Superannuation, the ultimate government cash cow?

[drsmith]

For a quickie reform, cap all contributions (tax deductable or otherwise) at a fixed fund balance limit. Once your fund balance is X, that's it. The earnings would still be taxed at 15% and the fund would continue to grow, but you can't stick anymore in.

20 x AWOTE for X ?

 

[sptrawler]

My irritation isn't that I'm paying tax it's that others aren't. I have no problem with paying tax, at all. I think it's what FDR called enlightened self-interest. But I think on a point of principle the tax system should be equal. If you remember the discussion we had a few weeks ago about family tax benefits, my sentiments were very similar; two people earning the same amount from the same source should pay the same amount of tax.

I'm not trying to have a go at people, like yourself and sptrawler, who have diligently saved and contributed toward their retirement under the current system. If I was 20 years older I'd probably be in the same boat.

I agree 100%, the tax system should be fair.
They can't set the goal posts and system in place for people to attain to, which I think is a comfortable retirement(I think $80k at the moment for a couple).
Then due to mismanagement, come out with a suggestion that people with, in real terms minimal amounts in super, need to pay more.
In a word it is outrageous, especially when they accept a tax free indexed pension for life, this as a reward for screwing us. It beggers belief.
Most of the politicians, State and Federal, will recieve an indexed pension for life equivalent to a super balance of $3m or more. I don't even mind that, there is no way I would want to fight in that pit.

What annoys me is when I read they are saying someone with $800k in super is taking the pizz, thats not fair.

I do agree a max cap in super sounds reasonable, then amounts above that are transferred out.
That cap could be moved up with inflation, the trick is setting the cap for low earnings periods.
What I disagree with, is politicians deciding that cap, as they are immune to it.

 

[banco]

I agree 100%, the tax system should be fair.
They can't set the goal posts and system in place for people to attain to, which I think is a comfortable retirement(I think $80k at the moment for a couple).
Then due to mismanagement, come out with a suggestion that people with, in real terms minimal amounts in super, need to pay more.

This "moving the goalposts" analogy is silly. Taxes go up and taxes go down according to revenue needs and community wants.

 

[sydboy007]

For a quickie reform, cap all contributions (tax deductable or otherwise) at a fixed fund balance limit. Once your fund balance is X, that's it. The earnings would still be taxed at 15% and the fund would continue to grow, but you can't stick anymore in.

20 x AWOTE for X ?

Something like this would bring a bit of balance to super.

I was thinking along the lines of a balance that would provide you with a pension to last you the avg life expectancy + 5 years for when you pension starts, indexed to 5% pa. 23K tax free income for a person isn't too bad, 46K for a couple.

After that point you could add say 10K a year in undeducted contributions, still benefiting form the 15% tax on earnings.

There's nothing stopping people from saving for their retirement outside of super.

 

[sptrawler]

This "moving the goalposts" analogy is silly. Taxes go up and taxes go down according to revenue needs and community wants.

Yes and outside of super you can adjust your position, inside super the money is not accessible.?

If for example they say "we are scapping negative gearing" you can say"ok I'll sell the investment property and buy a boat. Rather than house the poor.

In super, if they say all money in super will be taxed at 40%, what do you do? Especially if half your balance has been put in after tax?
Please don't come back with they can't do that, look at the penalties for over contributing.lol

What makes you think that moving the goal posts is silly?

I think your statement is a bit silly. Only my thoughts.

 

[Bill M]

What I disagree with, is politicians deciding that cap, as they are immune to it.

That is exactly right, why should they be any different? It will never ever be a fair system until the politicians are treated exactly the same as everyone else. It is joke and it is the reason why I hate both the major parties. If only we could have one leader that would bring this issue into line I would say they would get the majority of the votes. Such a disgusting unfair system.

 

[sptrawler]

Something like this would bring a bit of balance to super.

I was thinking along the lines of a balance that would provide you with a pension to last you the avg life expectancy + 5 years for when you pension starts, indexed to 5% pa. 23K tax free income for a person isn't too bad, 46K for a couple.

After that point you could add say 10K a year in undeducted contributions, still benefiting form the 15% tax on earnings.

