Superannuation, the ultimate government cash cow?

[Value Collector]

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.

Well, Tax is paid at 15% inside super, but yes it is a lower tax structure, one of the best actually except for its disadvantage of being locked away.

(The pension phase is 0% tax, but only $1.7 Million can be held in there, all capital above that will still have its earnings taxed at 15%)

 

[sptrawler]

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.

That is the real problem, people putting too much into super, but believe it or not the IMO the Government wants that, because it actually becomes a pool of money that underpins our economy.
From memory the lack of national savings in the 1987 stock market crash, was what caused our major banks to nearly go belly up, they had got their funding from the international markets and when Bond, Skase, Holmes A Court etc collapsed the banks were left in deep manure.
So the superannuation plan evolved, which did two three things, first it was a time of really high inflation and the super contribution became a payrise that didn't add to the wage price spiral as it was locked away, secondly it started a national savings scheme that enabled infrastructure and investment money to be sourced in Australia and thirdly it locked the money away on the never never, so that workers could hopefully look forward to having a great retirement.
The first two things have done what they were designed to do, the third one is a work in motion, now that people are starting to get larger amounts in super the problem becomes intergenerational wealth transfer.
Imagine a normal office worker in Sydney/Melbourne who is 40 years old, married with two kids aged around 15, both sets of grandparents in their 70's own a house. Extrapolate that pot of money that is going to those kids and then how much goes to the 15 year olds?
With regard super it has to be an incentive for the lower wage earner to have a better retirement, but it also has to be an encouragement for people to go to work, at the moment it is shaping up as exactly the opposite.
The more they change it the more they make people think it isn't worth it, those on welfare think well if I have any money I lose my welfare so that will probably happen with super, I will lose pension if I get super, so why go to work.
Like I have said since the beginning of this thread, super needs a huge overhaul to make it fit for purpose, it should go back to what was here originally and what is still in Canada, New Zealand and the U.K.
Everyone gets a basic pension, super keeps going, but reduce the contribution concessions to something like a 15% reduction on your marginal rate, not a flat 15% as it is now, because the higher paid workers get more of a benefit.
Then when it roles over into pension at 67, all money that comes out of the super is taxed at rates that make it sustainable for the Government, then it improves the persons retirement and they get the pension so they aren't penalised for working. Win/Win IMO
Otherwise I can't see how death duties wont be re introduced.
All the above just my thoughts and my opinion.

 

[Value Collector]

but reduce the contribution concessions to something like a 15% reduction on your marginal rate, not a flat 15% as it is now, because the higher paid workers get more of a benefit.

Thats already how it works. (its called Division 293 tax linked below)
If I put the $27,500 maximum into my Super, the super fund deducts 15% tax eg $ 4,125... but then when I do my tax return and the ATO sees that I earned over $250 K, they will send me a bill for another $4,125 bringing the total tax on the contribution to 30% which is around a 15% saving off the top tax bracket. This basically means that the benefit is around a 15% reduction in tax no matter your earning level.


Division 293 tax


What you said about the benefits of having a large pool of investment capital being great for the nation is true, Australian Super funds invest all over Australia making large patient capital allocations, and they also invest over seas, bringing in millions of over seas earnings into the country.

 

[Warr87]

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.

I agree. I'm definitely shaped by my experiences growing up where we had no money. I've worked 2-3 jobs and uni at the same time. Even now, as my tax bracket has gone up I haven't upsized anything. Lots of fat in my budgets for random events. Living at or below you means is definitely part of being a saver (for most and me at least). I hope it serves me well when I'm up for retirement. I am aiming to build up my investment portfolio and then use the profits to purchase a property through a SMSF. It should work out...I hope lol.

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.

I agree here as well. It should be the icing. I think the gov should help people when they're in retirement, but gov's change all the time. Ideally, super would be the icing on the cake or the intergenerational wealth you pass on.

