Superannuation, the ultimate government cash cow?

[Julia]

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

Thanks, Judd. Yes, I realised that would have been what you were referring to yesterday and think I mentioned it in the Abbott government thread.
Since we were discussing it I actually put it to Centrelink's FIS. Got the predictable stuff about how nothing is decided, all has to be legislated, yada yada, but the FIS bloke said it refers to retirees who are not eligible for the age pension because assets or income test rules them out, but who - at least under the present rules where Super income is not assessed amongst the income test - are eligible for the Commonwealth Seniors Health Card.

This confers most of the benefits of the actual pension card, especially including eg PBS medicines discount which often becomes important as people get older.

It would also apply to those who have a Seniors Card as these are State based and if the Commonwealth is going to withdraw funding given to the States to provide this, then they are certainly going to say they can't afford to fund those concessions.

His main point was that people on age pension, even minimum part pension, will not be affected by the proposed legislation.

 

[tinhat]

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

The very first compulsory employer contribution arrangement was a deal between the unions (ACTU) and the government under the wages accord, back in the days of arbitrated wage fixing, where the unions and the government agreed that employees were to be paid an above CPI productivity bonus, in recognition of real gains in labour productivity that had been achieved through the accord, but that it would be paid as a "productivity dividend" by way of a new scheme of compulsory employer super contributions for all wage earners initially set at 3% of pre tax wages.

 

[sptrawler]

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

I believe that is a fairly accurate assesment of what will happen. Currently average balances are too low and the government don't wish to shake peoples confidence in the system.
Once the average super balance can supply an income similar to the government pension, watch out.

 

[FxTrader]

I believe that is a fairly accurate assesment of what will happen. Currently average balances are too low and the government don't wish to shake peoples confidence in the system.
Once the average super balance can supply an income similar to the government pension, watch out.

A key factor Montgomery ignores is the voting power of an aging population and it's influence on government policy. Even the razor gang of economic rationalists headed by Hockey and Corman recognize the need to tread carefully on super policy.

Currently, super tax policy is probably to generous thanks to Costello. I expect changes over time but none that would create a situation where there are to many disincentives to put additional funds into super savings. That's a lose/lose scenario and political poison.

Montgomery himself, being a multi-millionaire, has no incentive to put money into super and his disdain for a super system where tax policy will change seems odd, tax policy changes regularly and not just around super. Perhaps he should put out yet another missive warning property investors to shun future property investment because the government may restrict or eliminate negative gearing deductions 20 years from now.

Given that Montgomery criticized those who predicted the GFC as doomsayers and did not foresee the global implications of the property bubble that precipitated the GFC, I have little faith in his forecasting of taxation policy on super. It would seem that he has become what he previously criticized, a doomsayer and scaremonger.

 

[CanOz]

Thanks FXTrader...Always great to hear your view.

 

[craft]

Given that Montgomery criticized those who predicted the GFC as doomsayers and did not foresee the global implications of the property bubble that precipitated the GFC, I have little faith in his forecasting of taxation policy on super. It would seem that he has become what he previously criticized, a doomsayer and scaremonger.

One thing you can count on is Montgomery serving his self interest. If his business ever becomes predominantly mandates from super funds instead of direct retail investors, history suggest he would write the exact opposite article and say that he had previously placed all funds possible into super because it is such a good idea.

At the moment he has a vested interest in his followers placing money in his fund rather than into their superannuation funds that do not give him mandates to manage it.

 

[sptrawler]

One thing you can count on is Montgomery serving his self interest. If his business ever becomes predominantly mandates from super funds instead of direct retail investors, history suggest he would write the exact opposite article and say that he had previously placed all funds possible into super because it is such a good idea.

At the moment he has a vested interest in his followers placing money in his fund rather than into their superannuation funds that do not give him mandates to manage it.

Thanks for the heads up, didn't realise he had a vested interest. Just thought he was a columnist giving an opinion.

 

[sydboy007]

An Australian Financial Review analysis of Australian Taxation Office statistics shows almost 9200 self-managed super funds have a balance of more than $5 million, a rise of 76 per cent in the past three years, and the number of funds with over $10 million has doubled…

Tax advisers have raised the alarm on the number of super-wealthy clients able to have incomes taxed at zero to 15 per cent, instead of the current top rate of 46.5 per cent, by using generous concessions and “cracks” in the superannuation system.

“These are people with $10 million to $20 million in self-managed super, they’ve funded their retirement several times over, they don’t need concessions,” said one tax lawyer…

The most popular [strategy] is 55-year-old executives who start drawing a tax-free pension from their fund, while tipping their entire salary into it and effectively reducing their taxable income from 46.5 per cent to about 15 per cent…

Advisers say the sheer volume of this behaviour is causing “material leakage” to the nation’s revenue position.

and from John Hewson recently - As a result of this poorly targeted tax concession, 36.1 per cent of the benefits go to the top 10 per cent of income earners, whereas the bottom 10 per cent don’t receive any assistance at all, but are instead penalised…

Treasury estimates that from the combined support of superannuation tax concessions and the age pension, most people (about 80 per cent) receive around $270,000 support over their lifetime. In contrast, the top 1 per cent of male income earners receives about $520,000 support over their lifetime, because of significant tax concessions to high-income earners.

