Superannuation, the ultimate government cash cow?

[qldfrog]

Be warned everyone, particularly younger people, even 50 year olds take note. Joe Hockey has mentioned that they are going to look at changing when you will be able to access your super, it's on his mind and Abbott's mind. Be careful!

Go to the "retirement age" section at around the 56th minute. Watch the section with the guy in the red polo Shirt.

http://www.abc.net.au/tv/qanda/txt/s3989246.htm

If I was a younger person I would think long and hard before I put anything extra into super, you might not be able to get it until 70........

Bill,
this is clear for me as a 47y old now: I now have to work till 70 at least before I can retire and get the money I put in the last 20 years when being told I could get it at 65;
and the next stage will be: you can not touch your super, regardless of age unless you have no asset left otherwise;
and super will be what it has always been for younger people: a sucker game where 9% of your income is stolen, feeding unions AND bankers (an unholy alliance) for pathetic returns while you struggle at end of month and pay a mortgage and a car/personal credit...

 

[pinkboy]

Bill,
this is clear for me as a 47y old now: I now have to work till 70 at least before I can retire and get the money I put in the last 20 years when being told I could get it at 65;
and the next stage will be: you can not touch your super, regardless of age unless you have no asset left otherwise;
and super will be what it has always been for younger people: a sucker game where 9% of your income is stolen, feeding unions AND bankers (an unholy alliance) for pathetic returns while you struggle at end of month and pay a mortgage and a car/personal credit...

Hang on there son. Superannuation is paid on top of your wage by your employer by law. You were never entitled to it as income.

The government that introduced it (not sure which off the top of my head) did so that you were forced to save it by employers directly putting those funds away for you, not just giving you extra cash to 'invest', because the average punter would spend it on further discretionary items.

pinkboy

 

[qldfrog]

and to add more:
super is both a scam and a tax rort,
1) for a 50y old or younger: you may never ever be able to access it, 70y old before access now, 150 in 20 years?
why not it may become the centenary bingo? There is no limit to government greed; and maybe why not a CG when you get it out after 50 years?


RY:
the flexibility missing is not the way you can invest it, it is the freedom of access, and the absence of rights as a citizen in this country where retrospective laws are so convenient:
shifting sand policies is the only constant
For me super is an extra 9% tax with a nice wrapping around so that i get warm feeling;

but now take the position of a 65 year old, still working a bit in his company:
2) he put all income in super with hardly any tax and can probably get it back tax free again (or via his partner) at the same time;
a rort
The budget and this is not going to be the last, is a current pensionner dream [as were the last few ones], at the expense of the country and anyone younger;
you wait 6 month if 20y old to access welfare but someone who has had decades to get ready has no waiting period, etc etc.

 

[qldfrog]

Hang on there son. Superannuation is paid on top of your wage by your employer by law. You were never entitled to it as income.

The government that introduced it (not sure which off the top of my head) did so that you were forced to save it by employers directly putting those funds away for you, not just giving you extra cash to 'invest', because the average punter would spend it on further discretionary items.

pinkboy

no way: I deal with my employer as a value for money:
you speak like a labour member there
I have a cost, compete against other workers O/S for a total package:
this is a tax on my income: if I do not work, the employer does not pay it.
when you discuss a job, you do not care about super you discuss a package: and this see the super removed from it.

 

[qldfrog]

Hang on there son. Superannuation is paid on top of your wage by your employer by law. You were never entitled to it as income.

The government that introduced it (not sure which off the top of my head) did so that you were forced to save it by employers directly putting those funds away for you, not just giving you extra cash to 'invest', because the average punter would spend it on further discretionary items.

pinkboy

Government then increased the amount because both side of the politics benefit from that rort:
unions with nice retirement positions as member of boards of employee super funds, and liberals as gifts flow from AMP/CBA wealth units etc
Never has common Joe been thought about;
And i remember seing my pay roll decrease when the super increased, and this is the way it should be
otherwise why would governement who always try to show how much better they are at managing money than you , would allow this?

 

[pinkboy]

no way: I deal with my employer as a value for money:
you speak like a labour member there
I have a cost, compete against other workers O/S for a total package:
this is a tax on my income: if I do not work, the employer does not pay it.
when you discuss a job, you do not care about super you discuss a package: and this see the super removed from it.

