Superannuation, the ultimate government cash cow?

jmoz · 13 September 2013

Julia said:
So, jmoz, what is your own plan for retirement? Presumably to be entirely self funded?

When you reach that stage, having made considerable sacrifices in the process, it might just irritate you slightly that some of the people who have had an equal earning capacity have frittered it away and are, in retirement, completely dependent on the age pension.

maybe it's the naivety of youth but yes i do plan to be entirely self funded. I operate under the principle that by the time i retire super will no longer exist in its current form (or if it does my preservation age will be 85).

on your second point we are in agreement, which is why my original post made mention of these types your takinng about who fritter away their funds and then expect the age pension to pick up the slack.

tech/a said:
Typical un informed kid stereo typing.
Those 60 yr. olds like most of us either have lived in the home since it was built 40 yrs ago and $100K (Not the 2 mill its worth).
OR
Have traded their way up to their Mc Mansion over many years.
Few if any would have a 750K Mortgage.

I'm with Julia.
I Pay GST
COMPANY TAX
PAYE TAX
FRINGE BENEFITS TAX
CAPITAL GAINS TAX
PAYROLL TAX.

My taxes over a year would finance a few families.
Over a lifetime a country town.

Your Sh*tted off!

I will have to pay all my medical bills I wont have subsidised pharmaceuticals
Wont get a concession on anything--will never claim a cent from a pension.
I've kept many people employed paying taxes to a government (Any damned Govt) who waste my and your hard earned---and when they are insolvent just print money that you and I would be jailed for if we did it.
Not only that I've paid Work Cover and super from my companies earnings to my employees for 30 yrs
If I wasn't good at what I do and others like me----you and people like you--- wouldn't have 40 yrs to whinge about how tough you have it.

Give me a break!

i'm not saying i'm worse off than you in the 'who the government can gouge the most game' and i completely agree that it's wrong the amount of tax you have paid over the years has subsided X number of families of which you get nothing back. Where my opinion differs is that i feel the side of the ledger that needs to be balanced is the amount that gets taken from you and paid to the 'battlers', rather than taking more from you and then giving you a little bit back after paying the batters.

Fixing the system shouldn't mean making sure everyone can claim a bit to feel like the government is helping them out, it should be to stop taking so much in the first place!!

jmoz · 13 September 2013

or maybe i'm just too far right and should move to andorra!

tech/a · 13 September 2013

Two Points.

(1) Over 30+ yrs. of retirement the value of your fund will halve purely due to inflation.
So the money required to have a long and financially free retirement even in mediocrity is far more than you think.
Today Under a million will hardly cut it over 30 yrs.

(2) If the govt was serious about self funding retirement they would have

Tax deductable payments for PPOR----- without a freehold home your stuffed!
No Tax on Super fund payments to 1.5 x the level estimated for retirement at any one time.
Stops at 65 so start NOW!
Will take a generation to implement.

Then
No Tax on super fund earnings to 1.5 X ---blahh.
No other taxes upon retirement other than GST.

NO INTRODUCTION OF DEATH TAXES!
Way ahead of these Prikks

So you have a heap of well funded retirees---what's the problem??
So we have kids kick started by family who pass on prematurely---what's the problem.

Judd · 13 September 2013

skc said:
Because it is cheaper to use debt outside super compared to the return within super.

Borrowing $100k @ 5.2% you pay $5.2k interest, and for investment purpose and highest tax bracket, the after tax cost is $2730 p.a. or there abouts.

Having $100k in super earning just 4% interest in a term deposit gives you $4k income, tax free.

So it can actually be more financially beneficial to pile assets in super and use debt outside of it, depending on the relative after tax cost/return.

True. Thanks, skc. That aspect had escaped me probably because I haven't had any debt of any type for a long time. It's odd. Once you don't have to deal with the numbers it takes a bit to remember and when the issue is pointed out you kinda go "Oh yeah, that's right."

sydboy007 · 13 September 2013

tech/a said:
Two Points.

(1) Over 30+ yrs. of retirement the value of your fund will halve purely due to inflation.
So the money required to have a long and financially free retirement even in mediocrity is far more than you think.
Today Under a million will hardly cut it over 30 yrs.

(2) If the govt was serious about self funding retirement they would have

Tax deductable payments for PPOR----- without a freehold home your stuffed!
No Tax on Super fund payments to 1.5 x the level estimated for retirement at any one time.
Stops at 65 so start NOW!
Will take a generation to implement.

Then
No Tax on super fund earnings to 1.5 X ---blahh.
No other taxes upon retirement other than GST.

