Superannuation, the ultimate government cash cow?

[sptrawler]

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.

I think what frog was meaning was, if as usual you go for a pay rise and expect 3%, the employer will give 1.5% and the rest is made up with super.
Alternatively if you go for a job, the company usually includes super in the wage package, they don't usually say your salary is say $80k plus super. So if the super contribution rate is increased, the next time you have a performance appraisal, there is every likely hood if any payrise is offered the super increase will be factored in.
Very few employers, other than government, will not include super in the calculation of a pay rise.

 

[Warr87]

I think what frog was meaning was, if as usual you go for a pay rise and expect 3%, the employer will give 1.5% and the rest is made up with super.
Alternatively if you go for a job, the company usually includes super in the wage package, they don't usually say your salary is say $80k plus super. So if the super contribution rate is increased, the next time you have a performance appraisal, there is every likely hood if any payrise is offered the super increase will be factored in.
Very few employers, other than government, will not include super in the calculation of a pay rise.

I don't think I've ever had an employment contract whose pay package was presented as the rate including super. Just different experiences I guess.

 

[sptrawler]

I think this article actually gives both sides of the argument and I think K Rudd actually dropped a clanger, just my opinion.

Withdrawing super for first home a very good investment, says Bernie Fraser

The former RBA governor says low-income workers should be allowed to withdraw some of their super early to buy a first home, while former PM Kevin Rudd, super funds and Labor warn such a scheme would push up property prices.

www.theage.com.au

From the article:
Former Reserve Bank governor Bernie Fraser says low-income workers should be allowed to withdraw some of their superannuation early to buy a first home, while former prime minister Kevin Rudd, super funds and Labor warn such a scheme would push property prices higher.


Mr Fraser said he saw a good case for enabling people to draw upon part of their super to buy a home when they might otherwise not be able to afford a deposit.
"In my view ... the long-term return of owning a house rather than having to be renting one would outweigh the return of even a good performing super fund," he said. Mr Fraser has fronted advertisements for Industry Super Australia in the past and is a former director of several large industry super funds.
He said there should be limits on the amount that could be withdrawn for a deposit but was not convinced there would be so much demand it would lead to a surge in property prices.
"I just think, particularly as house prices are going up and rent prices are going up, the opportunity for some modest-income people to have a house would be a very good investment."

But Mr Rudd criticised proponents of such a scheme as "right-wing ideologues" who wanted to hollow out retirement savings, not make housing more affordable. He said withdrawing $30,000 at age 35 for a home could leave a worker $400,000 worse off in retirement.

"It's also fiscally reckless. This would push up house prices, drain national savings, put pressure on Australia's credit rating and force more Australians onto the age pension," Mr Rudd said.

 

[Warr87]

good article and nice exerts. In this particular case I would agree with Rudd. I do think its fiscally irresponsible, reckless, and would also drive house prices up. The point about withdrawing 30k and being 400k worse off is a good point. I also thought of the fact, what if it is used and interest rates go through the roof or loss of job means a default on the loan. I would foresee a lot of lost super for people far worse off in retirement. The culture of also having the smallest amount of deposit possible for a house (on the premise that house prices always go up and increase in value) is also setting people up for disaster. not the mention the predators and banks that would love to take up the opportunity to have people take money from super and put into a high LVR loan. i imagine loop holes as well as putting money into super as a pre-tax deducation and then withdrawing it for a deposit as a way to take a good chunk of money at a lower rate to buy a house.

 

[sptrawler]

good article and nice exerts. In this particular case I would agree with Rudd. I do think its fiscally irresponsible, reckless, and would also drive house prices up. The point about withdrawing 30k and being 400k worse off is a good point.

What I thought was really pertinent was, it would drain national savings, it would put pressure on Australia's credit rating and it would force people onto the pension.
All those issues are a fiscal problem for the Government, superannuation was meant to improve a workers retirement, not keep them off a pension or part pension.

Like the report said over and over, the best result for the worker is home ownership in retirement, $400,000 in 30 years time might not buy you a caravan. As for driving up house prices just stop negative gearing and capital gains tax write off, but allow first home buyers who use super as a deposit, to claim their interest as a tax deduction.
Also limit the value of the house allowed to be purchased, so it can't be rorted buying $1m houses.
Also he didn't say taking out $30k at 35, would cost someone $400k at retirement, he said it could. I think someone not buying a house at 35, wont find it any easier to buy a house with $400k at retirement.

The other thing is, a person is either paying for a house while they are working, or they are renting, so the chances of a lower income person saving a deposit while renting is unlikely so the chances of owning a house is nil..

I think K Rudd nailed the heading of this thread.
"Superannuation, the ultimate Government cash cow".