I can assure you that I have never voted Labor.

On contrary you sound more like an 'entitlement' Labor voter with your 'my employer owes me more than my package and Super should be it' attitude.

I don't agree with everything about Super either, but you can only fu*k with the d!ck you got!

pinkboy

 

[k.smith]

There should be an upper limit to super fund balances after which the remaining must be moved out of the fund or is taxed inside the fund at normal rates of tax. Much like the tax free status of super funds in pension phase there is a point at which the fund is no longer operating as intended (to provide an alternative to a state pension)

I agree.

The question isn't about who is paying too much tax and who isn't paying any. It is about the fairness of how some are advantaged more than others by their use of the nation's super system. I think that is quite different to issues such as negative gearing, primary residence exemption, corporate structures/family trusts.


http://www.crikey.com.au/2014/05/14...d-on-low-income-earners/?wpmp_switcher=mobile

''...The Australia Institute showed in 2009 that the top 5% of income earners obtain 37% of all superannuation tax concessions. The multibillion-dollar rise in superannuation tax concessions ”” which cost “just” $30 billion this financial year ”” is thus primarily a multibillion-dollar handout to high-income earners, primarily those above $180,000 a year. In fact, the cost of the deficit levy to people on those incomes and above ”” just over $3 billion ”” will be entirely swamped by the increase in tax concessions on superannuation from this year ($30 billion) to next alone ($36 billion)...''.

Interesting read here..
http://www.treasury.gov.au/Policy-Topics/SuperannuationAndRetirement/supercharter/Report/Chapter-4

"...Four principles have informed the Charter Group’s work in recommending the form of a Charter. The terms of reference required the Charter Group to develop and recommend a Charter which embodies the principles of certainty, adequacy, fairness and sustainability...''

 

[sptrawler]

I agree.

The question isn't about who is paying too much tax and who isn't paying any. It is about the fairness of how some are advantaged more than others by their use of the nation's super system. I think that is quite different to issues such as negative gearing, primary residence exemption, corporate structures/family trusts.


http://www.crikey.com.au/2014/05/14...d-on-low-income-earners/?wpmp_switcher=mobile

''...The Australia Institute showed in 2009 that the top 5% of income earners obtain 37% of all superannuation tax concessions. The multibillion-dollar rise in superannuation tax concessions ”” which cost “just” $30 billion this financial year ”” is thus primarily a multibillion-dollar handout to high-income earners, primarily those above $180,000 a year. In fact, the cost of the deficit levy to people on those incomes and above ”” just over $3 billion ”” will be entirely swamped by the increase in tax concessions on superannuation from this year ($30 billion) to next alone ($36 billion)...''.

Interesting read here..
http://www.treasury.gov.au/Policy-Topics/SuperannuationAndRetirement/supercharter/Report/Chapter-4

"...Four principles have informed the Charter Group’s work in recommending the form of a Charter. The terms of reference required the Charter Group to develop and recommend a Charter which embodies the principles of certainty, adequacy, fairness and sustainability...''

Interesting read, as per usual they are miles ahead of us.

 

[Julia]

Bill,
this is clear for me as a 47y old now: I now have to work till 70 at least before I can retire and get the money I put in the last 20 years when being told I could get it at 65;

Isn't the retirement age for someone who is now 47 going to be 67, courtesy of the last Labor government?
If so, the 'retirement age' merely represents when you can apply for a taxpayer funded age pension, not when you are able to access your Super. I stand to be corrected on this. Ves, you will know, as will others.

and super will be what it has always been for younger people: a sucker game where 9% of your income is stolen, feeding unions AND bankers (an unholy alliance) for pathetic returns while you struggle at end of month and pay a mortgage and a car/personal credit...

No one is stealing anything from you. Without the contribution to Super your employer would, in most instances, simply pay you less as a salary.
Super is not an investment entity of itself so cannot be a 'sucker game'. It's simply a tax advantaged vehicle for investing in pretty much anything, as previously outlined by FX Trader.
I don't know much about public Super Funds, but if you're not happy with their efforts, you have the option of starting a SMSF and maximising your profits according to your investment ability. Then there's no one to blame but yourself.