NO INTRODUCTION OF DEATH TAXES!
Way ahead of these Prikks

So you have a heap of well funded retirees---what's the problem??
So we have kids kick started by family who pass on prematurely---what's the problem.

Without supply side constraints removed tax deductibility for the PPOR would just lead to even more insane levels of inflation for housing.

Not sure how we afford all the services we expect while giving away so many tax break on super.

If the tax breaks cost more than the pension, what's the point?

sydboy007 · 18 September 2013

Yet they still want more

$1M in assets with a 2K+ passive income, but they still want access to the pension. It seems the pension is now a right rather than a safety net for those who have nothing else to put food on the table.

Interesting they don't mention anything about super

We are a married couple aged 70 and 63, both working, with a combined income of $80,000 gross, and plan to retire in two years. We own our home worth $450,000, have $120,000 in shares, and $120,000 in term deposit earning 4 per cent. We also own an industrial shed valued at $400,000, returning $2000 a month with a mortgage of $80,000. Do you think we should buy another investment property such as a house, and borrow another $350,000, or buy more shares? We are hoping to arrange our affairs so we can get all or some pension.

Read more: http://www.smh.com.au/money/ask-an-...-bank-on-it-20130917-2tvlu.html#ixzz2fCKz79yX

tech/a · 18 September 2013

sydboy007 said:
Without supply side constraints removed tax deductibility for the PPOR would just lead to even more insane levels of inflation for housing.

Not sure how we afford all the services we expect while giving away so many tax break on super.

If the tax breaks cost more than the pension, what's the point?

Making the interest tax deductable will make housing more attractive and give people more opportunity to own something.
Sure they maybe in a better position to buy further property---invest excess funds in Shares.
Buy a business.
The trade off could be as simple as not allowing the PPOR as collateral for funding.
Then you have a choice.
Tax deductibility or use of equity.

Money Makes Money.

If people are making more money then the Govt will also make more money.
The massive future burden of social security/health costs could be alleviated in a generation.

Simple Duck enomixs.

- - - Updated - - -

sydboy007 said:
Yet they still want more

$1M in assets with a 2K+ passive income, but they still want access to the pension. It seems the pension is now a right rather than a safety net for those who have nothing else to put food on the table.

Interesting they don't mention anything about super

We are a married couple aged 70 and 63, both working, with a combined income of $80,000 gross, and plan to retire in two years. We own our home worth $450,000, have $120,000 in shares, and $120,000 in term deposit earning 4 per cent. We also own an industrial shed valued at $400,000, returning $2000 a month with a mortgage of $80,000. Do you think we should buy another investment property such as a house, and borrow another $350,000, or buy more shares? We are hoping to arrange our affairs so we can get all or some pension.

Read more: http://www.smh.com.au/money/ask-an-...-bank-on-it-20130917-2tvlu.html#ixzz2fCKz79yX

You'll need it.
While it looks fine on paper your outgoings erode your $500 a week income.
In 10 yrs youll be struggling even more as interest rates rise and inflation eats into your capital base and capital return.
You have some hedging in rent return but Id be buying more shares not property.(If you can better 4% return + Dividends).

sydboy007 · 18 September 2013

tech/a said:
Making the interest tax deductable will make housing more attractive and give people more opportunity to own something.
Sure they maybe in a better position to buy further property---invest excess funds in Shares.
Buy a business.
The trade off could be as simple as not allowing the PPOR as collateral for funding.
Then you have a choice.
Tax deductibility or use of equity.

Money Makes Money.

If people are making more money then the Govt will also make more money.
The massive future burden of social security/health costs could be alleviated in a generation.

Simple Duck enomixs.

- - - Updated - - -

You'll need it.
While it looks fine on paper your outgoings erode your $500 a week income.
In 10 yrs youll be struggling even more as interest rates rise and inflation eats into your capital base and capital return.
You have some hedging in rent return but Id be buying more shares not property.(If you can better 4% return + Dividends).

We have an artificial scarcity of land combined with NIMBYism that protects the current rent seekers benefiting form the scarcity but it's leaving the next generations without the ability to own their home. A right of use / development would go a long way to overcoming this issue. Just look to Texas to see what a very laissez faire land use policy can achieve. Some of the highest population and income growth in the USA and some of the lowest property prices rises. I prefer that over the Californian boom and bust cycle.

Combine a land tax with the removal of stamp duties and local council rates, remove the CGT exemption for the PPOR, let the primary residence interest be tax deductible against current income - though some form of cap would be required otherwise it's going to encourage further over investment in housing - change negative gearing so that any loss above the income of the asset is capitalised to reduce the CGT on sale, remove the halving of the CGT as income is income and it just encourages people to speculate.