In the latest Retirement and Retirement Intentions survey by the Australian Bureau of Statistics found that “of those who had made contributions, 55% had received all or part of their superannuation funds as a lump sum payment”. It also found that “many of those who received a lump sum payment used it to pay off or improve their existing home or purchase a new home… or to buy or pay off a motor vehicle”.

From Industry Super Australia CEO, David Whiteley - “There’s 3.5 million Australians earning less than $35,000 that don’t get tax concessions on their super contributions. So the first thing you do is fix that. The second thing you do, is not increase the super guarantee.”

So it seems to me that super is more a cash drain to the budget in that it has had little effect on the amount of aged pension currently being received, and from current forecasts in 20 years till we will still see something like 80% of people receiving a full or part pension. So I have to ask what's the $30B in tax expenditures and $20B fees of the retail and industry funds and prob $5B+ for the SMSF market actually getting us?

 

[Knobby22]

I saw in the Age today that Joe Hockey flagged a delay to getting super access on Q&A.

They mentioned the figure of 5 years which would mean you would have to be 65 to get access. Not long ago it went from 55 to 60 under Labor. Abbott made the promise before the election that they wouldn't do this but we all know that means nothing.

Not happy Jan.

And you are right sydboy, huge savings to the budget could be made regarding super but that would effect the wealthy, so it won't happen. It is strange that that the poor are actually penalised in super being taxed at a higher rate than they would get otherwise. Gotta make the divide bigger seems to be the philosophy.

 

[FxTrader]

The most popular [strategy] is 55-year-old executives who start drawing a tax-free pension from their fund, while tipping their entire salary into it and effectively reducing their taxable income from 46.5 per cent to about 15 per cent…

Just to fact check the claims made here, if your preservation age is 55 and you are not retired you can start a Transition to Retirement income stream that allows you to withdraw funds but such funds are concessionaly taxed (not tax free) and capped at a maximum of 10% of available funds. As for tipping one's entire salary into super, if that exceeds $150k you get slapped with a tax of 46.5%. Just a bit of sloppy journalistic exaggeration here to grab attention.

The contribution caps for 2013-2014 are shown below.



BTW, you can access super in some special circumstances as well, your funds are not as stranded in super as some here suggest they are...

compassionate grounds
severe financial hardship
terminal medical condition
temporary incapacity
permanent incapacity
temporary residents leaving Australia permanently
super death benefits (inheriting super)
super less than $200.​

 

[sptrawler]

I would assumes if the $150,000 is non concessional, it has had tax paid on it above the $25k or $35k concessional limit.
That article sounds like a misrepresentation of the facts Syd.

 

[k.smith]

An Australian Financial Review analysis of Australian Taxation Office statistics shows almost 9200 self-managed super funds have a balance of more than $5 million, a rise of 76 per cent in the past three years, and the number of funds with over $10 million has doubled…

Tax advisers have raised the alarm on the number of super-wealthy clients able to have incomes taxed at zero to 15 per cent, instead of the current top rate of 46.5 per cent, by using generous concessions and “cracks” in the superannuation system.

“These are people with $10 million to $20 million in self-managed super, they’ve funded their retirement several times over, they don’t need concessions,” said one tax lawyer…

The most popular [strategy] is 55-year-old executives who start drawing a tax-free pension from their fund, while tipping their entire salary into it and effectively reducing their taxable income from 46.5 per cent to about 15 per cent…

Advisers say the sheer volume of this behaviour is causing “material leakage” to the nation’s revenue position.

and from John Hewson recently - As a result of this poorly targeted tax concession, 36.1 per cent of the benefits go to the top 10 per cent of income earners, whereas the bottom 10 per cent don’t receive any assistance at all, but are instead penalised…

Treasury estimates that from the combined support of superannuation tax concessions and the age pension, most people (about 80 per cent) receive around $270,000 support over their lifetime. In contrast, the top 1 per cent of male income earners receives about $520,000 support over their lifetime, because of significant tax concessions to high-income earners.

In the latest Retirement and Retirement Intentions survey by the Australian Bureau of Statistics found that “of those who had made contributions, 55% had received all or part of their superannuation funds as a lump sum payment”. It also found that “many of those who received a lump sum payment used it to pay off or improve their existing home or purchase a new home… or to buy or pay off a motor vehicle”.

From Industry Super Australia CEO, David Whiteley - “There’s 3.5 million Australians earning less than $35,000 that don’t get tax concessions on their super contributions. So the first thing you do is fix that. The second thing you do, is not increase the super guarantee.”

So it seems to me that super is more a cash drain to the budget in that it has had little effect on the amount of aged pension currently being received, and from current forecasts in 20 years till we will still see something like 80% of people receiving a full or part pension. So I have to ask what's the $30B in tax expenditures and $20B fees of the retail and industry funds and prob $5B+ for the SMSF market actually getting us?

it's worth reading in it's entirety.....
http://www.afr.com/p/national/tax_leakage_alarm_over_super_wealthy_kf7K4fYSDcSI1437kKAMUN

 

[sptrawler]

it's worth reading in it's entirety.....
http://www.afr.com/p/national/tax_leakage_alarm_over_super_wealthy_kf7K4fYSDcSI1437kKAMUN

Thanks for the link to the whole article K.Smith.

