Superannuation, the ultimate government cash cow?

[sptrawler]

I have found, even though the drawdown is halved, our spending hasn't changed, so we still withdraw more than the minimum drawdown anyway.
Like @Junior said it is just clickbait, to keep the hate for the boomers festering, so that when the floods etc abate, the media can get back to their staple diet of the boomers and the banks.

 

[divs4ever]

yep my hate for the media still festers after working on and off with them for 45 years

i think i have achieved balance ( they hate me as much as i despise them )

what i am appalled at , is the hare-brained schemes several government approved entities espouse to get the retirees to eat into the nest-egg ( when the retiree doesn't need too )

 

[sptrawler]

Interesting and current opinion piece, I'm sure there would be just as many against the idea as for it, there probably is no right or wrong it will depend on the individuals circumstances.

House now, super later: Life is too short to delay purchase

I’ve been on a decade-long journey that transformed me from a super fan to super’s biggest critic.

www.theage.com.au

In 2010, financial analyst Chris Joye proposed that superannuation funds should consider investing in housing equity. I opposed Joye’s idea because I was a fan of the super system and thought it would undermine super and increase house prices.

But it got me thinking more deeply about super and started my decade-long intellectual and personal journey that transformed me from a super fan to super’s biggest critic.
In 2010, I was 28 years old and had two children aged under three. I was just embarking on the parenting journey.
What I came to realise was that raising a family was expensive. Paying rent, paying super and saving for a home deposit all at the same time seemed totally ridiculous.

I needed money then, not later.
Worse, I had just seen my measly super lose 20 per cent of its value in the global financial crisis years. When I needed it most, my money was tied up in risky financial assets instead of being in my bank account.
As my kids have grown, I can now see the other side of parenting. I can see that when they finish high school in a few years our expenses will plummet. Yet our household income will be at its highest point ever.
The super system attempts to solve a lifecycle income problem – in retirement we need to spend but don’t work, and not everyone has non-work income sources like financial assets. But we already solved this problem with a new non-work source of income, the age pension. In fact, for the bottom quarter of households, when they go on the age pension they get a pay rise!
The bigger income problem is that young families have their highest expenses in their lowest income years. We help solve this with parenting payments and child allowances. But compulsory super works against this, reducing incomes in those years while also reducing the gains to working.

In 2020, 4.5 million people took nearly $40 billion out of their super in the early release scheme. It was clear to these millions of people that having their own money today was better for them. And
I was one of them. That money helped me buy my own home and spend more on my family. If the opportunity came up again, I would repeat the exercise. As I suspect millions of others would.
My parents’ generation has had access to their super for a decade. I watched many of that generation take huge losses on their super right before retirement.
I’ve seen others take their super as a lump sum and lose it all in financial scams, including honey traps. I’ve seen many spend big to qualify for the age pension.

Having super seemed to offer no protection for them from reliance on the age pension. Indeed, no one who has studied the super system thinks it will change reliance on the age pension much at all.
I’ve also seen many use their super to repay their mortgage or help their kids buy homes, or buy another investment property.
When you take a closer look, you see that super is already used to buy homes in a variety of ways. I had always had concerns that using super for housing would push up prices. But I came to see the reality is this is already happening.
In 2020, I had a health scare with suspected bowel cancer. I was only 38, but it is genetic. My father had a similar scare in his early 50s. What’s that got to do with super? Dead people don’t need super. One in 11 men don’t make it to age 60, and one in seven don’t make 66.

A happy life is not one where you can’t enjoy your money while you are young. It is a life in which you create great memories and social connections in your youth that stick with you when you are old, one in which you raise great children.
Luckily, I had my bowel partially removed and I am fine. But now more than ever I see that the best years of my life are this one and the next. My kids are only young once and if I die sooner rather than later, I want to have used my money to enjoy our time together to create the best childhood memories for them.
My personal experience motivated my economic research, which resulted in a report in 2020 arguing that we should scrap super, pay it as wages, and let everyone take their money out of their fund gradually to spend as they please.
Everyone who has looked closely and objectively at the super system finds that it doesn’t make the age pension more sustainable. In fact, it makes the situation worse. The tax breaks to super are nearly $40 billion a year, and nearly $30 billion a year is paid in fees. The whole age pension system costs only $45 billion per year. Without super and its associated tax breaks, the federal government could afford higher pensions.

Super also amplifies every financial inequality that exists, whether that is a gender pay gap, or any pay gap between workers and cities and towns. The age pension remedies all these gaps.
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Even better than the Morrison government’s proposal of super-for-housing is super-for-anything — unwinding the super system altogether.
That wouldn’t mean people couldn’t save. They could. Just as they did before super.
It would just improve the budget, improve choice, improve fairness and improve the lifecycle of Australian families who need their money when they are young, not when they are old.

