stream is paid from a taxed source, you will also receive a tax offset equal to 15% of the taxable part of the income stream

link: http://www.ato.gov.au/individuals/content.aspx?doc=/content/74219.htm&pc=001/002/064/007/007&mnu=0&mfp=&st=&cy=
---

So sydboy, how much more do you want to penalise the saver? They will already be paying the same taxes as those on salary.

I stand corrected

Was thinking of those who are 60+

 

[sydboy007]

This is to answer Sydboy, not a response but in support of Bill

I am under 60, retired and am living on savings, it makes more sense than drawing a pension at this stage.
I also have a friend who retired 5 years ago at 55, he has only just commenced an account based pension at 60.
I tend to think your assumptions are somewhat flawed, changing your fund from accumulation to pension has ramifications.
For a smart young 40year old, you really do need to make sure you are not burning a bridge you may have to cross.
Just because someone is trying to manipulate outcomes, by throwing around numbers doesn't mean it is to improve your situation.
Maybe the outcome they want, you haven't even dreamed of.

By the way I think superannuation was the best thing Labor has ever done for the 'average working class person'

Glad you've been able to get your finances sorted to allow you do have an early retirement.

I suppose my main argument is superannuation was set up to help with the looming crunch from the bulge of boomers retiring and the dependency ratio sky rocketing over a short period of time.

Most people who make it to age 65 have a good chance of making it past 85. The avg life expectancy rates are skewed to the low side - infant mortality and death in teen years are what brings it down. If you make it to 25 then ya looking at least 3 years over the avg, at 65 it's around 5 years.

So if the majority of people at age 65 have a good 20 years ahead of them, and at half will make it past it, then somehow the Govt needs to come up with a solution that stops people taping into it too early, without unduly restricting those who are in the position to not need to draw a Govt funded pension for their retirement.

Being some years away from retirement I have found it interesting with some of the issues and ideas people have brought up.

While I agree the concept of super and forcing people to save for their retirement was a great idea, I now question if we are making the solution more expensive than the problem.

Seems like at least for the last decade the tax foregone on super is more than the cost of the pension. If anything the difference between the two is widening. How long will it take before the balance swings to a cost saving?

maybe my argument would be easier to push if instead of tax breaks it was an easier to see Govt deposit into accounts on an annual basis.

There does need to be incentive for people to top up the base employer rate of super for those on lower incomes, but the fact is if 50% of the super tax benefits benefit just 12% of account holders, then I just don't see super being particularly effective at minimising the costs of retirement for all tax payers.

 

[sydboy007]

Sydboy, just a PS to the previous post.
ALL the people I personaly know who are self funded or expect to be self funded, without exception expect to never recieve a government pension.
The only people I know who talk about the government pension, are the ones that have not had a plan in place and are now hitting 50 and realisation hits.
Maybe you should be pushing for "anyone who hasn't enough capital cannot withdraw amounts over x% "
However this leads to the problem 'Joe average' has. One of my nearest and dearest friends is going through a marriage break up, he is 57.
During our chat he mentioned he hopes she doesn't take some of his super as it is nearly $100k. So are you saying a normal guy, can't withdraw that to possibly pay off a mortgage, because he might get a pension.
No he should be able to draw 4% that is $4000 plus full pension, plus rent assistance, plus welfare housing.
Seems like trying to fit a square peg in a round hole to me.
However Labor recently have been very adept at trying to do this.

Your friend is at least lucky they changed the law to allow the splitting of super. Before that the man was usually left destitute with his super while the wife got pretty much all the other assets outside of it.

At what point is the tax payer meant to be there to help in retirement? As the buddhists say s*&t happens. Do we need a 5 page retirement survey to determine if you don't have adequate savings due to misfortune or poor planning?

The money in your super account is your money, but it is also has a large chunk of tax payer funded subsidy thrown in. If someone uses their super as a lump sum to pay off personal debt, should they then be entitled to a bigger Govt funded pension? IF someone takes a lump sum to buy a new car and has a holiday, should they be entitled to a higher Govt funded pension?

Where does personal responsibility end and tax payer begin?

I would also argue that for a lot of Gen X, super is not a priority because the mortgages are so much bigger than anything the boomers generally had to worry about. I do wonder how they will cope when they get into their 60s. I suppose upping the retirement age to 67 will help to a degree.