Hang on there son. Superannuation is paid on top of your wage by your employer by law. You were never entitled to it as income.

The government that introduced it (not sure which off the top of my head) did so that you were forced to save it by employers directly putting those funds away for you, not just giving you extra cash to 'invest', because the average punter would spend it on further discretionary items.

pinkboy

+1.

no way: I deal with my employer as a value for money:
you speak like a labour member there
I have a cost, compete against other workers O/S for a total package:
this is a tax on my income: if I do not work, the employer does not pay it.

If you do not work your employer does not pay it to you. He pays it to whomever he employs instead.

when you discuss a job, you do not care about super you discuss a package: and this see the super removed from it.

Well, that would be pretty silly. I'd have thought you'd discuss the entire package, Super included, and come to some mutually acceptable agreement.

Ves, thank you for very rational description of all the potential complications involved in some of the options suggested re Super. Nothing is ever as simple as it may first appear.

 

[craft]

I agree that placing limits (within reason) on the amount that can be placed into a tax haven like superannuation (and others like trusts, negative gearing etc.) should be considered.

The problem is the administration and application of these ideas in practice. And these aren't cheap, they add a lot of costs to the system. Anyone number an accountant has to calculate costs money for the end user - trust me I know.

For instance, how would these limits be enforced? Would they be on 30 June only? SMSFs for instance only report on that date. How strictly would valuations be enforced on assets that are not valued easily on a market? (property, collectibles, private unit trusts etc. all can be valued perhaps, but could potentially be valued in a contrived fashion in certain circumstances).

If there is an asset limit for super, and then you tax earnings on assets above this limit at a higher rate, how to do work out which assets are above the limit and which income relates to those assets? Is there a special formula that you had in mind? Is it the weighted return of all assets? Would this be similar to calculating the exempt pension income of a fund, in that you would be required to pay an actuary? Surely you could not pick and choose which assets (aka segregation methods).

It might be achievable for single member funds, and even then you need to figure out how to pro-rata the income (do you pick a set day 30 June to apply the "limit test" on the income?). But what about Funds with multiple members? What if some are under the limit and some are not? Makes it very tricky to work out the earnings and the extra tax for the affected accounts. What about individuals who have multiple superannuation accounts (yes - it is possible to have more than one SMSF even, as many as you want). These things make it very hard to track and apply. As far as I am aware, if I have multiple funds, the ATO / government has no bloody idea how much taxable income they generate in total. In fact they are not tracked on an individual basis, but a fund basis. All that is reported to the ATO is the net account movement (from market values + earnings).

It hurts my head thinking of how they'd do such a thing, after the ordeals and complications in the past with things like RBL limits and surcharge levies.

I can almost guess now that this won't happen - not because it's not a good idea, but because it's too hard to implement.

Thanks for the post Ves - great insight. Do you see any obvious or easy solutions?

 

[Ves]

Isn't the retirement age for someone who is now 47 going to be 67, courtesy of the last Labor government?
If so, the 'retirement age' merely represents when you can apply for a taxpayer funded age pension, not when you are able to access your Super. I stand to be corrected on this. Ves, you will know, as will others.

Hi Julia

The superannuation preservation age is still 60 for those born after 1 July 1964. This is the earliest date in which you could access your superannuation benefits provided that you have met a condition of release. To do this you would need to:

a) retire permanently with the intention of never returning to the work force or;
b) commence a transition to retirement pension (4% minimum withdrawal limit and 10% maximum withdrawal limit per annum)

The only exceptions would be that for some reason your balance has unrestricted non-preserved components, which are a carry over from the older superannuation rules.

In rare cases early access to benefits may be permitted: ie. incapacity, severe financial hardship, temporary residents leaving Australia, terminal medical condition... but there are very strict rules and requirements that need to be met in these cases.

Otherwise you would need to wait until you are 65, which is the current age in which superannuation cashing restrictions are removed in all cases (ie. your balance becomes entirely an unrestricted non-preserved component).

As always, trustees should also consult their trust deed closely to see if the intended benefit is also allowed under the rules of the Fund.

The Abbott government has come out this week and commented that whilst the preservation age for superannuation benefits has not been changed, it is being considered. However, no such change would happen until their second term of government.