I actually think building wealth outside of super is smart. Depends on circumstances though. I think the forced savings through super are a good thing. You can't take money out of it though, which is why I build my wealth (or trying to at least) outside. What if I suddenly need to liquidate my holdings? If I had put everything into super then I wouldn't be able to touch it. I hope that never happens but I need that liquidity for my own piece of mind.

There are tax benefits to super though. So when leveraged correctly, you could reap the benefits. But like anyones finances, it should be tailored to the individual.

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.

Yea definitely. If you are wealthy you could maximize the super tax concessions and not impact your other wealth creation or standards of living. Over 100mil in super is crazy, though.

 

[dyna]

It's taken a very long time just to get to this week's superannuation consultation for the coming May budget , so imagine how many years into the future , before death duties are back, to clear the decks , so - to - speak ?

Meantime, if super contribution restrictions are brought in for the well to do , they could simply take their dough out of the productive side of the economy and bury it in this country's other great tax dodge ...the sacred P.P.O.R.

That would become the next hurdle/ headache for the reformist pollies to tackle.

 

[farmerge]

It's taken a very long time just to get to this week's superannuation consultation for the coming May budget , so imagine how many years into the future , before death duties are back, to clear the decks , so - to - speak ?

Meantime, if super contribution restrictions are brought in for the well to do , they could simply take their dough out of the productive side of the economy and bury it in this country's other great tax dodge ...the sacred P.P.O.R.

That would become the next hurdle/ headache for the reformist pollies to tackle.

But dyne the pollies are to concerned about their own survival to worry about minow matters such as this !!!!!
I mean there is the next election, their own fat cat salaries and their golden goose super to contemplate.

 

[dyna]

to purchase a property through a SMSF.

Be real quick with that , because Jimbo and Co are taking aim at the borrowing for real estate through SMSF's , trick.

Could it be introduced in this May budget ? Seems hard to believe , I know.

Me thinks , a reform notion as grand as that , would have to be taken to the next election . There are just too many voters ( perhaps not Labor voters ) who have set up super on the side , specifically for that purpose,

 

[sptrawler]

Be real quick with that , because Jimbo and Co are taking aim at the borrowing for real estate through SMSF's , trick.

Could it be introduced in this May budget ? Seems hard to believe , I know.

Me thinks , a reform notion as grand as that , would have to be taken to the next election . There are just too many voters ( perhaps not Labor voters ) who have set up super on the side , specifically for that purpose,

The funny part is, it was Julia Gillard's Govt that brought in the ability for SMSF's to borrow for property, so it does show that super is a very fluid investment that can be changed at a Govt whim.
The only way to fix it IMO, is to make it a rational investment decision in regard to a persons retirement, to do that it should not be treated any differently to any other investment tax wise.
In the early days, it was understandable that a lot of concessions were required, firstly to stop workers going ballistic when their pay rise was put away for 50 years ahead and secondly so that workers would put more of their own money away for the future.
Back then people didn't have the free money available, as it is today, but that phase is coming to an end and a new more sustainable model needs to be introduced.
It has to encourage people to want to work, so that they can save for a better retirement, it shouldn't always be about punishing them for doing so IMO.

 

[sptrawler]

Thats already how it works. (its called Division 293 tax linked below)
If I put the $27,500 maximum into my Super, the super fund deducts 15% tax eg $ 4,125... but then when I do my tax return and the ATO sees that I earned over $250 K, they will send me a bill for another $4,125 bringing the total tax on the contribution to 30% which is around a 15% saving off the top tax bracket. This basically means that the benefit is around a 15% reduction in tax no matter your earning level.


Division 293 tax


What you said about the benefits of having a large pool of investment capital being great for the nation is true, Australian Super funds invest all over Australia making large patient capital allocations, and they also invest over seas, bringing in millions of over seas earnings into the country.

The problem is, those on $40,000, think they are only getting a 4% tax break.
Let's be honest, those on welfare are complaining, they don't get super..
I'm trying to keep it real, most people aren't 40 something living at Disneyland, most are going to work on the hamster wheel.

