Superannuation, the ultimate government cash cow?

[Belli]

I wonder how many SMSFs are involved in this little number?

ASIC has today commenced proceedings in the Federal Court of Australia against Dixon Advisory and Superannuation Services Limited (Dixon Advisory), a subsidiary of ASX-listed Evans Dixon Limited (Evans Dixon).

ASIC alleges that Dixon Advisory representatives failed to act in their clients’ best interests and to provide advice that was appropriate to the clients’ circumstances.

20-207MR ASIC commences civil penalty proceedings against Dixon Advisory for alleged conflicts, best interest failures and inappropriate advice | ASIC

asic.gov.au

Assuming the Trust Deed includes a similarly worded clause, which I have extracted from a generic Deed, I have always been somewhat perplexed where the line should or can be drawn between the provision of poor advice and the responsibility of the Trustee in deciding not to act on advice.

 

[Dona Ferentes]

Super is a graveyard for sunken intentions

Try to do it yourself, and mistakes/ brazen cowboy behaviour is observed

Go with a platform/ an administrator and the fees pile up.
Below is a list, taken from slide 24 of Netwealth 2020 Results Presentation 18 Aug. That is some serious clipping along the way.

Most ouftits are the same. Of course, their website has a "Look beyond fees" article extolling the benefits

 

[Dona Ferentes]

Who cares about Unions Vs Retail funds?

the big stoush is going to be here:

Savers and investors (and the nervous superannuation industry) can finally read the full findings of the 650 page report by Treasury veteran Mike Callaghan.

Retirement Income Review - Final Report | Treasury.gov.au

treasury.gov.au

A delay in the legislated rise in SG to 12% is probably in the cards. The vested interests are already crying poor (on behalf of their members)

The lobby group for 15 power super funds in the $700 billion union-linked industry superannuation sector has taken aim at the conclusions of the retirement income review. A statement from Industry Super Australia briefly welcomed the finding that "Australia’s sustainable and compulsory super system has allowed millions to save for their retirement" before going on to reject the key findings . "While the detail of the 600-page report is yet to be assessed, some of the findings on the legislated super guarantee increase the government selectively released overnight seem ill-founded," ISA said.

and the other big one is high value SMSFs

The wealthiest superannuation savers with balances over $5 million have tucked away more than $90 billion in their accounts and are receiving more government support than low-income households. These concessions deemed “not required” and a “tax minimisation strategy” by the government’s retirement income review.
The review has suggested the government should reform the billions in concessions flowing to the richest savers, finding that the provision of tax concessions for very large superannuation balances “are not required for retirement income purposes, as they are unlikely to encourage additional saving”.

“It appears that large balances are held in the superannuation system mainly as a tax minimisation strategy, separate to any retirement income goals,” Treasury’s Retirement Income Review says. “The impact of earnings tax concessions means higher-income earners receive more lifetime government support in dollar terms than lower- and middle-income earners.”

 

[sptrawler]

Could be an interesting time on the 'superannuation front', very soon, with the release of a long-awaited review of retirement incomes. The review, chaired by former Treasury official Mike Callaghan.

Government to assess superannuation, housing policy after Retirement Income Review

The wide-ranging Retirement Income Review suggests Australians draw down on their superannuation balances and use equity in the family home to fund their retirement.

www.abc.net.au

 

[Iggy_Pop]

Could be an interesting time on the 'superannuation front', very soon, with the release of a long-awaited review of retirement incomes. The review, chaired by former Treasury official Mike Callaghan.

Government to assess superannuation, housing policy after Retirement Income Review

The wide-ranging Retirement Income Review suggests Australians draw down on their superannuation balances and use equity in the family home to fund their retirement.

www.abc.net.au

Yes looks like we are moving to a user pays system with little government support. Does disappoint me as after working and saving in superannuation and other investments, now retired, I can live comfortably on a 4% drawdown. But then I an criticized for not spending enough and I should not be leaving any inheritance to my family. The biggest risk I have is I am likely to be around another 30 years and health costs will rise, and if aged care is needed, it is very expensive. So I do want to have a nest egg to cover the potential health costs and/or aged care costs. If there is some left over, the kids get their bit.

