Superannuation, the ultimate government cash cow?

[sptrawler]

Now this country has a problem. Like many I want people to receive subsidised pharmaceuticals (prepared to pay $2k per month for MS medication are we rather than $40?), our youth to receive funding for their education, public hospital care, publicly funded research, welfare for those in need. However, where are teh funds because it's out 'tradition" to whinge about being taxed yet attempt to suck up any freebies as it's our right ya know..

With regard all of the above, people are dropping out of private health in huge numbers, our education system gets more money now than it ever has and the results are going backwards, welfare is a luxury that will be hard to fund for the healthy going forward IMO.

It's all part of the reason why I am increasing my international allocation both personally and in the SMSF. My assessment is this country is in danger of loosing its spark and becoming complacent. We no longer seem eager to embrace change. Because do do so is uncomfortable.
.

We seem to no longer embrace much, including hard work, adversity and change. IMO
I fully understand why you are increasing your international allocation, as I will, the writing is on the wall for Australia.
When the high paying mining and associated shut down jobs go, so will a lot of political leverage, unfortunately.
The disconnect between the media and the workforce, will become a chasm and then the reality wont be pretty.
We tend to lag behind the U.K by about 5-7 years and I think that will be proven correct again.
Taking franking credits off people who have relatively little and giving them to people who earn millions, in the name of fairness, is always going to be a hard sell.
It would have been easier to say, everyone gets the pension and super is taxable, same as the U.K, Canada and N.Z apparently.
Then those that saved get the benefit and those that chose not to save are no worse off. Those with large super accounts would pay enough tax, to more than cover the pension they would get anyway.
But there probably isn't enough money in super yet to roll that out, the super system is still building up from the last time it was robbed, in the 1950's.
My rant for the day.

 

[qldfrog]

I

Well remember a few who ran scared and went to cash. I'm not overly sympathetic as some threw a few comments if I mentioned I was still in shares and poo pooed me for my approach.

From the couple of people I still contact from time to time, they are still in cash but I don't appreciate the view held by one (who I no longer have any association with) who was somewhat derisory of my lifestyle, i.e. Only the well off can put solar on, install double glazing etc.

And yet he was formerly bragging how much he made per week which was more than my late wife and I were getting in a month.

Two households on the same income levels can end up with different result. Depends on what they do with their income during their working lives. As I said to one accountant, others can shop at DJ's while we shop at Target and when retired we can choose to shop at DJs while they will be obliged to shop at Target.

No problem there, i shopped at aldi when earning in the very very top bracket, now i earn not much, just investment and carry on my good habits

 

[qldfrog]

Fair points.


No matter what the situation if people don't have a great outcome they rarely express a view that the cause may partially be their fault to various degrees. It's people.

Well, when a party representing around 50% of the electorate is behind this view, how can you blame them?
They will win ultimately

 

[Humid]

With regard all of the above, people are dropping out of private health in huge numbers, our education system gets more money now than it ever has and the results are going backwards, welfare is a luxury that will be hard to fund for the healthy going forward IMO.


We seem to no longer embrace much, including hard work, adversity and change. IMO
I fully understand why you are increasing your international allocation, as I will, the writing is on the wall for Australia.
When the high paying mining and associated shut down jobs go, so will a lot of political leverage, unfortunately.
The disconnect between the media and the workforce, will become a chasm and then the reality wont be pretty.
We tend to lag behind the U.K by about 5-7 years and I think that will be proven correct again.
Taking franking credits off people who have relatively little and giving them to people who earn millions, in the name of fairness, is always going to be a hard sell.
It would have been easier to say, everyone gets the pension and super is taxable, same as the U.K, Canada and N.Z apparently.
Then those that saved get the benefit and those that chose not to save are no worse off. Those with large super accounts would pay enough tax, to more than cover the pension they would get anyway.
But there probably isn't enough money in super yet to roll that out, the super system is still building up from the last time it was robbed, in the 1950's.
My rant for the day.

