Superannuation, the ultimate government cash cow?

[sptrawler]

The eternal question. Some people manage money well and others don't.
My neighbours are a couple in their mid 30's, one child. She took a year off to have the child and now works half a week as a teacher. He is an electrician with Ergon Energy. So neither in any sort of massively high income bracket.

Next month they will move into their newly built house, completely debt free, value around $900K.
They will rent out the present house, also debt free, adding to the income from an IP, also debt free, purchased about 7 years ago. And they have just bought another IP, completely negatively geared.

They received no help from either set of parents.

How is that they have achieved so much on moderate incomes, while others are unable to even get up a deposit for the first PPOR?

They achieve this by gearing, but because it is the me generation, you can't say anything.
You are the selfish one because your not paying tax on your term deposit, that is paying your wage.lol
The only amusing part of the situation, is the old adage of ' be carefull what you wish for' .
Syd's generation will no doubt get the changes he wishes for and then there will be an uproar, however all their contributions will be concessional.

 

[Julia]

They achieve this by gearing, but because it is the me generation, you can't say anything.
You are the selfish one because your not paying tax on your term deposit, that is paying your wage.lol
The only amusing part of the situation, is the old adage of ' be carefull what you wish for'

I think you've misunderstood my post. I'm full of admiration for what these people have achieved.
Likewise, they have no attitude of criticism toward anyone else who has also made an honest effort.

I don't care how they've achieved it. They started with nothing and have got further ahead at a relatively young age than many have after a lifetime of working. Good for them.

 

[sptrawler]

I think you've misunderstood my post. I'm full of admiration for what these people have achieved.
Likewise, they have no attitude of criticism toward anyone else who has also made an honest effort.

I don't care how they've achieved it. They started with nothing and have got further ahead at a relatively young age than many have after a lifetime of working. Good for them.

I agree, I've done the same, I started with nothing had 3 kids by the time I was 25, also I'm an electrician(always worked for wages).
I take exception to people saying because we did without to save a nest egg, we have to be taxed to take back what we saved earlier.
We are obviously on a different page. I can understand that.

 

[doctorj]

Interesting report from Deutsche Bank a couple of days ago on world financial markets that touched on global pension assets. In terms of private pension assets per head of total population, they estimate Australia has around USD 57k. Doesn't sound great, but it's behind only Switzerland (USD 88k) and Netherlands (USD 63k) and well ahead of Canada (USD 38k). Total assets at the end of 2011 were estimated at USD 1,301 billion.

The other interesting take away was that of the countries studied, Australia held more equity investments than any other country, amounting to 50% of total private pension assets. For comparison, the world average was 41%, but Germany only had 4%!

 

[sptrawler]

The other interesting take away was that of the countries studied, Australia held more equity investments than any other country, amounting to 50% of total private pension assets. For comparison, the world average was 41%, but Germany only had 4%!

Well that would be because your super funds are underpinning the mining companies at the moment.
The government would prefer it was underpinning connect east, bris connect and that other non performing tunnel, that cost everyone heaps, clem someone. Then there is Telstra, stellar performer, back to $4.60 after an issue price of $7.40.lol
That's why SMSF are booming, everyone is saying OMG
Also others are saying you should have caps on what you can put in, well maybe that has merrit, like Wilkies caps on the pokies.
At least with a cap they can only lose a certain amount of your money, can you imagine how many would end up on a pension.

 

[sydboy007]

So how do you safeguard against that person, with the $1m property from selling it and spending it on cruises, for example.

Possibly one way would to be take a leger of a persons assetts at retirement age?
I mean if they have sold their house to enjoy the fruits of their labour are you saying they should be penalised in some way?

In a way yes. At what point does a person have to take responsibility?

I'd say we all know that as we get older we'll quite likely need some sort of assistance in our later years.

The current aged care system isn't working because it's underfunded. How in the heck will it cope in 15 years when the over 85 group has quadrupled? The over 65s will have doubled.

Unless we have a boom in Govt revenue there is no way the tax payer can afford to increase funding tot he levels required.

 

[sptrawler]

In a way yes. At what point does a person have to take responsibility?

I'd say we all know that as we get older we'll quite likely need some sort of assistance in our later years.

The current aged care system isn't working because it's underfunded. How in the heck will it cope in 15 years when the over 85 group has quadrupled? The over 65s will have doubled.

Unless we have a boom in Govt revenue there is no way the tax payer can afford to increase funding tot he levels required.