It seems to me, the government plan is to include the value of the house in any means test for a pension, arguing a reverse mortgage will keep you going. If they try to do this, it will be like the very unpopular Labor Party Franking Credit Policy and will guarantee they will lose the next election.

Iggy

 

[sptrawler]

Yes looks like we are moving to a user pays system with little government support. Does disappoint me as after working and saving in superannuation and other investments, now retired, I can live comfortably on a 4% drawdown. But then I an criticized for not spending enough and I should not be leaving any inheritance to my family. The biggest risk I have is I am likely to be around another 30 years and health costs will rise, and if aged care is needed, it is very expensive. So I do want to have a nest egg to cover the potential health costs and/or aged care costs. If there is some left over, the kids get their bit.

It seems to me, the government plan is to include the value of the house in any means test for a pension, arguing a reverse mortgage will keep you going. If they try to do this, it will be like the very unpopular Labor Party Franking Credit Policy and will guarantee they will lose the next election.

Iggy

I agree with you and am in the same situation regarding being self funded, I'm yet to get to pension age, but doubt I will qualify anyway.
I personally don't think it will matter which party gets into office, it is only a matter of time before the PPR is included in the asset test and is why I downsized when I left work and put the money in super.
Labor were calling for it years ago, the mega rich overlooking Sydney harbour and pulling an aged pension, so in reality they would have difficulty arguing against it, when it has been on their platform for a long time.
The house becomes a tax free tax haven for intergenerational wealth transfer, so both parties will want to close the loop hole IMO.
I personally think, using the the money to help your kids while they are still in the financial growth phase, is far more beneficial than leaving them an inheritance when they are elderly.
Just my thoughts

 

[BlindSquirrel]

Why not simply set the super contribution rate at 10% as a nice round number and then leave it for a bit? 9.5% is so cumbersome.

 

[Ferret]

Why not simply set the super contribution rate at 10% as a nice round number and then leave it for a bit? 9.5% is so cumbersome.

The thing is, so much faith in the super system has already been eroded by governments' constant changes to the Rules.

I understand the argument for delaying the next super rate increase and I can see the sense in it. Nevertheless, my view is that they should just leave things alone and stick with the already legislated increases.

 

[sptrawler]

The problem with the super system IMO is, the Government has just as much if not more say in how your money is spent, as has been proven over and over the thing that improves a persons retirement is owning their home.
There is no point in having a lot of money when you retire, if most of it will be eaten up by rent.

 

[Ferret]

The problem with the super system IMO is, the Government has just as much if not more say in how your money is spent

I'm not sure what you mean there SP.

I agree 100% though that owning your own home in retirement is a big advantage.

 

[Warr87]

The thing is, so much faith in the super system has already been eroded by governments' constant changes to the Rules.

I understand the argument for delaying the next super rate increase and I can see the sense in it. Nevertheless, my view is that they should just leave things alone and stick with the already legislated increases.

I can kinda see it too, but businesses are under no obligation to increase wages. i don't think increasing super will some how cause wage growth to stop, at least not in a meaningful way. will wages actually increase if super isn't increased? not necessarily. at least with the increase businesses are forced to add more value to someones pay.

I also don't like the proposal of having to draw on equity in your house. What is the point in buying a house if you spend 20-30years paying it off, only to have to essentially mortgage it out again to draw on the equity? Makes no sense to me. Doesn't give an incentive to buy a house IMO as you will spend money on the interest of the loan during the intial mortgage and then interest on the loan against the house when you reverse mortgage it. may as well stay a renter and keep your cash. I want a house for retirement so I have a place to call my own and not have to worry about rent.