As for the couple, they own their own home, have minimal debt, and the passive income they're earning is probably closer to $3000 a month - 120K of shares should get you a grossed up income of 6% fairly easily and 4% interest on $120K adds an extra 12K to the 24K in rent. I'm sure with a bit of tax advise they can convert most of that income into tax free super.

Julia · 18 September 2013

sydboy007 said:
Yet they still want more

$1M in assets with a 2K+ passive income, but they still want access to the pension.

They have investable asset base of only $560,000. Do you really think that's adequate for two people to generate a decent income from for the next twenty or so years?

If that amount generated a return of 7% (achievable with grossed up yield in shares) it's less than $40K p.a.
That's not enough with rising cost of living, especially electricity etc.

They will certainly be entitled to a part pension.

Obviously they were asking a question of some adviser. Is the answer supplied?

Agree with Tech's additional comments.

sydboy007 · 18 September 2013

Julia said:
They have investable asset base of only $560,000. Do you really think that's adequate for two people to generate a decent income from for the next twenty or so years?

If that amount generated a return of 7% (achievable with grossed up yield in shares) it's less than $40K p.a.
That's not enough with rising cost of living, especially electricity etc.

They will certainly be entitled to a part pension.

Obviously they were asking a question of some adviser. Is the answer supplied?

Agree with Tech's additional comments.

i would have thought their investment base is 450 + 120 + 120 = $690K?

Then what's the point of Superannuation if pretty much everyone will be able to get a part pension?

It's already costing more in lost tax revenue than the pension costs.

We have a budget deficit that the current Govt says might be around for another 10 years - current goal of surplus in a decade.

So where does the money come from? I know I'm likely to be a target, but I'm already paying an average tax rate of 28%

Vixs · 18 September 2013

sydboy007 said:
i would have thought their investment base is 450 + 120 + 120 = $690K?

Then what's the point of Superannuation if pretty much everyone will be able to get a part pension?

It's already costing more in lost tax revenue than the pension costs.

We have a budget deficit that the current Govt says might be around for another 10 years - current goal of surplus in a decade.

So where does the money come from? I know I'm likely to be a target, but I'm already paying an average tax rate of 28%

That's their house mate. The 450 isn't assessable as an asset nor is it really investable wealth.

They have equity in the property assuming it's valid security for a lender to a decent LVR, and they have their really quite meagre other investment assets.

They won't have any trouble qualifying for a pension.

The thing that worries me is the thought of more gearing at age 70 and 63...

Julia · 18 September 2013

sydboy007 said:
i would have thought their investment base is 450 + 120 + 120 = $690K?

No. As Vixs has pointed out, the value of the PPOR is irrelevant, except perhaps as security against borrowing.
Here is what you quoted:

We own our home worth $450,000, have $120,000 in shares, and $120,000 in term deposit earning 4 per cent. We also own an industrial shed valued at $400,000, returning $2000 a month with a mortgage of $80,000

So $240K across shares and cash, the shed, with mortgage deducted, is $320K ergo $560,000.

and I was being generous in allowing for a 7% yield across that whole amount, given at least the term deposit is only earning 4%.

Then what's the point of Superannuation if pretty much everyone will be able to get a part pension?

That's a bit of an overstatement, syd. It's not the case at all that 'pretty much everyone will be able to get a part pension".
Although I'm pointing out that this couple are not by any means as well off as you seemed to be suggesting, when you consider what their investable capital can actually generate, they're still better off than the majority of the population going into retirement.

Vixs said:
That's their house mate. The 450 isn't assessable as an asset nor is it really investable wealth.

They have equity in the property assuming it's valid security for a lender to a decent LVR, and they have their really quite meagre other investment assets.

They won't have any trouble qualifying for a pension.

The thing that worries me is the thought of more gearing at age 70 and 63...

+1.

Ves · 18 September 2013

My calcs as follows:

$400,000 shed, income at $2,000 per month, $24,000 annual
(less loan $80,000 @ 6% interest = $4,800 annual)

$120,000 shares, market gross yield 6.6 or 6.7%, say $8,000 total

$120,000 term deposit at $4,800

total net income of $31,920.

Whilst, that isn't super comfortable by any means. If you could protect that income stream from inflation there is no reason you could not live on it for the rest of your life assuming that you owned your own PPOR.

Believe me or not, but myself and my partner, excluding mortgage payments (which you shouldn't be paying in retirement if you plan properly) get by on around $30,000 to $35,000 living expenses.

There's not really much that I'm not doing at the moment that would enrich my life massively that money could buy.

