Superannuation, the ultimate government cash cow?

FlyingFox · 26 April 2013

Vixs said:
I think the point is that if you look at the overall tax paid by that person on their income and investment income, the 'significant shelter' being provided is not such a huge injustice and slap in the face of the everyman.

In return for tax relief they are locking away money that will be used to ensure they are not a significant burden on the government in retirement via the pension system. I can tell you right now that I won't be putting a dollar more into super than I have to. I don't care if all it does is fund my insurance premiums so my family can be protected. I don't want tax incentives that come with string attached, because over a short period of time we've seen the strings pulled tighter and there is no recourse for the puppets with the locked up money.

I agree and I am not an will not be putting any extra money in super . The issue is, as it stands and in the last few years, there are no strings attached for anyone just retiring with money in super. You can spend it all and then go onto the pension. This is subsidised money.

I am certain this will not be the case when I retire....but in the mean time my taxes are contributing to the subsidies.

Vixs said:
Superannuation needs to be addressed but tax law even disregarding superannuation is disgustingly complex. The amount of legislation that affects a tiny fraction of the population is phenomenal.

I agree. And quite bloated and broken. We had an inquiry into the tax system. Time we voted for those changes to be implemented....

Vixs said:
...
All that revenue from someone saying "I can earn more with this money than you can."
...

Not sure about this but I see where you coming from. Speculation can be good....but too much of a good thing is bad....

FlyingFox · 26 April 2013

Vixs said:
I'd rather they hit super with the massive force that they want to and then leave it alone for 20 years so that people can adjust. This incremental sliding has been going on too long to be acceptable to people as a temporary phase and has become the new normal.

Agreed. Fix it and leave it alone.

Vixs said:
Not yet mate. There is still plenty of scope to excel in this country. Quite frankly though, unless the calibre of politican improves then we'll be left with dickheads on both sides of the fence.

I wouldn't say plenty but ok. Lol....sorry but that's the only thing I see any of the fence. Only the decisions that are popular today will get made....

Vixs · 26 April 2013

Sorry I should have been clearer, we currently have dickheads on both sides, but soon we'll have nothing but.

sptrawler · 30 April 2013

sydboy007 said:
I keep thinking about how to achieve the goals of super at the lowest cost.

To me the flat tax nature of the scheme is probaly why it costs so much.

I think the main issue though is that everyone has different ideas about what super is really about.

My POV is that it is mainly to minimise the impact of the OAP on the budget in 20+ years time.

Secondary issues are providing a reasonable base income for retires, and to provide support to the domestic economy by having the retired population with enough income to support the service economy.

So I suppose it all boils down to what is a reasonable base income.

A lot of people on ASF argue that $1 million in savings is the minimum required, since 5% provides $50K each year. That seems quite a high income, especially when it is tax free ie it is equivalent to $63K paying the usual tax. That is higher than AWE, so people are arguing that a comfortable retirement requires an income greater than ~60% of the population receives during their working lives. If that figure was for a couple, then I could accept that as being reasonable.

So I think it's better to first get a broad acceptance as to what is the maximum level of income that the Govt should subsidise us to achieve in retirement? I often think it would be better if people saw their marginal tax rate taken out of their super, then a Govt payment into the super as a credit less the 15% tax. This should also be done for any tax on earnings as well. It would allow people a better grasp as to what super is costing the budget. We also need to determine what is the minimum level to be achieved - most likely this will be a combination of OAP and pension funded by super.

Until we can have broad acceptance on minimum - maximum Govt supported retirement income, I don't see how super policy can really move from an argument over tax.

What if returns are 1% or less like they are in the U.S, U.K and Europe? Then $1m lasts about 13 years so how do you reconcile that?

Also, by the way, how do you save that?
With house prices and rents rising?

Term deposits were 8% 5 years ago.
Term deposits 12 months ago were 5.8%
Term deposits now are 4.3%.
LOL
Put a tax on that and you will have all the baby boomers on the pension in no time.lol

sydboy007 · 1 May 2013

sptrawler said:
What if returns are 1% or less like they are in the U.S, U.K and Europe? Then $1m lasts about 13 years so how do you reconcile that?

Also, by the way, how do you save that?
With house prices and rents rising?