 

[sptrawler]

I'm not sure what you mean there SP.

I agree 100% though that owning your own home in retirement is a big advantage.

What I mean by the Government has just as much if not more say in how your money is spent, history is littered with changes since super's inception and you or I had no say in it.
In all probability there will be a myriad of future changes, which will dictate how you can spend it and you wont have any say in that either.
I think it is pretty straight forward, the original format for super in pension phase was RBL's, that entailed a formulae that dictated the minimum amount of pension you could withdraw and the the maximum amount of pension you could withdraw in any given year, this was proportional to your age and life expectancy.
Then Costello simplified it to what it is now, but as was shown at the last election any treatment of super and how it is treated is at the whim of the government in office and you have to live with those rules if you break them you are fined.
So as I said the Government has as much, if not more say in how your money is spent.

 

[sptrawler]

I also don't like the proposal of having to draw on equity in your house. What is the point in buying a house if you spend 20-30years paying it off, only to have to essentially mortgage it out again to draw on the equity? Makes no sense to me. Doesn't give an incentive to buy a house IMO as you will spend money on the interest of the loan during the intial mortgage and then interest on the loan against the house when you reverse mortgage it. may as well stay a renter and keep your cash. I want a house for retirement so I have a place to call my own and not have to worry about rent.

In reality it is no difference to the way the super system is at the moment, why put money away all your working career when it could be paying down a house, only to find that when you reach pension age you have to spend it to pay rent?
Or others that downsize and put their money into super, have to use that money to fund their pension, when in reality they could have stayed in the McMansion kept $500-600K and received a pension. Obviously the house would be valued and under a certain value, it wouldn't be classed as an assset, over that it would be.
The whole super/retirement/aged pension system needs to be overhauled, to make it fit for purpose, it has been butchered to the point none of it works as intended.
The age pension, owning your house and the maximum allowed in investments, is by far the best outcome financially, but it does nothing for building a country of endeavour, creativeness and hard work, it fosters and breeds mediocrity and laziness .
Just my opinion.
Just found this article on the very same issue.

Empty nesters rule the roost as retired tenants fall behind

The problem with Australia's retirement system is neither the golden egg nor the goose laying it.

www.smh.com.au

At last an opinion piece, about the subject that isn't leaning one way or the other, hopefully Ross Gittens can stay on leave.

 

[Ferret]

In all probability there will be a myriad of future changes, which will dictate how you can spend it and you wont have any say in that either.

Yes, unfortunately the tinkering isn't going to stop.

Dictating how you can spend your super would be a very big step. I'd hope the push back against that would be strong enough to prevent it, but nothing is certain.

 

[sptrawler]

Yes, unfortunately the tinkering isn't going to stop.

Dictating how you can spend your super would be a very big step. I'd hope the push back against that would be strong enough to prevent it, but nothing is certain.

Like I said, that is how it was when it started, I would be surprised if it didn't go back to that.
The biggest folly, is thinking the underlying driver of super, is for the recipients benefit IMO.

 

[Iggy_Pop]

I agree with you and am in the same situation regarding being self funded, I'm yet to get to pension age, but doubt I will qualify anyway.
I personally don't think it will matter which party gets into office, it is only a matter of time before the PPR is included in the asset test and is why I downsized when I left work and put the money in super.
Labor were calling for it years ago, the mega rich overlooking Sydney harbour and pulling an aged pension, so in reality they would have difficulty arguing against it, when it has been on their platform for a long time.
The house becomes a tax free tax haven for intergenerational wealth transfer, so both parties will want to close the loop hole IMO.
I personally think, using the the money to help your kids while they are still in the financial growth phase, is far more beneficial than leaving them an inheritance when they are elderly.
Just my thoughts