There's nothing stopping people from saving for their retirement outside of super.

Great idea, the only problems I see with that is, if the person retires in a low inflation low return point of the cycle, eg now.
Then there is a return to norm of 3-5% inflation and interest rates of 6-8% there needs to be a buffer.
Where in retirement, do you get the 10k from to make the undeducted contributions? From the 23k pension single or the 46k pension couple.

 

[Julia]

Not if my understanding of SMSF's is correct.
http://www.ato.gov.au/superfunds/content.aspx?menuid=0&doc=/content/00251857.htm&page=23&H23

I assume that would cover owning a small business through an SMSF.

You're probably right. I was vaguely thinking back to something DocK said on another thread and probably inappropriately extrapolating it.
Have run it down as follows:

So far as rent is concerned, we're fortunate in that our SMSF purchased the factory from which we operate several years ago - so our business pays rent to our SMSF.

DocK, you may care to elaborate on this? It seems in your case your SMSF has bought property which is distinct from buying the actual business.

My irritation isn't that I'm paying tax it's that others aren't. I have no problem with paying tax, at all. I think it's what FDR called enlightened self-interest. But I think on a point of principle the tax system should be equal. If you remember the discussion we had a few weeks ago about family tax benefits, my sentiments were very similar; two people earning the same amount from the same source should pay the same amount of tax.

I understand your point. Just think it's pretty difficult to design a scheme which will provide a good incentive to people who would otherwise not save for their retirement which will not at the same time penalise those who choose not to participate in that scheme.

I'm not trying to have a go at people, like yourself and sptrawler, who have diligently saved and contributed toward their retirement under the current system. If I was 20 years older I'd probably be in the same boat.

Completely understood. Likewise I'm not criticising your choices.

Yeah, this is my understanding too, which is why I said over 12+ years they may be able move the cash into shares.

Sydboy, those are some very interesting graphs! It really shows who is receiving the benefits!

I've only briefly glanced at the graphs but the current tax free threshold is not represented there from what I can see.
It's becoming more relevant if the government looks like tinkering yet again with Super rules. Plenty of people who have all their assets in Super will pretty smartly move the appropriate amount out to take advantage of what I think is around $18,000 as tax free threshold outside of super.

These are the kinds of arguments left wingers tend to make.

How about providing the figures of how much net tax the bottom 36.9% of taxpayers paid and the what the top 20.4% paid.

It should NOT be everyone's right to freeload off high income earners all their life.

Heaven forbid a leader actually offering incentives for people to improve their income, as opposed to offering bribes to gain votes.

Your kind of logic, and unfortunately I guess this entitlement attitude is representative of the majority of low-medium income earners, is flawed and pathetic.

I wish people would make the kinds of sacrifices that high income earners make, as opposed to rewarding governments who flog the highest earners the most.

Sigh

MW

This "moving the goalposts" analogy is silly. Taxes go up and taxes go down according to revenue needs and community wants.

I don't think that sort of laissez faire attitude is appropriate when it comes to a long term planning proposition like super.
Imo Medicowallet makes valid points.

That is exactly right, why should they be any different? It will never ever be a fair system until the politicians are treated exactly the same as everyone else. It is joke and it is the reason why I hate both the major parties. If only we could have one leader that would bring this issue into line I would say they would get the majority of the votes. Such a disgusting unfair system.

Exactly. And just why politicians are held in such contempt with their breathtaking hypocrisy.

 

[sptrawler]

That is exactly right, why should they be any different? It will never ever be a fair system until the politicians are treated exactly the same as everyone else. It is joke and it is the reason why I hate both the major parties. If only we could have one leader that would bring this issue into line I would say they would get the majority of the votes. Such a disgusting unfair system.

Allan Carpenter, saw the immoral side of it and chose not to take the politicians pension perks, obviously he didn't last long.
However somewhere down the track he will be remembered for being honourable. That will be quite novel because he was Labor and an ex reporter.

 

[banco]

Yes and outside of super you can adjust your position, inside super the money is not accessible.?