All I will say is that the shed makes up a massive part of their income and they probably need to de-risk it somehow. But I'm not here to judge their investments, just comparing the income to my own situation.

sydboy007 · 18 September 2013

Julia said:
No. As Vixs has pointed out, the value of the PPOR is irrelevant, except perhaps as security against borrowing.
Here is what you quoted:

So $240K across shares and cash, the shed, with mortgage deducted, is $320K ergo $560,000.

and I was being generous in allowing for a 7% yield across that whole amount, given at least the term deposit is only earning 4%.

That's a bit of an overstatement, syd. It's not the case at all that 'pretty much everyone will be able to get a part pension".
Although I'm pointing out that this couple are not by any means as well off as you seemed to be suggesting, when you consider what their investable capital can actually generate, they're still better off than the majority of the population going into retirement.

+1.

Below is the asset and income test for a part pension.

I don't think I'm too far wrong when you can have over $1M in assets (excluding the family home) as a couple with an income just over $2700 / fortnight and still receive a part pension and all the associated goodies that entitles you to.

So you can be in the 9th income decile, and probaby in the 8th or 9th decile for overall wealth, and still receive a few $ in pension and cut price pharmceuticuls. I dare say if you have no mortgage that you probaby have a disposable income that's equivalent to an income decile or 2 higher as well.

Julia · 18 September 2013

It might upset you further, syd, to know that your chart is already out of date and the new asset limits are even more generous.

Ves · 18 September 2013

Julia said:
It might upset you further, syd, to know that your chart is already out of date and the new asset limits are even more generous.

A link would have been nice.

For everyone else:

http://www.yourlifechoices.com.au/news/asset-test-tables

sydboy007 · 18 September 2013

Julia said:
It might upset you further, syd, to know that your chart is already out of date and the new asset limits are even more generous.

The I suppose the younger generations deserve the overly generous PPL and maybe everyone does have a right to government money.

Welfare is a right not provided based on need.

Vixs · 19 September 2013

I don't have a problem with the asset and income levels because I know that it's going to take that amount to fund a couple in retirement without leaving much change except the house when they pass on.

The real issue (and it's been discussed at length way back in the property price thread and maybe this one too) is housing values for the elderly.

On the one hand it's not right to ask the elderly to leave the community they've been part of for much of their life to unlock the equity in their home.

On the other hand, it's not right to treat paper millionaires like paupers just because they don't want to sell their house.

The solution could be nicer aged care housing developed within existing suburbs - the elderly can keep their communities intact, be close to family and friends and the things they are familiar with, but their homes can be sold on to the next generation - be it their own kids or someone else.

That's probably too off topic for this post but it is directly related to the assets text exemption on the home.

banco · 19 September 2013

Vixs said:
I don't have a problem with the asset and income levels because I know that it's going to take that amount to fund a couple in retirement without leaving much change except the house when they pass on.

The real issue (and it's been discussed at length way back in the property price thread and maybe this one too) is housing values for the elderly.

On the one hand it's not right to ask the elderly to leave the community they've been part of for much of their life to unlock the equity in their home.

On the other hand, it's not right to treat paper millionaires like paupers just because they don't want to sell their house.

The solution could be nicer aged care housing developed within existing suburbs - the elderly can keep their communities intact, be close to family and friends and the things they are familiar with, but their homes can be sold on to the next generation - be it their own kids or someone else.

That's probably too off topic for this post but it is directly related to the assets text exemption on the home.

An easier way would be to let them live in their million dollar houses and receive their age pension but upon their death some of the proceeds of the sale go to the taxpayer.

sydboy007 · 19 September 2013

Vixs said:
I don't have a problem with the asset and income levels because I know that it's going to take that amount to fund a couple in retirement without leaving much change except the house when they pass on.

On the other hand, it's not right to treat paper millionaires like paupers just because they don't want to sell their house.

We're already providing the super system with more funding than just about any other area of Government spending - except maybe health - and yet not seeing much reduction in the pension payments. Throw in the $20B a year it takes to run the super system (plus the other performance and management fees the various players add on) and I often wonder if it's worth it. If there's compulsion within the system do we need to make the tax breaks so big?

What kind of income level should those left paying tax have to provide to those who've retired?

Is it fair to allow someone who's retired to have a tax free income in the top half of Australians and still be able to receive a part pension?

Easiest solution for those wanting to keep their house is for the Govt to provide a 50% exemption along with cpi interest rate loans to help cover any short fall in income.

Why should my taxes be higher so someone can inherit their parents home?

Superannuation, the ultimate government cash cow?

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