 

[Warr87]

I 100% agree with you.

 

[qldfrog]

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.

The employer does not pay for you, but on behalf of you
And yes, if tomorrow super is increased by 1.5%, you will receive 1.5% less..before tax next month.
This is the case for all people who are not on awards/ minimum wages etc.
After for awards and similarly imposed pay rates, that is part of the negotiations etc
Nowadays, in the real economy but for minimal wages, you apply for a job and a package
This package includes super at a given rate, maybe FB, other extras.
That's the deal for the trainload of workers you could see commuting to the cbd in the morning
But super is definitively not an employer paid 'tax' and should not be seen like that..
That a country's workers are able to celebrate the fact they are receiving less because it is subtracted before the pay slip is a miracle of coms by unions and financial sectors.whether you see that as good or bad?

 

[PZ99]

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.

M-a-a-a-t-e... the system has loopholes big enough to drive a Dodge Ram though.

Just pay all your non discretionarys 20 years in advance - that should keep you on the red side of the barrier

Party on !

 

[Junior]

I think this article actually gives both sides of the argument and I think K Rudd actually dropped a clanger, just my opinion.

Withdrawing super for first home a very good investment, says Bernie Fraser

The former RBA governor says low-income workers should be allowed to withdraw some of their super early to buy a first home, while former PM Kevin Rudd, super funds and Labor warn such a scheme would push up property prices.

www.theage.com.au

But Mr Rudd criticised proponents of such a scheme as "right-wing ideologues" who wanted to hollow out retirement savings, not make housing more affordable. He said withdrawing $30,000 at age 35 for a home could leave a worker $400,000 worse off in retirement.

Mr Rudd has not factored in the significant financial & lifestyle benefit, of having purchased a home years earlier than would otherwise be possible.

 

[sptrawler]

Mr Rudd has not factored in the significant financial & lifestyle benefit, of having purchased a home years earlier than would otherwise be possible.

I suppose, when your missus is worth $100million, you don't think about.
Also as Bernie Fraser said the house would in all probability outperform the super return. I know who's advice I would take.

 

[boofhead]

While home ownership makes for potentially better retirement, withdrawing some money from super reduces the super balance long term, will push prices of housing up. Australia needs a property pricing reset. Increasing demand will increase pricing. The various grants only provide short term relief then pricing adjusts to factor in the grants. Using super will be a short term help then property pricing will increase to factor in people using super so because less affordable.

While longer term in the major cities property shows it probably will outperform super, property locks up wealth and less liquid. All it takes is under-insurance and some disaster and wealth is lost.

Pausing super increases previously hasn't led to wage growth accommodating the delayed super increase.

Most people I know that earn less than the national average will would not use any delayed super increases to better their own financial future. Any potential increase in wages would be a part of their regular disposable income spent on various vices or increased subscription services.

I would love to see Keating vs Frydenberg live debate.

 

[sptrawler]

While home ownership makes for potentially better retirement, withdrawing some money from super reduces the super balance long term, will push prices of housing up. Australia needs a property pricing reset. Increasing demand will increase pricing. The various grants only provide short term relief then pricing adjusts to factor in the grants. Using super will be a short term help then property pricing will increase to factor in people using super so because less affordable.

While longer term in the major cities property shows it probably will outperform super, property locks up wealth and less liquid. All it takes is under-insurance and some disaster and wealth is lost.

Pausing super increases previously hasn't led to wage growth accommodating the delayed super increase.

Most people I know that earn less than the national average will would not use any delayed super increases to better their own financial future. Any potential increase in wages would be a part of their regular disposable income spent on various vices or increased subscription services.

I would love to see Keating vs Frydenberg live debate.

The elephant in the room that no one is talking about is, who is to say in 40 years time the pension isn't like jobstart now and you have to spend nearly all your money before you qualify for any government assistance.
At least if you have a home you have a roof over your head and aren't paying rent, with super and the aged pension who knows what the qualification criteria will be in 40 years?
As K Rudd said if some money is withdrawn it will force more onto the pension, so the expectation is most will be funding themselves from their super, I personally would rather have a house and less super than vice versa.
Also all the reports have confirmed that is the preferred model, locking money away for 40 years on the hope it will be there and available when and if I get there, as opposed to having my own home is a no brainer IMO.
I have very little confidence in the statement that super is for an improved outcome for the individual, I believe as K Rudd said it builds national savings, it improves Australia's credit rating and it would keep people off the aged pension.
Just my opinion.
On the subject of house prices as I said in the earlier post, that is easily fixed, if the Governments wish to fix it.

 

[Warr87]

I suppose, when your missus is worth $100million, you don't think about.
Also as Bernie Fraser said the house would in all probability outperform the super return. I know who's advice I would take.