I agree, also the tax base will change over the next 10 years, the idea of the family home being a tax haven, can't last.
It won't be long in my opinion before the family home becomes an assessable assett.
Actualy, I think it already is when going into a nursing home, not sure how that works though.

 

[Superb Parrot]

This article by Alan Kohler is interesting. http://www.abc.net.au/news/2012-10-31/kohler-australia-super-disgrace/4343108

He did a similar take recently in the Fin, of how the risk, now that defined benefit schemes are out of favour, is thrown onto the consumer instead of the provider, to the delight of the Super industry.

 

[DocK]

I agree, also the tax base will change over the next 10 years, the idea of the family home being a tax haven, can't last.
It won't be long in my opinion before the family home becomes an assessable assett.
Actualy, I think it already is when going into a nursing home, not sure how that works though.

I guess if this comes to pass there will have to be some allowances made for the location of the home - diff in median house prices in Syd/Melb/Bris etc. I guess this could be a way of reviving a lot of small country towns if it became financially attractive to let go of the high value city home once retired......

 

[Julia]

An interesting example. Yes the unsustainable property price boom has made many property investors wealthy in Aus. The question is though is this wealth formula still applicable today, is it sustainable and how many could apply it successfully. Not nearly enough I suspect. Your neighbors have invested wisely and rode the boom, however I have friends in the US who went broke trying to follow the real estate to riches path.

For every success story there is another story of someone who followed a similar path and did not hit the mother load. In most cases, fortuitous market timing does not make one a wise investor just a fortunate one who chose to invest in the right asset class at the right time. The real skill is discerning trends and investing in them. Property price growth on the back of easy credit and ever higher household debt levels was one such trend that has arguably run its course.

Good point. I've occasionally suggested some diversification into shares might be useful but they've been resistant to this. There is, I think, the idea that property just can't lose.

 

[McLovin]

It won't be long in my opinion before the family home becomes an assessable assett.

This is already happening in the ACT.

I've enjoyed this thread, it's actually managed to remain remarkably civil. Sp, I get the feeling we will probably never agree on the issue of taxation of super, so maybe we should agree to disagree.

 

[WilkensOne]

This is already happening in the ACT.

I've enjoyed this thread, it's actually managed to remain remarkably civil. Sp, I get the feeling we will probably never agree on the issue of taxation of super, so maybe we should agree to disagree.

+1 This thread has been a really interesting read. Being in my early 20's I still don't have much to do with my super and the very small balance it holds : it brings up the question of how much of my income in the future I move into super if 40 years from now.. the rules of super could be completely different and I have all this money tied up getting taxed out at (for all I know) my marginal rate!

Wilkens

 

[sptrawler]

This is already happening in the ACT.

I've enjoyed this thread, it's actually managed to remain remarkably civil. Sp, I get the feeling we will probably never agree on the issue of taxation of super, so maybe we should agree to disagree.

I too have enjoyed it, yourself and Sydboy have certainly given me food for thought and the basis of your arguements are well founded.
I think to a degree we have all compromised our stance.
I tend to agree there should by some form of taxing in retirement. Whether that is best carried out on an earnings or withdrawl basis, is beyond my abilities to work out.

I noticed Sydboy has softened his stance on how much money he sees as reasonable for pension.

Generally I think the thread has stimulated a lot of discussion and thoughtfull debate. I'm sure people have learnt from it, I know I have.

 

[sydboy007]

I agree, also the tax base will change over the next 10 years, the idea of the family home being a tax haven, can't last.
It won't be long in my opinion before the family home becomes an assessable assett.
Actualy, I think it already is when going into a nursing home, not sure how that works though.

Part of me thinks we should move towards a US styled system where all interest costs under a certain level are tax deductible, but everyone pays CGT on the sale of the property.

Would help to balance the system as FHB would be on an equal footing to investors.

Personally i think a progressive land tax would be the most efficient option, with say a 10 year grand fathering clause for those who have recently purchased their property so they don't end up paying stamp duty and doubling up on the land tax too quickly. At least then the states would have a stable predictable income.

Another option is for the Govt to bring out reverse mortgages with low interest rates. If the Govt can borrow at 3.5% for 10 years, then lending at 5.5% up to 60% of the value of the property shouldn't be too big a task. Helps the asset rich / cash poor to tap into their wealth, the tax payer is less burdened, there's still something left to bequeath to the children.

I'd say at least a decade away before anything this radical is looked at by the pollies though. We'll have to have a very bad recession before any tough decisions are examined, even then I don't see much chance of bipartisan between the major parties. Maybe the MSM needs to stop being their dog whistles and start pushing them for some productive economic policy.