One of their pre-election core promises was to leave superannuation unchanged.

http://www.theaustralian.com.au/nat...reservation-age/story-fn59niix-1226923766162#

 

[Ves]

Thanks for the post Ves - great insight. Do you see any obvious or easy solutions?

Nope - but I will say that any proposed changes will be ruthlessly opposed by the vested interests in the industry (the big funds, investment institutions, the superannuation bodies ie. SPAA, the accounting bodies). They lobby fairly hard obviously because big swathes of funds in super benefits them, but so does clarity of purpose of governments in terms of superannuation. So much relies on a system that is easy to understand, with a long-term view towards legislation. Whilst they do have vested interests they are correct in saying that there can be a big hit to people's confidence in the system if the goal posts are constantly moved (especially if they contributed to superannuation on the basis that such and such would still be in place when they reach retirement).

I don't think it could be easily implemented on the basis of market values - they by their very nature fluctuate too much, and it would be much harder to enforce the rules on this basis. And you do not want big amounts of money bouncing out of Funds and back into individual's hands - it creates a mess and more potential for mistakes to be made by trustees. It also seems to contradict the "early release" and "preservation rules." Is it fair that you suddenly get to access your excess super before you have attained age 60 just because you have too much in there? Don't think that sends a good message.

Life-time superannuation contribution limits for non-concessional contributions could be considered, rather than yearly or rolling 3 year period caps. Much like they do for Business CGT Retirement Rollovers etc.

Arguably the biggest drag on the government coffers is the tax concessions which come from paying very little or no tax on high income within superannuation so it makes sense to target higher taxable incomes within superannuation if something must be done. There is also no tax on withdrawals post 60 to consider too.

Taxing withdrawals is relatively straight forward - and would have to be tracked on the individual's tax return as the super fund itself would not know the marginal tax rates, and indeed, if there were other funds involved. It would obviously increase paperwork. But these kinds of withdrawals were taxed at far less generous rates pre-1 July 2007. Please, whatever the government does, do not install a complicated tax system based on life time withdrawal limits. It's too hard to track. Doable, but would definitely need to be streamlined very well.

Earnings are much harder to tax for the reasons stated in my previous post, but probably easier than market values to address. My personal opinion is that it should be an average of the last 3-5 years. Earnings as we know can get lumpy, especially when capital gains are involved. You do not want those paying higher tax rates due to lumpy asset sales, when normally they would have much lower taxable income in their superannuation funds.

It's hard to track taxable earnings allocated to a member within the Fund with multiple members, let alone for an individual who has memberships in multiple funds. Accounting software and systems could obviously begin to track this if the ATO / government provided a reasonable basis for doing so. They need to pick a single method and enforce it - too much choice would mean more opportunities to shark the system. I suppose it would need to be done on a weighted average balanced basis over the year to calculate the member's proportion of the taxable income. This would need to be reported to the ATO on the Fund's return. In the same way that excess contributions tax (ECT) is paid - the excess income would be need to be added the individual's taxable income for that financial year. I suppose it would be a separate assessment notice like ECT... due to timing of reporting for superannuation funds and lodgment dates for individual tax returns it would be hard for it to be included in the member's individual tax return. Perhaps the individual would get to choose whether they paid this amount from their own personal savings or from their nominated superannuation account (again similar to ECT).

Hmm sounds like a massive headache, both in planning and in on-going administration.

I don't know what limits should be imposed, all that I know is that the practical methods for enforcement are not as easy as they first appear. Any requirements of superannuation fund trustees in terms of reporting will come with associated costs, so they cannot do this lightly... whatever benefits to the budget must heavily outweigh the costs of implementation.

 

[sptrawler]

Nope - but I will say that any proposed changes will be ruthlessly opposed by the vested interests in the industry (the big funds, investment institutions, the superannuation bodies ie. SPAA, the accounting bodies). They lobby fairly hard obviously because big swathes of funds in super benefits them, but so does clarity of purpose of governments in terms of superannuation. So much relies on a system that is easy to understand, with a long-term view towards legislation. Whilst they do have vested interests they are correct in saying that there can be a big hit to people's confidence in the system if the goal posts are constantly moved (especially if they contributed to superannuation on the basis that such and such would still be in place when they reach retirement).