Trouble is if mining jobs dry up there’s a good chance your international allocation will suffer too

 

[sptrawler]

Trouble is if mining jobs dry up there’s a good chance your international allocation will suffer too

Everything dries up if the mining jobs dry up IMO, the way they are introducing automation into ore recovery is only being held up by speed of deployment.
The technology is improving very rapidly, the Government needs to introduce a tax on volume to offset the loss in income tax as jobs reduce, or beef up the royalties system.
The top 10% of wage earners pay the biggest chunk of tax, a lot of them work in mining and associated industries, when they are put out of work the gig economy jobs wont pick up the slack.

 

[sptrawler]

The suggestion the PPR be included in the pension asset test, raises its head again, sooner or later it will be implemented IMO.

https://www.macrobusiness.com.au/2020/01/wealthy-home-owners-devour-aged-pension-welfare/

Currently there is no incentive, other than pride, to downsize the PPR to become self funded. It is actually more beneficial, to purchase a more expensive PPR, and qualify for a part pension at the moment.

 

[Junior]

The suggestion the PPR be included in the pension asset test, raises its head again, sooner or later it will be implemented IMO.

https://www.macrobusiness.com.au/2020/01/wealthy-home-owners-devour-aged-pension-welfare/

Currently there is no incentive, other than pride, to downsize the PPR to become self funded. It is actually more beneficial, to purchase a more expensive PPR, and qualify for a part pension at the moment.

A relative of mine passed away recently. Her PPR sold for nearly $4 million. Tired old house but large, valuable piece of land. She purchased it for $30,000 in the 1970s. She was on part-age pension and very frugal!

I agree with creating an incentive to downsize, but it shouldn't be imposed on those already on pension IMO, it needs to be phased in for new entrants....once you're passed a certain age the concept of moving house can be terrifying. In the case of my relative, she happily would have downsized or subdivided back when she was 65, if it made sense to do so for her retirement planning, but at 80 or 90 years old....it's a different story.

 

[sptrawler]

A relative of mine passed away recently. Her PPR sold for nearly $4 million. Tired old house but large, valuable piece of land. She purchased it for $30,000 in the 1970s. She was on part-age pension and very frugal!

I agree with creating an incentive to downsize, but it shouldn't be imposed on those already on pension IMO, it needs to be phased in for new entrants....once you're passed a certain age the concept of moving house can be terrifying. In the case of my relative, she happily would have downsized or subdivided back when she was 65, if it made sense to do so for her retirement planning, but at 80 or 90 years old....it's a different story.

It would have to be a well thought out policy.
Shooting from the hip wouldn't work.

 

[qldfrog]

Indeed it has been a while since the last government attempt to steal from the honeypot

 

[Junior]

Indeed it has been a while since the last government attempt to steal from the honeypot

Yep only a year or two. Time for more 'reform'!

 

[Smurf1976]

Yep only a year or two. Time for more 'reform'!

Part of the reason we've come to a point where sensible change is virtually impossible in Australia is because the average person has correctly come to associate anything being "reformed" with meaning that the average middle class person is about to be considerably worse off.

 

[Junior]

Part of the reason we've come to a point where sensible change is virtually impossible in Australia is because the average person has correctly come to associate anything being "reformed" with meaning that the average middle class person is about to be considerably worse off.

The last round of reform has resulted in unprecedented levels of complexity, in my opinion. Transfer Balance Caps, Total Super Balances, Defined Benefits. They keep introducing NEW ways to contribute (Downsizer Cont, Catch-Up contributions etc.) Don't get me started on First Home Super Saver Scheme. The rules around super now are absolute madness. They impose a $1.6mill cap, but then try and make it really hard to get there. If the limit is $1.6mill just let people whack it in there one day before retirement!! Furthermore, if you have a balance in excess of the cap, make people take it out!! You have this ridiculous legacy issue where some people still have many millions in Super accumulation, as they managed to get assets in there before the rules tightened up.