If for example they say "we are scapping negative gearing" you can say"ok I'll sell the investment property and buy a boat. Rather than house the poor.

In super, if they say all money in super will be taxed at 40%, what do you do? Especially if half your balance has been put in after tax?
Please don't come back with they can't do that, look at the penalties for over contributing.lol

What makes you think that moving the goal posts is silly?

I think your statement is a bit silly. Only my thoughts.

I don't think it's as different as you think it is in terms of the ability to adjust your position. If negative gearing was removed tomorrow and you decide to sell your investment property presumably a discount would apply as it would no longer be as tax efficient an investment as it was prior to the announcement.

I think it's silly because you're saying a large proportion (and growing) of income flows and assets will be off limits to increases in taxation and for no compelling policy reason. It might not be as big a problem in practice if Howard hadn't introduced unsustainable changes to super in 2006 that the superannuation industry likes to pretend are written in blood and can't be changed.

Your aged couple on $80,000 will likely have to make do on slightly less money after tax so they can help pay for their fellow baby boomers' retirement and health care costs.

 

[drsmith]

Something like this would bring a bit of balance to super.

I was thinking along the lines of a balance that would provide you with a pension to last you the avg life expectancy + 5 years for when you pension starts, indexed to 5% pa. 23K tax free income for a person isn't too bad, 46K for a couple.

That's essentially a question of where X is set as a multiplier of AWOTE.

After that point you could add say 10K a year in undeducted contributions, still benefiting form the 15% tax on earnings.

Dabate would revolve around the annual limit. It would add a limited complexity but would avoid the complexity of varying marginal tax rates on earnings from super. Worth consideration.

There's nothing stopping people from saving for their retirement outside of super.

Marginal tax rates. Reduce them with the savings.

 

[sptrawler]

I don't think it's as different as you think it is in terms of the ability to adjust your position. If negative gearing was removed tomorrow and you decide to sell your investment property presumably a discount would apply as it would no longer be as tax efficient an investment as it was prior to the announcement.

I think it's silly because you're saying a large proportion (and growing) of income flows and assets will be off limits to increases in taxation and for no compelling policy reason. It might not be as big a problem in practice if Howard hadn't introduced unsustainable changes to super in 2006 that the superannuation industry likes to pretend are written in blood and can't be changed.

Your aged couple on $80,000 will likely have to make do on slightly less money after tax so they can help pay for their fellow baby boomers' retirement and health care costs.

I can follow your first paragraph, can you re post the second paragraph.
With regards your third paragraph, I did say pension payments should be taxed as income?

So look forward to your response, it is great people are interested in the thread, I find it stimulating(in a non sexual way) lol

 

[sptrawler]

For a quickie reform, cap all contributions (tax deductable or otherwise) at a fixed fund balance limit. Once your fund balance is X, that's it. The earnings would still be taxed at 15% and the fund would continue to grow, but you can't stick anymore in.

20 x AWOTE for X ?

The problem with that doc, is it exposes us to overseas borrowing, if super is capped, money underpinning our system is capped
The reason Keating brought in super, was because of the massive hit the 87 crash caused on our banking system.
We had no savings, the banks were geared up with overseas borrowings, when the crash happened all debts were called in.
Westpac and ANZ were caught with there pants down. NAB was a bit immune because it was the minor bank and Commonwealth was still government owned.
The fall out investigations showed we needed an internally funded slush fund.
The superannuation scheme was born.

Since then, they have being trying to convince us, it's for our benifit.

We now seem to ebb and flow between, yes they can have the money, we're doing o.k.
To, Christ how much money is sitting there that we aren't taxing.
Like, why not make it sustainable, rather than a money lenders contract that the terms can be changed at a whim.

The government and Australia need the superannuation system, without it our booms and busts would be huge.
Combine with this, the problem of wealth being passed down from one generation to the next. Add to that a falling birth rate. then on top of that add the tall poppy syndrome.
Where can I buy a copy of "how to be a boat person" lol

 

[DocK]

You're probably right. I was vaguely thinking back to something DocK said on another thread and probably inappropriately extrapolating it.
Have run it down as follows:

So far as rent is concerned, we're fortunate in that our SMSF purchased the factory from which we operate several years ago - so our business pays rent to our SMSF.