Term deposits were 8% 5 years ago.
Term deposits 12 months ago were 5.8%
Term deposits now are 4.3%.
LOL
Put a tax on that and you will have all the baby boomers on the pension in no time.lol

have a ply with the spreadsheet i attached to this thread

Here's the kind of subsidies being offered

Sup Sub Inc Sub Total Sub Sup Grow 5.0%
18201-37000 0.205 31,421.25 24,914.73 56,335.98 Sup Earn 3.0%
37001-80000 0.34 55,518.75 44,022.26 99,541.01 In Grow 3.0%
80001-180000 0.385 88,830.00 70,435.62 159,265.62
>180001 148,837.50 118,017.13 266,854.63

Quite a lot of money provided by Govt

I'm not sure if it's value for money, especially since you can spend it all in a year of retirement AND still get a full pension

Vixs · 1 May 2013

sydboy007 said:
have a ply with the spreadsheet i attached to this thread

Here's the kind of subsidies being offered

Sup Sub Inc Sub Total Sub Sup Grow 5.0%
18201-37000 0.205 31,421.25 24,914.73 56,335.98 Sup Earn 3.0%
37001-80000 0.34 55,518.75 44,022.26 99,541.01 In Grow 3.0%
80001-180000 0.385 88,830.00 70,435.62 159,265.62
>180001 148,837.50 118,017.13 266,854.63

Quite a lot of money provided by Govt

I'm not sure if it's value for money, especially since you can spend it all in a year of retirement AND still get a full pension

It's been a discussion had before, perhaps even earlier in this same thread - blowing all your super in the first year/5 years of retirement is going to naturally be less of a problem as super balances upon retirement are higher.

It's also not money 'provided' by the government, it is simply a lower level of taxation on the wealth accumulated and earned through investment. THE GOVERNMENT PRODUCES NOTHING IN THE EQUATION. Taxation is an expense, and a lower rate is not a 'rebate', it is simply a lower expense. They might make the balance sheet look the same but they are fundamentally very different things. They're not government tax dollars to rebate unless they were earned by the government - the problem with this is that government's don't EARN tax, they TAKE it.

sptrawler · 1 May 2013

sydboy007 said:
have a ply with the spreadsheet i attached to this thread

Here's the kind of subsidies being offered

Sup Sub Inc Sub Total Sub Sup Grow 5.0%
18201-37000 0.205 31,421.25 24,914.73 56,335.98 Sup Earn 3.0%
37001-80000 0.34 55,518.75 44,022.26 99,541.01 In Grow 3.0%
80001-180000 0.385 88,830.00 70,435.62 159,265.62
>180001 148,837.50 118,017.13 266,854.63

Quite a lot of money provided by Govt

I'm not sure if it's value for money, especially since you can spend it all in a year of retirement AND still get a full pension

How much subsidy is being offered if you don't put any extra into super and end up with the ' normal ' $200k in super?
Also add the full pension to it.

sydboy007 · 2 May 2013

sptrawler said:
How much subsidy is being offered if you don't put any extra into super and end up with the ' normal ' $200k in super?
Also add the full pension to it.

those figures are based on super guarantee payments only

i'm not quibbling over cost savings against the pension, only the fact that once a person has a balance that would stop them receiving a pension, why do they still receive thousands of dollars a year in reduced tax? Few people are likely to even get to a million $ balance over a working life, so why pour billions of dollars into such a small section of the community>

Currently i feel a goal of super is NOT to have the largest possible number of people off the pension.

Surely if you wont get access to a pension there's not really any need to provide further financial incentives to save WITHIN super. Anyone who's able to hit $1 million in super is probably going to continue to save outside super to maintain the kind of lifestyle they've become accustomed to.

As for larger super balances not being blown quickly, what is "quickly" when someone hitting 65 has a good chance of 25 years of life expectancy.

The Govt needs to clamp down on lump sum withdrawals and super needs to be take as a pension, otherwise it's just an expensive tax avoidance scheme that allows people to rack up private debt and use lightly taxed savings to pay it off.

sptrawler · 2 May 2013

sydboy007 said:
those figures are based on super guarantee payments only

i'm not quibbling over cost savings against the pension, only the fact that once a person has a balance that would stop them receiving a pension, why do they still receive thousands of dollars a year in reduced tax? Few people are likely to even get to a million $ balance over a working life, so why pour billions of dollars into such a small section of the community>

Currently i feel a goal of super is NOT to have the largest possible number of people off the pension.

Surely if you wont get access to a pension there's not really any need to provide further financial incentives to save WITHIN super. Anyone who's able to hit $1 million in super is probably going to continue to save outside super to maintain the kind of lifestyle they've become accustomed to.

As for larger super balances not being blown quickly, what is "quickly" when someone hitting 65 has a good chance of 25 years of life expectancy.

The Govt needs to clamp down on lump sum withdrawals and super needs to be take as a pension, otherwise it's just an expensive tax avoidance scheme that allows people to rack up private debt and use lightly taxed savings to pay it off.