I'm not so sure about that tbh. It may, if you happen to choose a location that in 10-20years time becomes the next hot area to be in.

The elephant in the room that no one is talking about is, who is to say in 40 years time the pension isn't like jobstart now and you have to spend nearly all your money before you qualify for any government assistance.
At least if you have a home you have a roof over your head and aren't paying rent, with super and the aged pension who knows what the qualification criteria will be in 40 years?
As K Rudd said if some money is withdrawn it will force more onto the pension, so the expectation is most will be funding themselves from their super, I personally would rather have a house and less super than vice versa.
Also all the reports have confirmed that is the preferred model, locking money away for 40 years on the hope it will be there and available when and if I get there, as opposed to having my own home is a no brainer IMO.
I have very little confidence in the statement that super is for an improved outcome for the individual, I believe as K Rudd said it builds national savings, it improves Australia's credit rating and it would keep people off the aged pension.
Just my opinion.
On the subject of house prices as I said in the earlier post, that is easily fixed, if the Governments wish to fix it.

I would suspect what you mention, that you will have to exhaust all of your retirement before you qualify for assistance.

I would also prefer, as opposed to you, to have the money locked away and compound. Why would you think the money will disappear? Average returns from super are around 8-10% from what I've seen. owning your own house is great, but australia seems to have a fetish about it being the be-all-end-all. There is no guarantee that the house will be worth what you paid for it when you retire, or if you will even want to still live in the same area for your retirement. Not everyone plans to spend there 20years paying off their house + 30 years retirement living in the same house and area.

And the government could fix it, but too much income comes into various coffers with houses.

 

[sptrawler]

I would suspect what you mention, that you will have to exhaust all of your retirement before you qualify for assistance.

I really can't see how that wont be the case, as with most things Government assistance is only given to those who have nothing or have spent everything along the way.

*I would also prefer, as opposed to you, to have the money locked away and compound. Why would you think the money will disappear? Average returns from super are around 8-10% from what I've seen. owning your own house is great, but australia seems to have a fetish about it being the be-all-end-all. *There is no guarantee that the house will be worth what you paid for it when you retire, or if you will even want to still live in the same area for your retirement. *Not everyone plans to spend there 20years paying off their house + 30 years retirement living in the same house and area.

*There is a possibility the money could disappear, there has been many financial institutions gone under over the years.
*Even if the house doesn't go up in value, it saves you having to rent something similar, which in effect is a dividend and return on capital.
*History shows very few people take the full term of their mortgage to pay for the house, inflation usually diminishes the house payment as a percentage of the persons wage.

And the government could fix it, but too much income comes into various coffers with houses.

I think that will be changed, the problem is Sydney and Melbourne have become a ponzi scheme and skewed the relativity between house prices and median wages, while in most parts of Australia that relativity still exists.
If negative gearing and capital gains offsets are withdrawn for a period of time, those who are relying on them will be financially exposed and will cause a rest in those markets.
All it takes is the Government to skew interest based tax deductions, to first home buyers, rather than investors and mega rich property owners.
Just my opinion.

 

[sptrawler]

Well at least the retirement income review, has given rise to debate on the various issues surrounding super and whether it is actually providing a better retirement.
I do know a 65 year old friend of mine, who is retiring very soon has worked and contributed to super since its inception, he will have $230k.

Dipping into super for first-home deposit gains crossbench support

Three crossbenchers have backed calls to let first-home buyers tap their superannuation for a deposit amid an ongoing debate about whether the nation's $3 trillion retirement savings pool should be used to bolster home ownership.

www.smh.com.au

 

[sptrawler]

IMO this is worth a read, for anyone who thinks at all, about what their retirement will look like. Also it re enforces what we have been saying on ASF, to think retirement with a smallish super balance is a terrible thing, think again. A friend of mine turns 65 next month and is still working, he has $250k in super, we talked through a budget after he pays for his house and car, he will have more disposable income, than he has now.

Do you have enough super? The answer might surprise you

The fact that so many Australians die with unused assets suggests many are scrimping too much or working too hard.

www.smh.com.au

From the article:

Well, everyone who supposedly knows anything about retirement believes that the age pension will eventually cease to exist – exploded by a combined weight of the ageing baby boomer generation – and every Australian needs $1 million in super before they can retire. Even then, you run the risk of eating baked beans out of a tin while shivering under a blanket during your final days on earth.
Right?

Wrong. And don't just take my word for it. The government's Retirement Income Review, released last week, found these and other myths about retirement are "not supported by evidence".
Most heartening for those with low super balances, the review concludes that the cost of our age pension is sustainable and will even shrink a bit as a proportion of the economy in coming decades.
"Given the current level of uncertainty, Australians should be reassured that the retirement income system is effective, sound and its costs are broadly sustainable," it finds.
Phew!

