Superannuation, the ultimate government cash cow?

[Dona Ferentes]

, low fee superfunds are readily available ( such as industry superannuation funds and the not- for- profits ) charging less than 10 basis points ( 0.1 % ) .

Ha ha. Fantasy land

 

[Warr87]

Interesting article on superannuation.

Hands off our super! There are better ways to make housing affordable

On the surface, funnelling some of our combined $3.3 trillion in super savings towards affordable housing for low-income Australians sounds reasonable. But let’s scratch the surface.

www.smh.com.au

Was definitely an interesting article. Makes some good points. I think the assessment that affordable housing through super is conflicting is pretty spot on. Affordable housing can be done through NFP's where they charge at market rate for a % to use the income to provide community housing to those who need it. But in a for-profit scenario, there are legal obligations to the company and its shareholders. For a for-profit, it would be to provide a return on their investment. It just doesn't match up. They would either have to reduce the number of below-market offerings in their proposal in order to still generate a decent profit, but then that is against the notion of the affordable housing initiative. It just doesn't make sense in a for-profit model.

 

[Knobby22]

Was definitely an interesting article. Makes some good points. I think the assessment that affordable housing through super is conflicting is pretty spot on. Affordable housing can be done through NFP's where they charge at market rate for a % to use the income to provide community housing to those who need it. But in a for-profit scenario, there are legal obligations to the company and its shareholders. For a for-profit, it would be to provide a return on their investment. It just doesn't match up. They would either have to reduce the number of below-market offerings in their proposal in order to still generate a decent profit, but then that is against the notion of the affordable housing initiative. It just doesn't make sense in a for-profit model.

As Jessica says, change the rules. Encourage investors to develop new housing rather than buy existing. I don't like the idea of government directing super money. All the government should do is change the investing conditions to encourage useful outcomes.

 

[Knobby22]

Good article. It's criminal that most Aussies are STILL paying over 100 basis points ( 1.0 % ) in fees when good performing , low fee superfunds are readily available ( such as industry superannuation funds and the not- for- profits ) charging less than 10 basis points ( 0.1 % ) .
This all adds up to over $ 30 Billion going into the pockets of these grubs , every year.
No wonder the Cyber criminals of this world see Australia as a soft touch.
The punters here , aren't even aware they're getting scammed by their own country's finance industry.
Sitting ducks. That's us. What hope for the next generation ? You don't want to think about it , eh?

If you look at Australian Super the in-house fees can be as high as 0.5% (property investing). But yes, comparing it to what most people pay. Lambs to the slaughter.

Industry funds also do good infrastructure deals. Index funds alone to just get lower fees won't result in superior returns in my view. Continuing outperformance shows there is value in actively investing provided you are in a non profit investment organisation.

Our Fees & Costs | AustralianSuper

Get to know how super fees work and what they're made up of for our different investment options.

www.australiansuper.com

 

[Value Collector]

if any of those members of the funds have reached the retiremnt age, then they are required to take a minimum of 5% (but can take more) out of the fund as a pension.
From then on, any earnings that these amounts then make will be subject to the tax regime of the day.
Given that the rule changes have made it so much less attractive to put more than the 1.6 mill per person into super, the funds with 5 million or more will become less and less, as each of the members reach the compulsory extraction pension phase.
But then again, its the optics that count for politicians.
Mick

Not quite.

The $1.7 Million cap mainly affects contributions , not balances that grow.

For example once you reach the $1.7 Million cap the tax advantages disappear for any more new contributions, the excess contribution you make will be taxed at your full tax rate.

But, if your investments perform well your balance can grow well above the $1.7 Million without being penalised, and returns inside super will continue to be taxed at a low rate.

(The excess balance above what is allowed to be held in your pension phase account with tax free earnings will still only have its returns taxed at a low rate of the accumulation phase account)

 

[Value Collector]

My opinion is superannuation is not the be all and end all. Investors shouldn't ignore having investments outside of that structure.