It's still by far the most tax effective way to accumulate wealth as you lead into retirement, but the completely unnecessary levels of complexity mean a very inefficient system. Great for accountants, lawyers and the ATO.

They should either completely leave it alone, or embark on ACTUAL reform with the priority being to reduce complexity.

 

[Belli]

if you have a balance in excess of the cap, make people take it out

This applies to me. Over 65 years of age and no longer in the workforce. On one hand I'm using it as a wealth creation exercise (sort of) and yet it does not make any sense to me. If there is a limit then apply it across the board. Nothing to say the $1.6m cannot grow organically either indexation aside. Mine has.

At the moment a large proportion of the SMSF is back in accumulation phase so it's paying 15% tax on earnings. Yet if a limit was imposed and I was required to withdraw it, it is more than likely I'd place it back in the share market, increase my income and the amount of tax I pay above the 15% level and the Government would receive greater tax revenue as a result.

Then let us stop talking about and giving the buggers any such ideas! However, I am sure it is being considered. Those dudes at Treasury are not dumb by any stretch of the imagination.

 

[sptrawler]

At the moment a large proportion of the SMSF is back in accumulation phase so it's paying 15% tax on earnings. Yet if a limit was imposed and I was required to withdraw it, it is more than likely I'd place it back in the share market, increase my income and the amount of tax I pay above the 15% level and the Government would receive greater tax revenue as a result.

One thing to remember is in accumulation, the fund is paying 15% tax on all earnings, outside the first $18k is tax free, just a point to mention.

 

[Belli]

One thing to remember is in accumulation, the fund is paying 15% tax on all earnings, outside the first $18k is tax free, just a point to mention.

Good point.

Usual crunching of numbers needs to be applied. You can get a reasonable level of income from shares before you have to pay additional tax as a consequence of the franking credit. Many haven't fully understood that aspect and I'm over trying to educate them. Too tiring.

 

[Belli]

Great for ..........the ATO

An unsubstantiated observation on this aspect.

I suspect the ATO would not be overjoyed to an extent. In days gone by when the Retirement Benefit Limit was around it was from memory costing $10m per year in system maintenance costs. Bear in mind an arrangement such as that required every superannuation account for each member to be monitored from commencement to closure. It was dragging only around $2m pa in tax revenue. One of the reasons the RBL was abandoned.

So then the Government goes "I've got a bright idea. Let's reintroduce the RBL in another format. We'll call it a Balance Cap." So what does the ATO have to do? See comment regarding the previous RBL. And apart from accountants, lawyers consider what the superannuation providers, including SMSFs, also need to do. That is not entirely free of costs which are hidden to some degree and rolled up into administrative charges.

 

[Junior]

An unsubstantiated observation on this aspect.

What I'm getting at, is that the complexity of the system consumes ATO & Government resources. So perhaps not 'good' for them as such. It all contributes towards a bloated, inefficient system which consumes more in government resources than is necessary. Check out this madness, as another example: APRA's plan to assess 40,000 super fund options too ambitious

 

[Belli]

What I'm getting at, is that the complexity of the system consumes ATO & Government resources. So perhaps not 'good' for them as such. It all contributes towards a bloated, inefficient system which consumes more in government resources than is necessary. Check out this madness, as another example: APRA's plan to assess 40,000 super fund options too ambitious

Too ambitious understates it. When the ATO contacted a number of SMSFs with property in them, it didn't come close to cracking all of the SMSFs involved.

 

[sptrawler]

At last people are starting to cotton on.

https://www.macrobusiness.com.au/2020/02/proof-superannuation-robs-workers-of-wages/

 

[sptrawler]

Too ambitious understates it. When the ATO contacted a number of SMSFs with property in them, it didn't come close to cracking all of the SMSFs involved.

When they let SMSF's borrow to buy property it was stupidity, all in the name of pumping the housing market.