Indeed, the review finds that the generosity of the age pension compared to some working-aged support payments means many retirees would enjoy a higher standard of living in retirement than they did during their working lives. And others, of course, would have considerable super savings with which to supplement the age pension.

On the review's numbers, everyone in the bottom 60 per cent of the income distribution today is on course to enjoy a retirement income worth 65 to 75 per cent of their current annual disposable income – the review's threshold for an adequate retirement income – or more.


"Such high replacement rates suggest that some people may be saving 'too much' for their retirement," the review finds.

Wow! Of course, that is not what the super industry, which incidentally reaps $30 billion in fees each year, would have you believe.

But according to the review: "The [super industry's] comfortable retirement standard would deliver a middle-income earner a higher standard of living in retirement than in their working life and would require a significant sacrifice in their working life to achieve this retirement standard."

It's a point Brendan Coates, from the Grattan Institute, has been making for years. Coates backs the review's finding that the compulsory super guarantee rate of 9.5 per cent does not need to rise to ensure adequate retirement income for most Australians.


More broadly, the whole idea that young people must strive for a life of complete self-sufficiency in retirement is a furphy, he says.

"There's this idea that you'll have failed if you're still getting the pension in retirement," Coates says. "The review makes clear that the age pension is here to stay. People are going to keep getting it and that's actually a good thing."
Importantly, however, the review highlights the perilous position of renters in retirement. Renting households are more likely to struggle financially in retirement because they still face high housing costs, rather than living in a home they own outright.

For home owners, however, they can reasonably expect to have much lower living costs in retirement. "People generally have lower expenses in retirement, such as having paid off their home, not facing the cost of raising and educating children, and no longer needing to save for retirement," the review finds.
Retirees also enjoy a host of other benefits, such as concession cards for health and transport.

In fact, retiree costs are so manageable that: "Most people die with the bulk of the wealth they had at retirement intact."
That's not what the system is designed to do and the review suggests several policies to try to get retirees to unlock their assets to spend in retirement.

AS we have said on here, what any Government doesn't want, is intergenerational wealth transfer. There is two options IMO, get the retirees who earned it to spend it, or take it off them.

 

[sptrawler]

Another person who agrees that the current contribution rate on super should be maintained, Ross Gittens, you can't get more left than Ross IMO, so there must be something right about the retirement income review.

The bottom line with super: you risk being poorer today so you can live like a king tomorrow

Scott Morrison was dreading the release of the Callaghan report into super because he knew it would spark a fight about super contributions.

www.smh.com.au

From the article:
The findings of the Callaghan review also cast doubt on the need for an increased rate of contributions. So why do the experts disagree with the supposed champions of the workers?
Two main reasons. First, because of convincing empirical evidence that, over time, about 80 per cent of the cost of increased rates of contribution by employers is passed on to their workers in the form of pay rises that are lower than otherwise.

So employer contributions are no free gift. They involve forcing workers to spend less and save more today, so they can have more to spend in retirement. But for many middle-income workers, the more super savings they amass, the more their entitlement to a full age pension is reduced.

Second, in its long-running campaign to persuade governments to force workers to hand over more of their wages to super funds, the fee-hungry superannuation industry has played on people’s instinctive fears they aren’t saving enough.
But careful calculations by the Callaghan review – coming on top of those by the independent Grattan Institute – have found that, on the present contribution rate, most workers will retire with disposable incomes at least equal to the widely accepted benchmark of 65 to 75 per cent of their pre-retirement disposable income.
If so, why deny yourself more than you need to in your working years, so you can have more than you need in retirement?
Ross Gittins is the economics editor.
Imo if you have more than you need in retirement, the Government will find a way of removing it from you.

 

[PZ99]

You're better off just making it zero.

Because if you're young you'll have to be as old as Biden before you can get your shakin hands on your money

 

[Belli]

There is two options IMO, get the retirees who earned it to spend it, or take it off them.

The Government had that option in the May 2016 Budget when the TBC was announced.

As has been indicated by me and yourself, it could have introduced a measure to require those who had funds in superannuation above the TBC to withdraw that amount or impose a greater level of tax.

That is still a possibility and I would not discount it occurring.

 

[sptrawler]

The Government had that option in the May 2016 Budget when the TBC was announced.

As has been indicated by me and yourself, it could have introduced a measure to require those who had funds in superannuation above the TBC to withdraw that amount or impose a greater level of tax.

That is still a possibility and I would not discount it occurring.

It is easier to introduce a death duty.