 

[Value Collector]

The problem is, those on $40,000, think they are only getting a 4% tax break.
Let's be honest, those on welfare are complaining, they don't get super..
I'm trying to keep it real.

The government also does co contributions, so if a person earning $40,000 makes additional payments into there super, on top of their 4% tax saving they will also receive up to $500 co contribution from the government, which increases they benefit to potentially more than 15%, possibly 100%

 

[sptrawler]

The government also does co contributions, so if a person earning $40,000 makes additional payments into there super, on top of their 4% tax saving they will also receive up to $500 co contribution from the government, which increases they benefit to potentially more than 15%, possibly 100%

Yes we know, but most on $40k don't feel they have any spare money, to put away for 50 years.
Like I said I'm trying to keep it real, that means trying to appreciate their point of view and work with it.

Let's put it another way, if they were like you, they would be at Disneyland.
If you were like them, you would be wondering why $4,500 of your salary was being put away for 30 years and you can't afford the rent.

 

[Value Collector]

Yes we know, but most on $40k don't feel they have any spare money, to put away for 50 years.
Like I said I'm trying to keep it real, that means trying to appreciate their point of view and work with it.

I guess they need to focus on their earning problem before they worry about their investing problem.

At least they should be getting the employer contribution, and can always fall back on the age pension to supplement that.

———————

To be honest, from the low income family members that have come to me for advice (sadly two decades to late), the largest problem with their super I have found is that they never paid attention to all the insurances etc that get deducted.

Super is meant to be for your retirement, if 40 year old you wants income insurance, 40 year old you should pay for it.

But sadly having life and income insurance inside your super seems like a “FREE” benefit when you are 40 and don’t have to pay for it out of pocket, but it can reduce your potential super balance by 10’s of thousands of dollars.

I recently tried to explain that to my mother in law, I said “how long have you been paying all these insurances” she said “forever, I wanted them just incase I got hurt”, that’s all well and good but her younger self should have been paying for that insurance, not robbing her 67 year old self.

 

[sptrawler]

Or to put it succintly, as the thread started in 2012 name suggests and the Sydney Morning Herald today nailed it.

Superannuation tax concessions in Chalmers’ sights​

Super tax concessions worth $53 billion could be overhauled by Labor in an attempt to repair the budget bottom line

 

[sptrawler]

I guess they need to focus on their earning problem before they worry about their investing problem.

At least they should be getting the employer contribution, and can always fall back on the age pension to supplement that.

———————

To be honest, from the low income family members that have come to me for advice (sadly two decades to late), the largest problem with their super I have found is that they never paid attention to all the insurances etc that get deducted.

Super is meant to be for your retirement, if 40 year old you wants income insurance, 40 year old you should pay for it.

But sadly having life and income insurance inside your super seems like a “FREE” benefit when you are 40 and don’t have to pay for it out of pocket, but it can reduce your potential super balance by 10’s of thousands of dollars.

I recently tried to explain that to my mother in law, I said “how long have you been paying all these insurances” she said “forever, I wanted them just incase I got hurt”, that’s all well and good but here younger self should have been paying for that insurance, not robbing here 67 year old self.

Do many come back for a second serve of advice? ?

 

[Value Collector]

Do many come back for a second serve of advice? ?

Hahaha, sometime yes sometimes no ?.

I am the guy you come to for advice, and then promptly ignore because you wanted a quicker solution, but then whinge to later.

 

[sptrawler]

Hahaha, sometime yes sometimes no ?.

I am the guy you come to for advice, and then promptly ignore because you wanted a quicker solution, but then whinge to later.

View attachment 153307

Not wanting to be offensive, but you are in the 5% of people that according to Noel Whittaker actually make it, most don't.

The last thing those that don't or wont make it, is to be lectured, by one of the 5% that do.

Also adding to that, I think I remember you said you didn't have children, so that really puts you in the cross hairs, "smug ba$tard with no kids, doesn't have a clue what real life is".

But don't think that gives them an excuse, I came from a really poor background, not because of uneducated parents, more from the alcohol related issues my father had. The only thing he taught me was, backing down and begging, just brought a bigger beating.