Yes both political parties seem to be creating a stigma against people with Harbour side property and self funded retirees in general. I have family in Sydney and it is a challenge to get property there and just because you work hard, buy a property which then appreciates to 2 to 3 million dollars over your life time does not mean you are wealthy and have money to live on. Rates and house insurance go through the roof in line with property values.
For elderly person in Sydney with an expensive property and not much superannuation, it is a dilemma for them to either downsize or reverse mortgage their property. Either approach when you are forced into it is distressing. Why would we want to do this to the elderly, and it guarantees they will spend minimally in their later years.
We should be following the approach of other countries that give all retirees the pension and get rid of the pension assets test. The money would be spent and we can leave the elderly in their homes.
The bizarre thing is that both political parties want retirees owning their homes and then offering home assist so they can live there lives out to take pressure off the aged care system. But they both create stigmas around franking credit, harbor side mansions etc.
The aged pension for all resolves it.

Iggy

 

[sptrawler]

Yes both political parties seem to be creating a stigma against people with Harbour side property and self funded retirees in general. I have family in Sydney and it is a challenge to get property there and just because you work hard, buy a property which then appreciates to 2 to 3 million dollars over your life time does not mean you are wealthy and have money to live on. Rates and house insurance go through the roof in line with property values.
For elderly person in Sydney with an expensive property and not much superannuation, it is a dilemma for them to either downsize or reverse mortgage their property. Either approach when you are forced into it is distressing. Why would we want to do this to the elderly, and it guarantees they will spend minimally in their later years.
We should be following the approach of other countries that give all retirees the pension and get rid of the pension assets test. The money would be spent and we can leave the elderly in their homes.
The bizarre thing is that both political parties want retirees owning their homes and then offering home assist so they can live there lives out to take pressure off the aged care system. But they both create stigmas around franking credit, harbor side mansions etc.
The aged pension for all resolves it.

Iggy

I agree with you and we have suggested it on here for years, give everyone an aged pension and tax the superannuation pension as income.

That has the two fold effect, one it encourages people to work to add to their retirement nest egg and secondly adds a fairness to the system where those who have worked get penalised and are likely to be penalised more as they get older.

As more and more young people get bigger super balances, something like that will probably happen, at the moment the Government irrespective of party is getting a smaller income tax receipt and a bigger and bigger welfare bill.

The problem with that is someone has to foot the bill, so if the government hit business that hits employment, if they hit workers they spend less so less gst etc, that really only leaves two groups, welfare and older people.
So you know who is going to get hit, funny they are worried about them catching the virus, but I suppose you lose that tax base if they die.
Just my opinion.

 

[qldfrog]

I can kinda see it too, but businesses are under no obligation to increase wages. i don't think increasing super will some how cause wage growth to stop, at least not in a meaningful way. will wages actually increase if super isn't increased? not necessarily. at least with the increase businesses are forced to add more value to someones pay.

sorry but not true at all, super is NOT paid by your employer for you, it is substracted from your package and paid to the super fund ; an increase of 1% of super means your pay amount will be cut by 1%;
now you may have had great employers who took it on themselves to effectively give you a pay rise; they do happen but this is not the law nor true for many;
As employee, I always worked for a given package, and this included super;
if mandatory super increases, your pay packet decreases...

 

[qldfrog]

please note this misconception is widely shared in Australia, probably the results of public servants whose pay is: xxx + super, often with above mandatory rate super.

 

[Warr87]

sorry but not true at all, super is NOT paid by your employer for you, it is substracted from your package and paid to the super fund ; an increase of 1% of super means your pay amount will be cut by 1%;
now you may have had great employers who took it on themselves to effectively give you a pay rise; they do happen but this is not the law nor true for many;
As employee, I always worked for a given package, and this included super;
if mandatory super increases, your pay packet decreases...

are you saying that if super is increased by 1.5% your employer is now going to subtract 1.5% from your hourly rate? I agree that it is a package, but I disagree that super isnt paid for by your employer. Plenty of cases where employers dont pay your super as they are the ones who deposit it into your super account.