Consider if you received $70,000 fully franked dividends.

The tax position would be:

Taxable income: $100,000
Income tax: $22,967
Medicare: $2,000

Less tax credit: $30,000

Refund: $5,033

Now if that $70,000 was split 50/50 between a couple each would receive a refund of $7,463 due to the application of two tax-free thresholds.

A wage earner on $100,000 ends up with $75,033 in take home pay and the poor blighter has to work for it. Single income households and single persons get the dirty end of the Government policy stick I think.

I don’t get your point, both the investor and the worker ended up with about $75,000 from their initial $100K of earnings, how is this a bad deal.

That’s the whole point of the franking credit system, it brings the company earnings that are passed along to the shareholder back to a tax rate equivalent to other forms of earnings.

So whether you earn $100k in a company structure or $100k personally then your tax rate will be about the same.

————————
As far as “working” vs “investing” for your money , both have pros and cons, yes a worker works for her money but an investor invests for theirs, often investing money that they originally had to work and pay tax on, and now have to put at risk providing the vital capital needed in the economy.

 

[sptrawler]

Well it sounds like the recession we have to have.

Super funds to face stress testing​

Super funds face tougher scrutiny by the prudential regulator as it pushes funds to stress test their investments heading into an economic downturn, and tips further rationalisation.

 

[sptrawler]

Well this didn't take long, to rear its head. Like flies to a bucket of you know what. ?
The fundamental flaw in the system, is people thinking it's their money.

Super tax concessions in Chalmers’ sights ahead of May budget

Treasurer Jim Chalmers says while the government’s immediate focus is on enshrining a definition for superannuation, that is not the end of the conversation.

www.theage.com.au

“Right now, we’re on track to spend more on super tax concessions than the age pension by around 2050,” Chalmers said in a speech in Sydney on Monday.

“I’m not convinced that’s a sustainable way to get to our destination – good retirement incomes for more Australians, now and into the future.”
The government has suggested that the objective of superannuation “is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”. The “preservation of super” was to ensure superannuation contributions should not be accessed unless as retirement income, it said.

Assistant Treasurer Stephen Jones said late last year that enshrining a definition for super would protect it against “raids” for housing or university debt.

Opposition financial services spokesman Stuart Robert said on Monday the Coalition supported enshrining a definition for super, but that it should be focused on individual Australians.

Deanne Stewart, Aware Super chief executive said the government’s proposed definition of super was a good starting point because superannuation was ultimately for retirement savings, and should not be a tool for wealth preservation or estate planning.

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“It’s too easy to consider it as a huge pool of money that can be used for anything rather than it’s people’s own money for their retirement,” she said on Sky News.

Industry Super Australia chief executive Bernie Dean agreed.

“It should help avoid another disaster of allowing people to tap into super early for any reason, which hurts everyone,” he said.

 

[mullokintyre]

Not quite.

The $1.7 Million cap mainly affects contributions , not balances that grow.

For example once you reach the $1.7 Million cap the tax advantages disappear for any more new contributions, the excess contribution you make will be taxed at your full tax rate.

But, if your investments perform well your balance can grow well above the $1.7 Million without being penalised, and returns inside super will continue to be taxed at a low rate.

(The excess balance above what is allowed to be held in your pension phase account with tax free earnings will still only have its returns taxed at a low rate of the accumulation phase account)

What???
I was talking about people reaching retirement age and having to take pensions outside of Super, and thus be subject to whatever marginal tax rate is set up for their investment regime outside of super.
Once they get past 65, or whetever their compulsory retirement age is, they cannot put any more money in unless as one off after working .
What you said is true, its just a pity it so little bearing on what I said.
Mick

 

[dyna]

Well, Jimbo , the fun starts now . We all know where this is heading, now. It's been on the cards for a long time.