The only mystery is why our apparently left political party seems so intent on a high-fee privatised retirement system rather than boosting the only retirement system that actually works — the age pension.

 

[divs4ever]

in my early teens a politician ( and neighbour ) the ALP state member ,imparted a seemingly timeless pearl of wisdom

'never get between a politician and a pot of money '

now while Paul Keating's idea of compulsory super made SOME sense ( compulsory saving of wage rises during heavy inflation ) it had dangers which we now see clearly

super funds using investment money to promote political agendas ( and in cases worming their way onto the board of directors )

BTW it was at one stage that compulsory super was considered as a REPLACEMENT for the age pension ( except for politicians and high-ranking government officials ) but of course politicians meddling in super regulations ( and the economy ) made sure that most super funds would NEVER fund much of a retirement to surviving seniors

the politicians ( and union officials ) spotted a pot of money

The only mystery is why our apparently left political party seems so intent on a high-fee privatised retirement system rather than boosting the only retirement system that actually works — the age pension.

no mystery to me , i remember who were slithering in the union senior ranks in early years and now see the same people on boards of directors INCLUDING as directors of investment fund companies and these people were creating their own retirement nest-egg ( by grabbing seats in that highly privatized system )

sadly i have had a long awareness of the Left ceasing to be radical when offered a piece of the cream pie

now using saved money ( Super ) to invest in your housing needs , has the potential to be absolutely nuts , consider now we are no longer in an era of 'a job for life ' ( and maybe not even ' a career for life ' )

a house should be an anchoring point for your ( family ) life , but there is a trend towards being economic nomads ( which i embraced way back in the early '80s , where 'home ' was anywhere with a hot shower , a change of clothes and food and coffee to consume on the way to work effectively i could have 'lived ' at the Roma Street transit centre if i was working near the Brisbane CBD at the time )

given the current trend of shorter working histories at each job , is buying a house with the compulsory savings a good idea , the only reason it would make sense currently , is if the property was bought as a 'future rental property ' ( either as a 100% renter , or some sort of 'share house arrangement ' )

but here we are and the current government is DESPERATE to prop up the housing market

 

[dyna]

From today's Weekend AFR:
Borrowing by SMSF's to buy property , both for residential (15%) and for commercial ( 85% ) , is up by 22% last year. That's $ 66 Billion worth.

Super's smarties are getting set before Labor's sword of Damocles puts an end to borrowing for real estate within super . lt probably will not happen in this first 3 year parliamentary term . Albo and Jimbo may have to take it to the next election , I suppose.

The end of this fiscal year is coming up , folks, so if your TSB ( Total Superannuation Balance) at 30 th June last year was below $ 500,000 , you can play catch-up with Concessional/ pre - tax , $ 27,500 p.a. contributions for the previous five years, if you've not used your full cap amounts over that time. If you miss the deadline/go over that limit, that opportunity is gone for good.
If your TBC ( Total Balance Cap ) at 30 th June last year was already over the new $1.7 Mill limit , then you are not allowed to stuff any more Non Concessional / after- tax, $ 110,000 p.a. contribs into it. Again, the trick is : ( like every thing else to do with this super caper) , get it done before it's too late.

 

[sptrawler]

in my early teens a politician ( and neighbour ) the ALP state member ,imparted a seemingly timeless pearl of wisdom

'never get between a politician and a pot of money '

now while Paul Keating's idea of compulsory super made SOME sense ( compulsory saving of wage rises during heavy inflation ) it had dangers which we now see clearly

super funds using investment money to promote political agendas ( and in cases worming their way onto the board of directors )

BTW it was at one stage that compulsory super was considered as a REPLACEMENT for the age pension ( except for politicians and high-ranking government officials ) but of course politicians meddling in super regulations ( and the economy ) made sure that most super funds would NEVER fund much of a retirement to surviving seniors

the politicians ( and union officials ) spotted a pot of money


no mystery to me , i remember who were slithering in the union senior ranks in early years and now see the same people on boards of directors INCLUDING as directors of investment fund companies and these people were creating their own retirement nest-egg ( by grabbing seats in that highly privatized system )

sadly i have had a long awareness of the Left ceasing to be radical when offered a piece of the cream pie

now using saved money ( Super ) to invest in your housing needs , has the potential to be absolutely nuts , consider now we are no longer in an era of 'a job for life ' ( and maybe not even ' a career for life ' )

a house should be an anchoring point for your ( family ) life , but there is a trend towards being economic nomads ( which i embraced way back in the early '80s , where 'home ' was anywhere with a hot shower , a change of clothes and food and coffee to consume on the way to work effectively i could have 'lived ' at the Roma Street transit centre if i was working near the Brisbane CBD at the time )

given the current trend of shorter working histories at each job , is buying a house with the compulsory savings a good idea , the only reason it would make sense currently , is if the property was bought as a 'future rental property ' ( either as a 100% renter , or some sort of 'share house arrangement ' )

but here we are and the current government is DESPERATE to prop up the housing market

I think along the same lines, the problem with putting all you eggs in super, just means that your future is up to the Governments whim on how you can spend it.