But getting to the point, I always saved and scrimped to get ahead, even when I was on better money I would put the trailer on the back of the car and take the kids to collect aluminium cans, then take them to Sims metal and give the kids the money, in the hope it would give them an understanding of how much effort it took to get some money together.

With one of my sons, who was not putting effort in at school, yet still wanted to stay there. I thought o.k I will show him what working for a wage was like, that may make him pull his finger out at school.

So a mate owned a tyre shop, I asked him to put my son on for the xmas holidays he was 16 and I would pay his wages.
He enjoyed the money, but stayed at school, the missus said I was being negative.

Did any of it help? not a bit. ?
The kids, and I had four of them, none have gone down the track I travelled.
Will they end up as comfortable as us, probably not, will they blame me? yes if the media has its way, are they happy? I hope so.
Do I tell them how to do it anymore? No they are in their mid 30's to mid 40's if they haven't worked it out now, there is no chance they are going to listen to a 67 year old bloke who hasn't worked for 12 years.
I'm so yesterday.
Anyway back on track, they need to make superannuation something you can put money into when you are working, that helps you and the Government.
It helps you by adding to your pension and it helps the Government by adding stability to the financial system.
The only way IMO that can happen in a welfare state, is by making super a positive to your pension, then those that don't want to work have a choice, the basic pension if you don't work a better retirement if you do.
Currently if you don't work you get a pension, if you do work there is every likely hood the money they take out of your wages will make sure you don't get a pension.
Getting into the hamster wheel isn't attractive for many.

 

[Value Collector]

Not wanting to be offensive, but you are in the 5% of people that according to Noel Whittaker actually make it, most don't.

The last thing those that don't or wont make it, is to be lectured, by one of the 5% that do.

Also adding to that, I think I remember you said you didn't have children, so that really puts you in the cross hairs, "smug ba$tard with no kids, doesn't have a clue what real life is".

But don't think that gives them an excuse, I came from a really poor background, not because of uneducated parents, more from the alcohol related issues my father had. The only thing he taught me was, backing down and begging, just brought a bigger beating.

But getting to the point, I always saved and scrimped to get ahead, even when I was on better money I would put the trailer on the back of the car and take the kids to collect aluminium cans, then take them to Sims metal and give the kids the money, in the hope it would give them an understanding of how much effort it took to get some money together.

With one of my sons, who was not putting effort in at school, yet still wanted to stay there. I thought o.k I will show him what working for a wage was like, that may make him pull his finger out at school.

So a mate owned a tyre shop, I asked him to put my son on for the xmas holidays he was 16 and I would pay his wages.
He enjoyed the money, but stayed at school, the missus said I was being negative.

Did any of it help? not a bit. ?
The kids, and I had four of them, none have gone down the track I travelled.
Will they end up as comfortable as us, probably not, will they blame me? yes if the media has its way, are they happy? I hope so.
Do I tell them how to do it anymore? No they are in their mid 30's to mid 40's if they haven't worked it out now, there is no chance they are going to listen to a 67 year old bloke who hasn't worked for 12 years.
I'm so yesterday.
Anyway back on track, they need to make superannuation something you can put money into when you are working, that helps you and the Government.
It helps you by adding to your pension and it helps the Government by adding stability to the financial system.
The only way IMO that can happen in a welfare state, is by making super a positive to your pension, then those that don't want to work have a choice, the basic pension if you don't work a better retirement if you do.
Currently if you don't work you get a pension, if you do work there is every likely hood the money they take out of your wages will make sure you don't get a pension.
Getting into the hamster wheel isn't attractive for many.

5% that make it to what? I don’t class “making it” as ending up with 8 figures or anything like that.

As I said, just owning your own home by the time you hit 65, along with a few hundred thousand of other investments will get you a great retirement.

That is definitely not unreasonable for most people to achieve, but you do have to do certain things like spend less than you earn, and invest the difference, which a lot of people don’t, you suggest to some people that they should spend less and the look at you like you just asked them for a loan, they seem offended.