I don't think it could be easily implemented on the basis of market values - they by their very nature fluctuate too much, and it would be much harder to enforce the rules on this basis. And you do not want big amounts of money bouncing out of Funds and back into individual's hands - it creates a mess and more potential for mistakes to be made by trustees. It also seems to contradict the "early release" and "preservation rules." Is it fair that you suddenly get to access your excess super before you have attained age 60 just because you have too much in there? Don't think that sends a good message.

Life-time superannuation contribution limits for non-concessional contributions could be considered, rather than yearly or rolling 3 year period caps. Much like they do for Business CGT Retirement Rollovers etc.

Arguably the biggest drag on the government coffers is the tax concessions which come from paying very little or no tax on high income within superannuation so it makes sense to target higher taxable incomes within superannuation if something must be done. There is also no tax on withdrawals post 60 to consider too.

Taxing withdrawals is relatively straight forward - and would have to be tracked on the individual's tax return as the super fund itself would not know the marginal tax rates, and indeed, if there were other funds involved. It would obviously increase paperwork. But these kinds of withdrawals were taxed at far less generous rates pre-1 July 2007. Please, whatever the government does, do not install a complicated tax system based on life time withdrawal limits. It's too hard to track. Doable, but would definitely need to be streamlined very well.

Earnings are much harder to tax for the reasons stated in my previous post, but probably easier than market values to address. My personal opinion is that it should be an average of the last 3-5 years. Earnings as we know can get lumpy, especially when capital gains are involved. You do not want those paying higher tax rates due to lumpy asset sales, when normally they would have much lower taxable income in their superannuation funds.

It's hard to track taxable earnings allocated to a member within the Fund with multiple members, let alone for an individual who has memberships in multiple funds. Accounting software and systems could obviously begin to track this if the ATO / government provided a reasonable basis for doing so. They need to pick a single method and enforce it - too much choice would mean more opportunities to shark the system. I suppose it would need to be done on a weighted average balanced basis over the year to calculate the member's proportion of the taxable income. This would need to be reported to the ATO on the Fund's return. In the same way that excess contributions tax (ECT) is paid - the excess income would be need to be added the individual's taxable income for that financial year. I suppose it would be a separate assessment notice like ECT... due to timing of reporting for superannuation funds and lodgment dates for individual tax returns it would be hard for it to be included in the member's individual tax return. Perhaps the individual would get to choose whether they paid this amount from their own personal savings or from their nominated superannuation account (again similar to ECT).

Hmm sounds like a massive headache, both in planning and in on-going administration.

I don't know what limits should be imposed, all that I know is that the practical methods for enforcement are not as easy as they first appear. Any requirements of superannuation fund trustees in terms of reporting will come with associated costs, so they cannot do this lightly... whatever benefits to the budget must heavily outweigh the costs of implementation.

Could it be done as per the existing rules for pensions taken between 55 and 60, where the individual pays payg tax.

 

[Faramir]

This is a very long thread and I only managed to read a very small percentage of it. Scanning this thread, no one made mention of this story I think I am safe to post an article written 6 Feb 2013 titled:
"Dear Under-50 Investor"

http://rogermontgomery.com/dear-under-50-investor/

I only want opinions of his article/insights. I know the author's name divides everyone's opinion. I just want to know if you agree with: for example "Super is designed by baby boomers for baby boomers" or you can state "No, Super is designed for everyone."

Simply saying 'the article is crap' or 'this article is the best thing written' is not what I want. Do not worry about his subscribers' comments.

Note that this article was written before last year's Federal Election.

It will influence how much I will continue to put into Super

 

[Judd]

I've looked into it fairly thoroughly, Judd, and found no suggestion anywhere that the Seniors Card is affected.
It has never been means tested and is purely age related. It's also State based and the benefits offered vary State to State. What is possible, I suppose, is if the States and the Feds don't sort out their grievances over schools and hospitals funding and the States are required to find more money themselves for this, such privileges as the Seniors Card might then have to go. There would be a massive outcry, however, because everyone I know over, I think, 55 has one.