All the people I know who have reasonable amounts in super are trying to self fund.
The last thing they are thinking of is taking out lump sums.
Theyare concerned about inflation and ensuring the money sees them out. Also none want a government pension, they all see that as an admission of failure.
What you seem to be forgetting is most of the 'baby boomers' who have secured a reasonable sum in super, have done so by doing without, diligence and personal sacrifice. I'm not talking about CEO's etc I'm talking about people from blue collar working class backgrounds.
It just cracks me up as I ride around with the wife on our pushbikes, seeing all these poor young people sitting at the coffee shops and take aways, not many look hungry to me.lol

sydboy007 · 3 May 2013

sptrawler said:
All the people I know who have reasonable amounts in super are trying to self fund.
The last thing they are thinking of is taking out lump sums.
Theyare concerned about inflation and ensuring the money sees them out. Also none want a government pension, they all see that as an admission of failure.
What you seem to be forgetting is most of the 'baby boomers' who have secured a reasonable sum in super, have done so by doing without, diligence and personal sacrifice. I'm not talking about CEO's etc I'm talking about people from blue collar working class backgrounds.
It just cracks me up as I ride around with the wife on our pushbikes, seeing all these poor young people sitting at the coffee shops and take aways, not many look hungry to me.lol

Then by your argument removing the ability of taking super in a lump sum wont affect anyone since they don't intend to?

So why do you have to take a poke at young people?

There's plenty of older Gen X and boomers who've frittered away most of their savings.

Being sensible rarely has an age factor to it. Older people just tend to be a bit more discreet when they're silly.

Ves · 3 May 2013

I intend to be fully self-funded well before I reach my preservation age... so my wealth is kept outside of superannuation (other than 9% SGC). I am at the full mercy of the tax regime because of it.

Why is it that people who become quite wealthy and keep it in the super system receive more tax concessions than someone who is doing the same thing outside of it? They both have the same goal, but are taxed differently.

FlyingFox · 3 May 2013

Ves said:
Why is it that people who become quite wealthy and keep it in the super system receive more tax concessions than someone who is doing the same thing outside of it? They both have the same goal, but are taxed differently.

Because they are "entitled" to.....

sptrawler · 3 May 2013

Ves said:
I intend to be fully self-funded well before I reach my preservation age... so my wealth is kept outside of superannuation (other than 9% SGC). I am at the full mercy of the tax regime because of it.

Why is it that people who become quite wealthy and keep it in the super system receive more tax concessions than someone who is doing the same thing outside of it? They both have the same goal, but are taxed differently.

Simply because, the government can control how it is withdrawn and taxed in super. Therefore it makes sense from their perspective to have the majority locked into it.
If everyone kept their money out of super, the government has no control, so it gives tax breaks to encourage participation.
If there wasn't tax breaks people wouldn't put any in. I suppose it is just another tool to engineer the outcome they want.

Ves · 3 May 2013

sptrawler said:
Simply because, the government can control how it is withdrawn and taxed in super. Therefore it makes sense from their perspective to have the majority locked into it.
If everyone kept their money out of super, the government has no control, so it gives tax breaks to encourage participation.
If there wasn't tax breaks people wouldn't put any in. I suppose it is just another tool to engineer the outcome they want.

Yep... that's what I was gently implying. Never made sense to me. Super is one of those things that the government can easily use to make it look like they are doing something in my opinion. I notice a lot of tinkering with it from my standpoint in the industry.... a lot of it seems very minor, but is billed up as the next big thing (on both sides of politics).

Bill M · 3 May 2013

Ves said:
I intend to be fully self-funded well before I reach my preservation age... so my wealth is kept outside of superannuation (other than 9% SGC). I am at the full mercy of the tax regime because of it.

Why is it that people who become quite wealthy and keep it in the super system receive more tax concessions than someone who is doing the same thing outside of it? They both have the same goal, but are taxed differently.

20 years ago I was a bit like you. I worked hard, saved hard and invested hard outside of super. I put nothing at all extra into it. I had the same ambition of being self funded well before collection age. I achieved this goal and accepted the tax liabilities that I had to pay. It worked for me and it can work for anyone, nothing wrong with investing outside of super under those circumstances.

Fast forward 20 years and now it's collection age for my wife and I. We think differently now, we are moving our assets aggressively into super (I mean I'd rather pay 15% tax than 30%). If you were my age I'm sure you would rather pay less tax than the marginal rates.

People who can be self funded before preservation age are few and far between. The Government doesn't really worry about us, we are doing ok, we are not a burden on society. On the other hand the tax incentives are there for those that can't save. You have lower taxes, government co-contributions and that new low income payment going in boosting your balance. Without any of those incentives people just wouldn't save with super and we would end up where we were 25 years ago with very little money going into super.

Before compulsory super nearly everybody on the factory floor relied on the Government pension at retirement. It is better now, I support super as it is, anything less and it just wouldn't be worthwhile putting in and a lot of people will end up on the miserable government pension. (Yes there are a few good savers and disciplined investors out there but we are talking about the greater majority.) They are talking about black holes and deficits now, can you imagine if we didn't have a super system what kind of black holes we would have then?