I'll give the Labor Party credit for calling out the Libs for sabotaging the super savings of all those hapless, low- income workers during the pandemic. They were the only mob that showed any morality in that despicable affair.
The media were nowhere to be seen during Morrison's cynical stunt. Not his constituency , so no concern what-so- ever for him , .... the ferkel.

 

[Warr87]

Well this didn't take long, to rear its head. Like flies to a bucket of you know what. ?
The fundamental flaw in the system, is people thinking it's their money.

Super tax concessions in Chalmers’ sights ahead of May budget

Treasurer Jim Chalmers says while the government’s immediate focus is on enshrining a definition for superannuation, that is not the end of the conversation.

www.theage.com.au

“Right now, we’re on track to spend more on super tax concessions than the age pension by around 2050,” Chalmers said in a speech in Sydney on Monday.

“I’m not convinced that’s a sustainable way to get to our destination – good retirement incomes for more Australians, now and into the future.”
The government has suggested that the objective of superannuation “is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”. The “preservation of super” was to ensure superannuation contributions should not be accessed unless as retirement income, it said.

Assistant Treasurer Stephen Jones said late last year that enshrining a definition for super would protect it against “raids” for housing or university debt.

Opposition financial services spokesman Stuart Robert said on Monday the Coalition supported enshrining a definition for super, but that it should be focused on individual Australians.

Deanne Stewart, Aware Super chief executive said the government’s proposed definition of super was a good starting point because superannuation was ultimately for retirement savings, and should not be a tool for wealth preservation or estate planning.

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“It’s too easy to consider it as a huge pool of money that can be used for anything rather than it’s people’s own money for their retirement,” she said on Sky News.

Industry Super Australia chief executive Bernie Dean agreed.

“It should help avoid another disaster of allowing people to tap into super early for any reason, which hurts everyone,” he said.

Am I reading that article right, where Stuart Robert wants to let people use super to buy a house or even 'broader' purposes? That is a recipe for disaster IMO. Can't believe super industry experts are the voice of reason in this case .... certain are strange times, hahaha.

They really don't get it, do they. Whats the point of super if you can take it out at any time for almost any purpose? The early access for medical reasons etc make sense, but the broader premise seems to be that you should allow for ppl to withdraw from it for a house or ... something else? I think that'd end up favouring the wealthy again, and also up the price of houses again. By the time someone gets the $50,000 in their account to withdraw for a house, they would presumably be in their 30s going by the averages. Imagine being in your 30s and having your super being practically empty ... house prices also arent guaranteed to stay up in the future and not even talking about natural disasters that could effect property. Just seems like a recipe for trouble ... but something that wouldn't materialise for several years which is probably why the pollies aren't too afraid of it (given peoples short memories and all).

 

[sptrawler]

Am I reading that article right, where Stuart Robert wants to let people use super to buy a house or even 'broader' purposes? That is a recipe for disaster IMO. Can't believe super industry experts are the voice of reason in this case .... certain are strange times, hahaha.

They really don't get it, do they. Whats the point of super if you can take it out at any time for almost any purpose? The early access for medical reasons etc make sense, but the broader premise seems to be that you should allow for ppl to withdraw from it for a house or ... something else? I think that'd end up favouring the wealthy again, and also up the price of houses again. By the time someone gets the $50,000 in their account to withdraw for a house, they would presumably be in their 30s going by the averages. Imagine being in your 30s and having your super being practically empty ... house prices also arent guaranteed to stay up in the future and not even talking about natural disasters that could effect property. Just seems like a recipe for trouble ... but something that wouldn't materialise for several years which is probably why the pollies aren't too afraid of it (given peoples short memories and all).

But as every expert on all sides will say, the best way to have a comfortable retirement, is to own your home.

There is no point saving $250k in super (which a mate who has just retired at 67 has), if all it is going to do is pay your rent for the rest of your life.

That is the conundrum, if you are putting money away into super and paying rent and feeding/clothing/educating kids on a low income, how do you save a deposit for a house?