I don’t generally give people advice unless they ask for it, and the advice is very simple in general.

But it’s a bit like running a marathon, it’s very simple you just stand moving along the course and don’t stop, but the hard part is not stopping when you have so many distractions.

My secret to success was simply starting early and never giving up, and avoiding temptation, which isn’t really a secret.

 

[Belli]

Just in case people missed it, one matter raised in other publications by the Gratten Institute was its proposal that each member be limited to a max of $2m in super. So great, my pension account is above that and you dudes expect me to withdraw any amount above that. What if, due to price variations, it's below $2m; you reckon I'd be allowed to top up to $2m?

I am bemused by a lot of the chatter where those who have been able to grow the amounts in super are demonised to some extent as if they have done something illegal. Um, maybe some did the wrong thing but the vast majority adhered to what was permitted by legislation which was passed by Parliament. A lot of the problems have been caused by various Government decisions but I don't recall that aspect being raised - and I doubt whether it will ever be mentioned.

 

[sptrawler]

Just in case people missed it, one matter raised in other publications by the Gratten Institute was its proposal that each member be limited to a max of $2m in super. So great, my pension account is above that and you dudes expect me to withdraw any amount above that. What if, due to price variations, it's below $2m; you reckon I'd be allowed to top up to $2m?

I am bemused by a lot of the chatter where those who have been able to grow the amounts in super are demonised to some extent as if they have done something illegal. Um, maybe some did the wrong thing but the vast majority adhered to what was permitted by legislation which was passed by Parliament. A lot of the problems have been caused by various Government decisions but I don't recall that aspect being raised - and I doubt whether it will ever be mentioned.

Spot on Belli, as the thread name says, 'the ultimate Government cash cow', while the Government gives a tax break for super investments, they feel it is their money and will continue to change the rules forever.
The part that is forgotten, is most of the sum in super originates from your contributions, not from the Government tax breaks, yet the contributer has the least say in how it is treated.
The reason the thread is so long, is because of the amount of discussion all the Government changes make to the rules.
Even this current discussion was brought about by impending Govt changes in the May budget. Specifically this article from post 2559:

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

 

[Belli]

The kids, and I had four of them, none have gone down the track I travelled.

Ultimately it's up to the individual as you probably know. For sure, you can give examples, etc but in the end it's their decision.

My brood have gone in different directions. One only has super, another concentrates on super with some investments outside that and the other has little super (they are not and never will be a high flier) but relatively substantial personal investments for their age - with assistance from me as I recognise they won't have an easy task ahead of them.

The process of realising the amounts in the SMSF in accumulation phase is almost complete and I'm giving the funds to my children with no strings attached. They would get them eventually so I see no reason not to let them have the money now. I'll then wind up the SMSF and roll funds over to an industry fund and be happy to receive a monthly amount from the provider. That together with income from personal holdings will be more than sufficient for me. I have no great wants and can fund them if needed and my day-to-day needs are well covered.

I have not only tired of dealing with an SMSF, I am also over 70 years of age and understand there will be an eventual but hopefully gradual decline in my abilities so I decided it was better to prepare for that now rather later.

An anecdote regarding individual attitudes. The creep who lives next door to me was in the Public Service. I know he earned more than I did because at one point he told me how much he was getting. Superannuation was crap according to him so being in the PSS he elected cash only and contributed the minimum (I think it was 2%.) The rest he spent on big noting himself from what I observed. Come retirement he elected 50% defined pension and took the rest as a lump sum - which was soon spent I reckon. While it is a long time since I have had had any dealings with him, he now appears to be continually broke with no spare cash (when voices are raised it can travel if you get my drift.) Yet quite happy to denigrate others such as making disparaging remarks when I put a lot of glass on the roof or upgraded all the windows and doors with double glazing. I suspect he is angry I can do things without much financial effort and he can't. Meh, you made your choices, sunshine, so suck it up. Only one example certainly but I am sure there are many variations out there.