Just a note, even now only a few Months out we are reluctant to put a lump sum into our super "just in case they change the rules". We will wait until the last few weeks before we know for sure we will be able to access our money. Make no mistake, wind back super or tax it heavily and people won't put in, me included.

Ves · 3 May 2013

Bill M said:
Fast forward 20 years and now it's collection age for my wife and I. We think differently now, we are moving our assets aggressively into super (I mean I'd rather pay 15% tax than 30%). If you were my age I'm sure you would rather pay less tax than the marginal rates.

Bill, great post. Thank you for sharing your experience.

I just typed a really long reply and forgot to create a new tab when visiting a link someone visited me. Away she goes.

Basically I just wanted to say that aggressively moving your assets into super is a fantastic idea, something that a lot of people forget to do when they have the chance! The government has made it really hard to achieve this with the cap restrictions, but unless you are super wealthy you can still get most, if not all, of your assets inside. I would think of doing the same thing at your age, because by then, you have visibility of your retirement and the potential legislation.... which you do not have with 40 years to go.

sptrawler · 3 May 2013

Bill M said:
20 years ago I was a bit like you. I worked hard, saved hard and invested hard outside of super. I put nothing at all extra into it. I had the same ambition of being self funded well before collection age. I achieved this goal and accepted the tax liabilities that I had to pay. It worked for me and it can work for anyone, nothing wrong with investing outside of super under those circumstances.

Fast forward 20 years and now it's collection age for my wife and I. We think differently now, we are moving our assets aggressively into super (I mean I'd rather pay 15% tax than 30%). If you were my age I'm sure you would rather pay less tax than the marginal rates.

People who can be self funded before preservation age are few and far between. The Government doesn't really worry about us, we are doing ok, we are not a burden on society. On the other hand the tax incentives are there for those that can't save. You have lower taxes, government co-contributions and that new low income payment going in boosting your balance. Without any of those incentives people just wouldn't save with super and we would end up where we were 25 years ago with very little money going into super.

Before compulsory super nearly everybody on the factory floor relied on the Government pension at retirement. It is better now, I support super as it is, anything less and it just wouldn't be worthwhile putting in and a lot of people will end up on the miserable government pension. (Yes there are a few good savers and disciplined investors out there but we are talking about the greater majority.) They are talking about black holes and deficits now, can you imagine if we didn't have a super system what kind of black holes we would have then?

Just a note, even now only a few Months out we are reluctant to put a lump sum into our super "just in case they change the rules". We will wait until the last few weeks before we know for sure we will be able to access our money. Make no mistake, wind back super or tax it heavily and people won't put in, me included.

You've summed it up well Bill, people believing in super and its benefits, is the key to reducing the burden on the pension. It is a bit like a contract with the government, people put extra money in so they can enjoy the benefit in retirement.

Ves · 3 May 2013

sptrawler said:
You've summed it up well Bill, people believing in super and its benefits, is the key to reducing the burden on the pension. It is a bit like a contract with the government, people put extra money in so they can enjoy the benefit in retirement.

It is probably that I hate being told what to do.... if only you didn't have to work until you were 60, or probably 65, by the time I get there.

craft · 3 May 2013

Ves said:
It is probably that I hate being told what to do.... if only you didn't have to work until you were 60, or probably 65, by the time I get there.

I think I should start a super is great thread. But I might just be talking to myself.

Why not have it both ways. Super is extremely tax effective, the reality is that all the tinkering only ever reduces the tax benefits slightly and gets nowhere near eliminating them and nearly every change is grandfathered anyway. You are going to need money after preservation age for living or intergenerational transfer so you may as well accumulate that in the tax advantaged environment. Save outside of super to fund early retirement to preservation age.

Vixs · 3 May 2013

Ves said:
I intend to be fully self-funded well before I reach my preservation age... so my wealth is kept outside of superannuation (other than 9% SGC). I am at the full mercy of the tax regime because of it.

Why is it that people who become quite wealthy and keep it in the super system receive more tax concessions than someone who is doing the same thing outside of it? They both have the same goal, but are taxed differently.

The tax thresholds don't care what your goals are or what your favourite colour is - they're numbers. They are based on data today.

Superannuation is a simple, simple trade off that is only complicated by the fact that it is compulsory. The trade off is:

MORE RESTRICTIONS + MORE LIMITATIONS + LESS GOVERNMENT RISK = LOWER TAX

The alternative is the inverse:

LESS RESTRICTION + LESS LIMITATIONS + MORE GOVERNMENT RISK = MORE TAX

The balancing act of the government is to make sure that the tax discounts are attractive enough to counteract the restrictions and limitations. As much through actual legislative changes as the total lack of confidence in our politicians, this balance is currently screwed.

EDIT: Re-read my original post and I sounded like a prick. Didn't mean to so I dropped it.

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