It is a complex problem, the managers of super funds want the money to increase their income, the politicians want the money to prop up the institutions, increase national savings and to build infrastructure.

The person who they really don't give a $hit about IMO, is the person whose super it is.
If they have plenty, they wont need a pension.
If they have a bit, they can always bring in a rule that it is spent, before you can access a pension as it is currently with the dole.
If they pass away, the Gov gets 16.5% tax on the concessionally treated component.
If they have nothing, they get the pension.
Just my opinion, but super is a carrot on the end of a string at the end of a rainbow, that keeps moving.

I think super should be overhauled, it is no longer a one size fits all, the megga rich shouldn't be able to use it for wealth creation.
The middle class should be able to have a comfortable retirement.
Low income earners may well be better served, being able to use it in a joint venture with the Government, to buy a Govt built house.
Who knows, but it is definitely no longer fit for purpose as it matures and its role requires changing, not just tinkering away at the edges, to help vested interests.

 

[Value Collector]

What???
I was talking about people reaching retirement age and having to take pensions outside of Super, and thus be subject to whatever marginal tax rate is set up for their investment regime outside of super.
Once they get past 65, or whetever their compulsory retirement age is, they cannot put any more money in unless as one off after working .
What you said is true, its just a pity it so little bearing on what I said.
Mick

They don't have to take it lump sums outside of super though, if you reach retirement age with say $5 Million in your super account you can shift $1.7 Million into the pension phase account (inside your super) where earnings are tax free, The remaining $3.3 Million just stays in your super in the accumulation account where earnings continue to be taxed at the standard 15% super annexation tax.

You were saying that the pension phase would cause there to be less supers with large balances over time, this is not really true, because while there is caps on what you can contribute, there is no cap on what the super can earn inside super, people that manage to contribute large amounts into super in their 20's, 30's and 40's and have those funds well invested can easily end up with balances well over the $1.7 million contribution cap.

for example.
if some one makes the maximum contribution to super each year, and earns 10% (after taxes), their balance at 65 will be $29.6 Million. With contributions of only $1.2 million far below the $1.7 Million cap. So no the compulsory 5% pension phase deductions isn't going to stop some people accumulating large balances as you suggest in post 2539

 

[dyna]

Mmmm, very good point. It's almost as if the powers-that- be have a secret agenda that never gets aired. ( except on this forum , that I'm aware of ).
Not allowed to give advice for your 67 year old , I know , but if I was his financial planner ,I'd tell him " don't be a mug , while your health holds out , go on an almighty spending spree. You're a superannuation border-line case. Mate ,it's hardly worth it , for you "

 

[Warr87]

But as every expert on all sides will say, the best way to have a comfortable retirement, is to own your home.

There is no point saving $250k in super (which a mate who has just retired at 67 has), if all it is going to do is pay your rent for the rest of your life.

That is the conundrum, if you are putting money away into super and paying rent, feeding kids on a low income, how do you save a deposit for a house?

It is a complex problem, the managers of super funds want the money to increase their income, the politicians want the money to prop up the institutions, increase national savings and to build infrastructure.

The person who they really don't give a $hit about IMO, is the person whose super it is.
If they have plenty, they wont need a pension.
If they have a bit, they can always bring in a rule that it is spent, before you can access a pension as it is currently with the dole.
If they pass away, the Gov gets 16.5% tax on the concessionally treated component.
If they have nothing, they get the pension.
Just my opinion.

Yea, I get that. And you are right, owning your home and being in retirement would be far more comfortable. I just see a similar situation going on with what has happened the last few years. People taking it out, prices are at peak, and then what happens if they lose their job or something else happens and then they have to foreclose? By by super and house. I see far more benefit in having the $$$ in super in an index fund, returning 8%.

I also jsut don't get the point if you can just take out the money from super for almost anything. Whats the point of it then?

A rental subsidy if you don't own a home may be one option. I'm not sure how retirement homes are funded either (I'm not there yet and parents aren't just yet...though maybe I should look into it more haha). I do think super should be a subsidy for your retirement, it shouldn't be a condition of it. But I am naive and hopeful hahaha.