DocK, you may care to elaborate on this? It seems in your case your SMSF has bought property which is distinct from buying the actual business.

Correct. The following sets it out better than I could:

All SMSF holders know that it is strictly against the rules to use your super balance in any way that benefits you or your business prior to retirement, and this is especially true when it comes to property transactions.

There is one area however where business owners can use their retirement funds to benefit their business prior to retirement, and this is through the ability to purchase your own business premises via your SMSF.

How it Works

Using the existing balance of your SMSF, or by borrowing additional funds through the SMSF, you can purchase business premises to be used by a business that you own or control.

Although your business can operate from the premises owned by your SMSF, the business must still pay rent to your SMSF. Not only that, but the business must pay full market rent to ensure your SMSF is not being disadvantaged.

http://www.moneybuddy.com.au/financial-planning/Buying-Your-Business-Premises-Within-Your-SMSF
One of the major advantages is that rent paid into the smsf is not counted as a contribution, so the full $25000 limit remains available, it gives the business stability of premises, it gives the smsf a reliable (hopefully) tenant. Disadvantage is that it can tie up a good deal of capital from the smsf and depending upon the balance of the fund and the value of the business premises it can result in the assets of the smsf being skewed too much towards the one asset.

For the purposes of this discussion, the first sentence quoted is the most pertinent: "it is strictly against the rules to use your super balance in any way that benefits you or your business prior to retirement". Upon sale of the business and its assets, I'm very glad that there is apparently provision made for self-employed to contribute capital gain and sale proceeds into super if desired. It is certainly fair to say that a lot of self-employed people reinvest capital into their businesses with an eye to their future retirement, where an employed person may contribute extra into super. To reward one with tax breaks but penalise the other would be inequitable in my view - but then I'm self-employed so I'm hardly unbiased on the subject

 

[DocK]

It compares Australia to eight other countries considered to have the best pension systems in the world: Canada, Chile, Denmark, Netherlands, Sweden, Switzerland, the United Kingdom and United States.

That sentence is from an article in Bus Spectator that I linked to yesterday - putting forward the view that Australians were actually receiving lower tax breaks on superannuation than the countries listed.

I'm quite ignorant of the super/pension arrangements of those nations, but would be interested in learning what the major differences are between theirs and our own. I've a vague notion that the Scandinavian countries have excellent social security and pension benefits - but also have high taxation? I'd appreciate any discussion on this aspect from those that know, as I'm feeling too tired and lazy to go searching the 'net myself.

 

[sptrawler]

Correct. The following sets it out better than I could:


http://www.moneybuddy.com.au/financial-planning/Buying-Your-Business-Premises-Within-Your-SMSF
One of the major advantages is that rent paid into the smsf is not counted as a contribution, so the full $25000 limit remains available, it gives the business stability of premises, it gives the smsf a reliable (hopefully) tenant. Disadvantage is that it can tie up a good deal of capital from the smsf and depending upon the balance of the fund and the value of the business premises it can result in the assets of the smsf being skewed too much towards the one asset.

For the purposes of this discussion, the first sentence quoted is the most pertinent: "it is strictly against the rules to use your super balance in any way that benefits you or your business prior to retirement". Upon sale of the business and its assets, I'm very glad that there is apparently provision made for self-employed to contribute capital gain and sale proceeds into super if desired. It is certainly fair to say that a lot of self-employed people reinvest capital into their businesses with an eye to their future retirement, where an employed person may contribute extra into super. To reward one with tax breaks but penalise the other would be inequitable in my view - but then I'm self-employed so I'm hardly unbiased on the subject

Great post Dock, what I have found since "living on my wits" is the ATO have ALL angles covered.
I have actually found that comforting, because prior to this period in my life, I thought they didn't have a clue.

What I take exception to is the government of the day trying to bend things to cover their stupidity, with my money.

 

[sptrawler]

That sentence is from an article in Bus Spectator that I linked to yesterday - putting forward the view that Australians were actually receiving lower tax breaks on superannuation than the countries listed.