 

[sptrawler]

Glad you've been able to get your finances sorted to allow you do have an early retirement.

There does need to be incentive for people to top up the base employer rate of super for those on lower incomes, but the fact is if 50% of the super tax benefits benefit just 12% of account holders, then I just don't see super being particularly effective at minimising the costs of retirement for all tax payers.

What I think Sydboy is the crunch isn't going to come from my generation, but from yours.
My generation knows how to do without, knows how to sacrifice.
It wasn't luck that has placed me in a position of being self funded. It was seeing how hard life was for my parents with nothing, renting fridges and furniture etc.
Mate I left school at 15, had three kids by 25, four by 30. Never had handouts or won lotto.
No my first house was one I bought as a demolition job, they chopped it in half, threw it on a truck and re stumped it on my block.
I've never looked for government handouts andI'm sure I'll be funding your retirement before your funding mine.lol

 

[sydboy007]

What I think Sydboy is the crunch isn't going to come from my generation, but from yours.
My generation knows how to do without, knows how to sacrifice.
It wasn't luck that has placed me in a position of being self funded. It was seeing how hard life was for my parents with nothing, renting fridges and furniture etc.
Mate I left school at 15, had three kids by 25, four by 30. Never had handouts or won lotto.
No my first house was one I bought as a demolition job, they chopped it in half, threw it on a truck and re stumped it on my block.
I've never looked for government handouts andI'm sure I'll be funding your retirement before your funding mine.lol

Considering I've paid at least 400K in taxes so far during my limited working life I doubt you'll need to fund my retirement.

Somehow I fear the discussion has moved off course a bit.

Or maybe I'm just speaking to the very small minority who've taken the tough decisions to fund themselves in retirement.

The truth is few are or will do that over the next couple of decades.

i just wonder how long we can afford to give out more in tax cuts on super than we save on pension payments.

The logic just isn't there for me to spend more on fixing a problem than the problem costs.

 

[medicowallet]

Considering I've paid at least 400K in taxes so far during my limited working life I doubt you'll need to fund my retirement.

So you are pretty much on par now for what you have consumed for your lifetime on this planet? (actually probably not at around $20k per year of working life, and $10k per year actual life)


Wait until the oldies start demanding better services with their voting power, and then you will see what real taxes are (and bracket creep will demolish any payrises the workers of the day gain)... time will tell.

MW

 

[sptrawler]

The money in your super account is your money, but it is also has a large chunk of tax payer funded subsidy thrown in. If someone uses their super as a lump sum to pay off personal debt, should they then be entitled to a bigger Govt funded pension? IF someone takes a lump sum to buy a new car and has a holiday, should they be entitled to a higher Govt funded pension?

Where does personal responsibility end and tax payer begin?

I would also argue that for a lot of Gen X, super is not a priority because the mortgages are so much bigger than anything the boomers generally had to worry about. I do wonder how they will cope when they get into their 60s. I suppose upping the retirement age to 67 will help to a degree.

Well lets look at that statement. My friend has $100k in super which is made up of his contributions over 20years.
If we ignore the fact its earnings are taxed at 15%, because due to the gfc the earnings are probably cancelled out.
Therefore on the $100k he has paid $15k contribution tax, then one could assume the tax payer has lost out on approx $15k income tax revenue (as most average income earners pay approx 30% tax overall).
Therefore you are making a case, that the employee foregoes income, that is used to improve the countries fiscal position.
The trade off for the $15k tax concession is he has no right to any or a minimal amount of the $100k?
Can't wait to see how it works out for you Syd.
Here's a tip, to have a comfortable, I'm talking $50k a year retirement.
You need about $2m, to allow for the ups and downs and the losses. That's to be self funded and not require government assistance and using conservative, capital secure investment, that allows for inflation.
There isn't many people with that amount, so they will at some time require government support.
However berating the ones that are savers doesn't help, they at least tried.
Best bet mate, get parachuted in to a safe seat and strap yourself in, never to be moved.
Indexed tax free pension for life yeh. Great if you can get it.

Otherwise, if you're 40 and want to retire self funded at 55 without needing a pension.
You will need about $4m returning 4-5% and own your house.
See how that works out for you.

The above assumptions are on an underlying inflation rate of 4-5%.
These are my thoughts only.