No easy fix, a bunch of politicians involved, and people with huge institutional money involved ... what could go wrong?

 

[Value Collector]

But as every expert on all sides will say, the best way to have a comfortable retirement, is to own your home.

There is no point saving $250k in super (which a mate who has just retired at 67 has), if all it is going to do is pay your rent for the rest of your life.

That is the conundrum, if you are putting money away into super and paying rent and feeding/clothing/educating kids on a low income, how do you save a deposit for a house?

It is a complex problem, the managers of super funds want the money to increase their income, the politicians want the money to prop up the institutions, increase national savings and to build infrastructure.

The person who they really don't give a $hit about IMO, is the person whose super it is.
If they have plenty, they wont need a pension.
If they have a bit, they can always bring in a rule that it is spent, before you can access a pension as it is currently with the dole.
If they pass away, the Gov gets 16.5% tax on the concessionally treated component.
If they have nothing, they get the pension.
Just my opinion, but super is a carrot on the end of a string at the end of a rainbow, that keeps moving.

The Magic formula in My opinion is to hit retirement with both your own home, and a decent investment portfolio.

Super is just a tax effective way to hold some of that investment portfolio, once you have maxed out super contribution put the money into an investment bond which is nearly as good for tax purposes.

But, also build up an investment portfolio outside of the super and investment bond.

 

[sptrawler]

The Magic formula in My opinion is to hit retirement with both your own home, and a decent investment portfolio.

Super is just a tax effective way to hold some of that investment portfolio, once you have maxed out super contribution put the money into an investment bond which is nearly as good for tax purposes.

But, also build up an investment portfolio outside of the super and investment bond.

Unfortunately 95% of people live beyond their means, so can't ever hope to hit the magic formula.
People who have hit the magic formula, are people that probably don't need super, as they are savers anyway.

 

[sptrawler]

Yea, I get that. And you are right, owning your home and being in retirement would be far more comfortable. I just see a similar situation going on with what has happened the last few years. People taking it out, prices are at peak, and then what happens if they lose their job or something else happens and then they have to foreclose? By by super and house. I see far more benefit in having the $$$ in super in an index fund, returning 8%.

I also jsut don't get the point if you can just take out the money from super for almost anything. Whats the point of it then?

A rental subsidy if you don't own a home may be one option. I'm not sure how retirement homes are funded either (I'm not there yet and parents aren't just yet...though maybe I should look into it more haha). I do think super should be a subsidy for your retirement, it shouldn't be a condition of it. But I am naive and hopeful hahaha.

No easy fix, a bunch of politicians involved, and people with huge institutional money involved ... what could go wrong?

I always tried to think of super as the icing on the cake, because the Gov can change the rules at any time, as has happened and as is happening now.
As @Value Collector said I did similar build up my wealth outside super, then as I got closer to retirement decided how much was worth having in super during retirement. I don't have over the transfer cap in my super and I do have my other investments outside super.
Everyone to their own.

 

[Knobby22]

I always tried to think of super as the icing on the cake, because the Gov can change the rules at any time, as has happened and as is happening now.
As @Value Collector said I did similar build up my wealth outside super, then as I got closer to retirement decided how much was worth having in super during retirement. I don't have over the transfer cap in my super and I do have my other investments outside super.
Everyone to their own.

The really wealthy put as much as they can in super. 20 people have over $100 million in super. Tax advantages are very lucrative. They can collect more dividends than they can use and ensure no tax is paid.

 

[Value Collector]

Unfortunately 95% of people live beyond their means, so can't ever hope to hit the magic formula.
People who have hit the magic formula, are people that probably don't need super, as they are savers anyway.

For them I guess we just have to hope that super provides some sort of support for them in their elder years, owning their own home is a great way to force savings for people who lean towards hyper consumption rather than saving.