I'm quite ignorant of the super/pension arrangements of those nations, but would be interested in learning what the major differences are between theirs and our own. I've a vague notion that the Scandinavian countries have excellent social security and pension benefits - but also have high taxation? I'd appreciate any discussion on this aspect from those that know, as I'm feeling too tired and lazy to go searching the 'net myself.

Well Dock, I was talking to a German couple, they said the maximum pension was 900 euros a month but you had to have worked for 45 years to get it.
However they did say the cost of living here is stupid, that was a month ago.

I didn't ask about their super system, it was only a brief encounter.

 

[sydboy007]

Great idea, the only problems I see with that is, if the person retires in a low inflation low return point of the cycle, eg now.
Then there is a return to norm of 3-5% inflation and interest rates of 6-8% there needs to be a buffer.
Where in retirement, do you get the 10k from to make the undeducted contributions? From the 23k pension single or the 46k pension couple.

Adding the 10K was pre retirement. Allows the building of a bigger balance if someone wants to take advantage of the tax effectiveness of super but minimises the cost to general revenue.

i think what I've suggested removes a lot of the vagaries out of setting the end maximum balance. It shouldn't be too hard to determine what kind of balance would provide 23K pa for say 25 years with the ability to increase the payout by 5% each year.

Even with the current low interest rate environment you could easily purchase a number of inflation linked bonds and inflation indexed annuities and achieve a 6% return. The ILBs will store some capital away for the longer term, the IIBs will return capital and interest on a regular basis and allow you to redeploy the capital over time.

Seems the perfect way to have a reasonable income stream over an extended period of time without worrying about the vagaries of the share market.

 

[Vixs]

I am still disturbed by the amount of people here that want to see more tax on super, more restrictions, lower limits, even capped balances?

Super is the road to eliminating permanently and completely the government pension, or at least any further increases. This is an investment in the wealth of the country to allow the government to put a lid on one of its biggest expenses.

True to form, the politicians can't resist taxing those savings now, but will still have to have the hard talk with the nation later when the balances aren't as stellar as required to fully fund retirement. It's short sighted.

Some of the ideas focused on raiding the honeypot downright remove the incentive to save for your own retirement, and that is a huge issue for generations still 30 odd years from retirement that will need to make their super count and will not be able to depend on a pension that will keep them from poverty.

I'm probably too tired to be posting anything, but my point is this: Why are you so readily promoting more tax, more restrictions, more limitations and less freedom, based on individual perceptions and guesstimates about what is enough (which is entirely individual - I've got friends who have managed to support spouses completely and only earn $50k p.a., and I've got other friends who can't make ends meet with $150k)?

Where is the incentive to succeed?

 

[sydboy007]

I am still disturbed by the amount of people here that want to see more tax on super, more restrictions, lower limits, even capped balances?

Super is the road to eliminating permanently and completely the government pension, or at least any further increases. This is an investment in the wealth of the country to allow the government to put a lid on one of its biggest expenses.

True to form, the politicians can't resist taxing those savings now, but will still have to have the hard talk with the nation later when the balances aren't as stellar as required to fully fund retirement. It's short sighted.

Some of the ideas focused on raiding the honeypot downright remove the incentive to save for your own retirement, and that is a huge issue for generations still 30 odd years from retirement that will need to make their super count and will not be able to depend on a pension that will keep them from poverty.

I'm probably too tired to be posting anything, but my point is this: Why are you so readily promoting more tax, more restrictions, more limitations and less freedom, based on individual perceptions and guesstimates about what is enough (which is entirely individual - I've got friends who have managed to support spouses completely and only earn $50k p.a., and I've got other friends who can't make ends meet with $150k)?

Where is the incentive to succeed?

I think the issue is focusing on super as begin the ONLY way to save for retirement.

The cost of the tax forgone on super is large. There is a cost with lower services / infrastructure spending or higher taxes.

By your argument once someone's super balance can pay them the equivalent of the aged pension for say 25 years then the system has done it's job?? Is it efficient to provide 20% of those contributing to super over 50% of the tax benefits?