 

[divs4ever]

I think along the same lines, the problem with putting all you eggs in super, just means that your future is up to the Governments whim on how you can spend it.

which is why i liquidated my super in 2010 , now sure all my employment between 2010 and 2016 was temporary , casual , etc. , but in hindsight i don't regret the choice .

good luck trying to work out what is a tangible asset ( currently ) and what is worth on the open market

 

[Ferret]

Like it or loathe it, it's a legal tax dodge. That's why I've tried to get as much into super as I can.

Labor lost the 2019 election in part because they tried to take away franking credits. That change wouldn't have affected that may in the community. Good luck to any government that tries to pinch your super savings!

 

[divs4ever]

Like it or loathe it, it's a legal tax dodge. That's why I've tried to get as much into super as I can.

Labor lost the 2019 election in part because they tried to take away franking credits. That change wouldn't have affected that may in the community. Good luck to any government that tries to pinch your super savings!

the truth is they can't afford the pensions ( even their own which are vouch-safed by the Future Fund )

BTW it isn't a tax dodge ( for the public ) it is a back-door cash-injection scam to prop up the economy ( and the big corporations .. like the banks )

that super will disappear when the markets crash because the fund-managers and government will continue looting

if it was a genuine legal tax dodge it wouldn't need to be compulsory and heavily regulated , the workers would be RUSHING to put in all the spare cash they have

 

[mullokintyre]

the truth is they can't afford the pensions ( even their own which are vouch-safed by the Future Fund )

BTW it isn't a tax dodge ( for the public ) it is a back-door cash-injection scam to prop up the economy ( and the big corporations .. like the banks )

that super will disappear when the markets crash because the fund-managers and government will continue looting

if it was a genuine legal tax dodge it wouldn't need to be compulsory and heavily regulated , the workers would be RUSHING to put in all the spare cash they have

Its only a tax dodge for the top 20% of the workers.
The rest are more concerned about living from day to day to worry about their tax position.
Mick

 

[sptrawler]

Labor lost the 2019 election in part because they tried to take away franking credits. That change wouldn't have affected that may in the community. Good luck to any government that tries to pinch your super savings!

They were only going to take the franking credits of the self managed super funds, not the mainstream super funds.
They want all the super money under their control, they dont want you looking after your money, because they dont see it as your money, they see it as their money that you are holding for them.

 

[divs4ever]

They were only going to take the franking credits of the self managed super funds, not the mainstream super funds.
They want all the super money under their control, they dont want you looking after your money, because they dont see it as your money, they see it as their money that you are holding for them.

BRUTAL , but sadly true ,
i can't vouch that it was Keating's initial aim for that to happen , but once the government gets a couple of chances to meddle , the result becomes highly likely

look at how often Costello has had to smack hands away from the Future Fund ( with the pollies dreaming they can plunder general revenue later , after their pension fund has been wasted on crazy schemes )

 

[Ferret]

BTW it isn't a tax dodge ( for the public )

If you hold a portfolio of shares and cash outside of super, you will pay tax on its earnings at your marginal tax rate + the medicare levy. This could be up to 47%.

If you hold the exact same shares and cash in super, you will pay zero tax on earnings for a pension account or 15% tax for an accumulation account.

That is a tax dodge.

that super will disappear when the markets crash because the fund-managers and government will continue looting

Many people don't understand that super is a vehicle for holding investments with tax concessions. It is not an asset class.

When markets crash a portfolio of shares and cash held outside super will suffer the same fate as those same assets held inside super.

if it was a genuine legal tax dodge it wouldn't need to be compulsory and heavily regulated , the workers would be RUSHING to put in all the spare cash they have

This isn't right. Workers aren't rushing to out their spare cash into super because they are generally not able to access it until they are 60 to 65 years old. It's a legitimate reason not to put spare cash into super in your younger years when you are saving for a house, putting money aside for kid's education etc.

The tax dodge is still there, but having the cash accessible may be more important.