 

[DocK]

+1 This thread has been a really interesting read. Being in my early 20's I still don't have much to do with my super and the very small balance it holds : it brings up the question of how much of my income in the future I move into super if 40 years from now.. the rules of super could be completely different and I have all this money tied up getting taxed out at (for all I know) my marginal rate!

Wilkens

Questions like yours will become increasingly common the more governments tinker with the system. Even at my age I'm reluctant to commit more than I have to into super because of the uncertainty about the ability to take a lump sum in the future etc. My focus when I was your age was on repaying non-deductible debt first, followed by investing for the future. I don't know whether you intend to borrow for your own home some time in the future - but if you are, I'd suggest your main focus might best be on reducing any debt with interest that is not tax-deductible - if only because it's near to impossible to predict how many legislative changes may be made to the superannuation system by the time you're looking at retirement! Your generation is fortunate that compulsory employer contributions to super were introduced, as most of Gen Y will have at least a modest super balance if they remain in the workforce for 30 years or so, especially as the present 9% of gross wages gradually increases to 12%. Just don't forget about it - you still have the option of choosing which asset class/classes it gets invested in, and can switch between shares/property/fixed int options within your employer fund as you see fit over the years.

 

[sydboy007]

Questions like yours will become increasingly common the more governments tinker with the system. Even at my age I'm reluctant to commit more than I have to into super because of the uncertainty about the ability to take a lump sum in the future etc. My focus when I was your age was on repaying non-deductible debt first, followed by investing for the future. I don't know whether you intend to borrow for your own home some time in the future - but if you are, I'd suggest your main focus might best be on reducing any debt with interest that is not tax-deductible - if only because it's near to impossible to predict how many legislative changes may be made to the superannuation system by the time you're looking at retirement! Your generation is fortunate that compulsory employer contributions to super were introduced, as most of Gen Y will have at least a modest super balance if they remain in the workforce for 30 years or so, especially as the present 9% of gross wages gradually increases to 12%. Just don't forget about it - you still have the option of choosing which asset class/classes it gets invested in, and can switch between shares/property/fixed int options within your employer fund as you see fit over the years.

+1

Also consider using a First Home Buyers Savings account - works like salary sacrificing into super but you can use the money for a deposit on a house.

 

[craft]

+1 This thread has been a really interesting read. Being in my early 20's I still don't have much to do with my super and the very small balance it holds : it brings up the question of how much of my income in the future I move into super if 40 years from now.. the rules of super could be completely different and I have all this money tied up getting taxed out at (for all I know) my marginal rate!

Wilkens

Don't forget to weigh the following against the legislative risk of negative change when making your choice.


The more you put in early the less your total contributions need to be to meet X target

Potential for favourable grandfathering arrangements.

Actual tax benefit achievable in current year

Legislative goal is to provide incentive through tax reduction.

One way or another you are probably going to need to provide for your own retirement.

 

[WilkensOne]

Don't forget to weigh the following against the legislative risk of negative change when making your choice.


The more you put in early the less your total contributions need to be to meet X target

Potential for favourable grandfathering arrangements.

Actual tax benefit achievable in current year

Legislative goal is to provide incentive through tax reduction.

One way or another you are probably going to need to provide for your own retirement.

Yeah I definetly agree I'm already getting the vibe that it seems to be a BYO retirement for my generation. I just wonder that if I am going to be depositing soon 12% of my income into super I would rather invest my money elsewhere and control it how I please but with the goal of it being part of my retirement fund.

 

[sptrawler]

Yeah I definetly agree I'm already getting the vibe that it seems to be a BYO retirement for my generation. I just wonder that if I am going to be depositing soon 12% of my income into super I would rather invest my money elsewhere and control it how I please but with the goal of it being part of my retirement fund.

That is a sound strategy, as you know there are tax effective ways to accumulate wealth outside of super.
It may be worth considering salary sacrificing a further 3% to take the contribution up to 15%. Not a major impost but with compounding effect would be significant . This in every likelyhood, would be enough over a 30 year period, go a long way to underpinning a reasonable pension.IMO

 

[Garpal Gumnut]

One million people are ready to fight the ALP Government on this attack on battlers who save and pay taxes.

If you have a SMSF read this.

From the BRW.

http://www.brw.com.au/p/smsfs_changes_political_muscle_with_aEm6qgRmuqfIuLN45sllzH

gg