This is the aspect to which I was referring, Julia. Whether it actually occurs remains to be seen.

http://www.theage.com.au/money/planning/retirement-rethink-20140520-38klv.html

Pensioner concessions

Biti says one of the main strategies of financial planners is to structure their wealthier clients' financial affairs so they pick up at least a couple of dollars of the age pension each fortnight. That is because even a few dollars of age pension entitles the client to pensioner discounts. These are extensive and, combined with the seniors cards offered by the states and territories, provide discounts on utilities bills, rates and car registration. Private businesses also recognise the cards for discounts.

However, the government will scrap a range of concessions, many provided by the state and territories, for a saving of $1.3 billion over four years. ''That is the killer,'' Biti says. It is hard to put a dollar value on the concessions, but they could be worth between $2000 and $3000 a year for many seniors, she says.

It is unlikely that the states could continue to offer the concessions. They might have to reduce the level of concessions if they are not being subsidised by the federal government.

It remains to be seen whether this will affect the concessions private businesses offer to seniors, as some of these businesses, such as private transport companies, are believed to receive government subsidies.

 

[Ves]

Could it be done as per the existing rules for pensions taken between 55 and 60, where the individual pays payg tax.

It might also include this in some form or another. But this would have to do with the timing that the tax is paid to the tax office, rather than what tax is actually paid. But again, this might be hard to track for individuals with membership interests in multiple funds.

They probably could only do the PAYG Withholding Tax on withdrawals if they decided to tax those again, might be too complicated for higher tax on earnings above a certain threshold, depending on who pays that tax (Fund or individual).

 

[Judd]

It might also include this in some form or another. But this would have to do with the timing that the tax is paid to the tax office, rather than what tax is actually paid. But again, this might be hard to track for individuals with membership interests in multiple funds.

They probably could only do the PAYG Withholding Tax on withdrawals if they decided to tax those again, might be too complicated for higher tax on earnings above a certain threshold, depending on who pays that tax (Fund or individual).

Didn't the Government do away with RBLs because the cost of tracking each and every fund at member level plus IT maintenance costs far outweighed the amount of revenue received. I recall reading about that but forget the source. Maybe introducing something akin to that could have a similar outcome.

 

[Ves]

Didn't the Government do away with RBLs because the cost of tracking each and every fund at member level plus IT maintenance costs far outweighed the amount of revenue received. I recall reading about that but forget the source. Maybe introducing something akin to that could have a similar outcome.

Yes, that was definitely one of the reasons provided. And that is why I am unsure of how you could change the superannuation taxation regime without upsetting the apple cart too much in terms of administration costs and added complication in how all of this is tracked.

 

[CanOz]

This is a very long thread and I only managed to read a very small percentage of it. Scanning this thread, no one made mention of this story I think I am safe to post an article written 6 Feb 2013 titled:
"Dear Under-50 Investor"

http://rogermontgomery.com/dear-under-50-investor/

I only want opinions of his article/insights. I know the author's name divides everyone's opinion. I just want to know if you agree with: for example "Super is designed by baby boomers for baby boomers" or you can state "No, Super is designed for everyone."

Simply saying 'the article is crap' or 'this article is the best thing written' is not what I want. Do not worry about his subscribers' comments.

Note that this article was written before last year's Federal Election.

It will influence how much I will continue to put into Super

Faramir, great article. For me, its a good history of pensions and Super in Australia. If anything it highlights the temptation there is for governments to steal from the pot. Which they will inevitably do. It makes sense to me that he's saying it was for boomers...It really tells me that when it comes to Super, there are no certainties. Don't put all your eggs in this basket.

Thanks for posting it, I'll continue to build investments outside of Super that offer the best prospect for long term growth whist trying to avoid paying too much tax on them when I'll need them...if that makes sense.

What do Ves and Co. think?

 

[Judd]

It's a difficult one for sure CanOz. I suppose it depends on attitude to a large extent.

I know of one person (not me) who has no super, her dividend income is in the six figure range (with a number greater than one) and she does not concern herself with tax issues and the like. I have what, and can do what, I want I want darling so why worry? is her attitude. Others I know are almost obsessed with tax and superannuation. Sometimes I wonder what sort of life they have. Again I know of people who are seemingly casual but canny receiving a far amount of mostly franked dividends, a good tax free account-based pension a portion of which they then invest in the sharemarket. On around $90k pa and still receive a tax refund.

It's how you want to play the game really and there is probably no one answer.