 

[sptrawler]

BRUTAL , but sadly true ,
i can't vouch that it was Keating's initial aim for that to happen , but once the government gets a couple of chances to meddle , the result becomes highly likely

look at how often Costello has had to smack hands away from the Future Fund ( with the pollies dreaming they can plunder general revenue later , after their pension fund has been wasted on crazy schemes )

Absolutely, if you go back to the beginning of this thread, I said the only reason I started a SMSF was because I can accept losing the money myself, I couldn't live with giving my money to someone else and then lose it.
The last 30 years is littered with retirees who have lost everything, by trusting someone else to invest their money, it isn't my bag.
I would simply pull the money out of super, but that is just my opinion, I make the decisions I live with the outcomes.
Many don't like making decisions or the responsibility and that is fine, mainstream super is their for them.
IMO it's a bit like religion, if someone finds comfort and security in it, that's fine and it should be respected, it isn't my bag but so what? Who am I but just another person battling through life.

 

[sptrawler]

If you hold a portfolio of shares and cash outside of super, you will pay tax on its earnings at your marginal tax rate + the medicare levy. This could be up to 47%.

If you hold the exact same shares and cash in super, you will pay zero tax on earnings for a pension account or 15% tax for an accumulation account.

That is a tax dodge.

That is comparing someone working and contributing to super, with someone who has retired and is no longer contributing, but is receiving the benefit for not being able to access their money for up to 40 years.
That's fine as long as when you retire you don't start crying. ?

Many people don't understand that super is a vehicle for holding investments with tax concessions. It is not an asset class.

Many people don't understand, that super is wages they are not getting.

When markets crash a portfolio of shares and cash held outside super will suffer the same fate as those same assets held inside super.

Absolutely, but the portfolio outside of super is usually in your control, the portfolio in super suffers the fate of rebalancing and smoothing.

This isn't right. Workers aren't rushing to out their spare cash into super because they are generally not able to access it until they are 60 to 65 years old. It's a legitimate reason not to put spare cash into super in your younger years when you are saving for a house, putting money aside for kid's education etc.

The tax dodge is still there, but having the cash accessible may be more important.

Good point IMO.

 

[Ferret]

They were only going to take the franking credits of the self managed super funds, not the mainstream super funds.

That's not quite right. They were going to stop the cash refunding of franking credits, whether inside or outside super.

Water under the bridge now, but larger funds probably would have continued to be able to pass excess franking credits on to individual account holders because they would still have had tax to pay on the sum of all their investments.

It is possible that a self managed fund with more than one member could have continued paying cash for franking credits to a member for the same reason.

 

[sptrawler]

That's not quite right. They were going to stop the cash refunding of franking credits, whether inside or outside super.

That is right, because this is the superannuation thread, not the Labor Party thread, or the franking credit thread, the issue of people earning under the tax threshold or being in a tax free vehicle are two separate issues.
They were going to take the franking credits off SMSF's and not off mainstream or to be more accurate to intent IMO, union industry funds.
The rest was a smoke screen to cover the the scam.

Water under the bridge now, but larger funds probably would have continued to be able to pass excess franking credits on to individual account holders because they would still have had tax to pay on the sum of all their investments.

It is possible that a self managed fund with more than one member could have continued paying cash for franking credits to a member for the same reason.

That is correct IMO.

 

[Ferret]

That is comparing someone working and contributing to super, with someone who has retired and is no longer contributing, but is receiving the benefit for not being able to access their money for up to 40 years.

Not following you here SP. The tax dodge is there for those who are retired and those who are still working.

Many people don't understand, that super is wages they are not getting.

That's true.

Absolutely, but the portfolio outside of super is usually in your control, the portfolio in super suffers the fate of rebalancing and smoothing.

Let's not confuse "super" the investment vehicle with industry super funds or retail super funds.

You don't have control of the rebalancing and smoothing of super investments in an industry or retail fund, but you do over super investments in an SMSF.

 

[sptrawler]

Not following you here SP. The tax dodge is there for those who are retired and those who are still working.

Re read what you said, I commented that it wasn't a tax dodge, you were comparing someone still working with someone in the pension phase, it isn't a tax dodge it is the laws as they stand.
You give some of your pay to support the fiscal system and you get rewarded if you live long enough to collect, that is fair IMO.
Your quote:
If you hold a portfolio of shares and cash outside of super, you will pay tax on its earnings at your marginal tax rate + the medicare levy. This could be up to 47%.

If you hold the exact same shares and cash in super, you will pay zero tax on earnings for a pension account or 15% tax for an accumulation account.

That is a tax dodge.

That's true.

Let's not confuse "super" the investment vehicle with industry super funds or retail super funds.

I wasn't, I was comparing money outside of super, with money inside super, I don't know what you are talking about.

You don't have control of the rebalancing and smoothing of super investments in an industry or retail fund, but you do over super investments in an SMSF.

Which is exactly what I said.

 

[Belli]

For those who bailed out of superannuation "because I know how it works, ya know" have you bettered these numbers on a total return basis or don't you even know that?