The three things that stood out to me were.

1. 9200 funds have more than $5m in them, so if they are two member funds thats 9500 people with $2.6m each in super out of a population of 24million.

2. There are a number of funds with over $10m in super, but it is obviously such a small number that they won't say the number.

3. The tax white paper review process will begin soon and will include super.

Therefore I would glean from that, not many super rich use super, probably high net worth middle class.
Those same people have left themselves in a very exposed financial position, regards government regulation.

 

[k.smith]

Thanks for the link to the whole article K.Smith.

The three things that stood out to me were.

1. 9200 funds have more than $5m in them, so if they are two member funds thats 9500 people with $2.6m each in super out of a population of 24million.

2. There are a number of funds with over $10m in super, but it is obviously such a small number that they won't say the number.

3. The tax white paper review process will begin soon and will include super.

Therefore I would glean from that, not many super rich use super, probably high net worth middle class.
Those same people have left themselves in a very exposed financial position, regards government regulation.

sptrawler

re 1. won't 9200 funds with 2 people in each involve 18,400 people? at $2.6m each? wow...then again, there could be a lot more members in the larger accounts

also, these stats (re SMSF's) are a few years old, but a bit of an insight
http://www.superguide.com.au/how-super-works/super-rich-is-smsf-bigger-rest

It seems terribly wrong that the government co-contribution for low income people was reduced from $1500 to $1000 and then $500, given that they gain so little by doing the very thing that the whole purpose of super was about in the first place. On the other end of the spectrum ...
http://www.afr.com/p/national/tax_leakage_alarm_over_super_wealthy_kf7K4fYSDcSI1437kKAMUN

 

[sptrawler]

sptrawler

re 1. won't 9200 funds with 2 people in each involve 18,400 people? at $2.6m each? wow...then again, there could be a lot more members in the larger accounts]

Yes my mistake, trying to talk to the missus and type is difficult.lol Still not a lot of people really.

also, these stats (re SMSF's) are a few years old, but a bit of an insight
http://www.superguide.com.au/how-super-works/super-rich-is-smsf-bigger-rest

It seems terribly wrong that the government co-contribution for low income people was reduced from $1500 to $1000 and then $500, given that they gain so little by doing the very thing that the whole purpose of super was about in the first place. On the other end of the spectrum ...
http://www.afr.com/p/national/tax_leakage_alarm_over_super_wealthy_kf7K4fYSDcSI1437kKAMUN

I'll read the links tommorrow, I'm coping a bit of flak.

The good thing is, hopefully they will hit super hard with the white paper.
With a bit of luck all super won't be available untill pension age and no pension is available untill all your super is exhausted.
That sounds fair for everyone.

 

[qldfrog]

Isn't the retirement age for someone who is now 47 going to be 67, courtesy of the last Labor government?

No, 70 after the last budget as I understand it;
Please Please tell me I am wrong, at least I have some chance to use what i am forced to put in my super;

And definitively for my type of work and until I became fully self employed [and so it became irrelevant as I am also my own employer]
we discuss package and a package includes super.
do i do get 120k/150k and if the mandatory super increases you just get less in your pay cheque.

 

[pinkboy]

No, 70 after the last budget as I understand it;
Please Please tell me I am wrong, at least I have some chance to use what i am forced to put in my super;

And definitively for my type of work and until I became fully self employed [and so it became irrelevant as I am also my own employer]
we discuss package and a package includes super.
do i do get 120k/150k and if the mandatory super increases you just get less in your pay cheque.

You might want to take a step back and understand it a bit more. The latest budget will raise the age to 70 to be phased in over a 21 year period to 2035. It's not a one hit wonder.

You are still not understanding how super is contributed; it is employer imposed. As the increases take effect over the next decade it will rise in increments from 9% last financial year (currently 9.25%) through to 12%. It does not impact your pay a single dollar. It is paid on top of your wage entirely by your employer. It is not deducted from your gross or net earnings.

Might really want to school up on Super if you are going to get in the business of self employment especially if you want to employ people.

pinkboy

 

[Julia]

Qld frog: suggest you check the Budget papers. The 70 age is a proposal only at this stage, and as I understand it would only come in many years into the future. Even then it would have to get through the Senate which is looking completely unlikely.

Do your own research on this as you would on anything else. Don't take what you read on any internet forum written by anyone as necessarily gospel.

 

[Knobby22]

No, 70 after the last budget as I understand it;
Please Please tell me I am wrong, at least I have some chance to use what i am forced to put in my super;

And definitively for my type of work and until I became fully self employed [and so it became irrelevant as I am also my own employer]
we discuss package and a package includes super.
do i do get 120k/150k and if the mandatory super increases you just get less in your pay cheque.

Unfortunately it looks like it will only be the baby boomers who will get to use it. We will never have that luxury.
The next thing they will do after raising the age is to make you take it like a pension with no freedom to take a lump sum and have some enjoyment before you become decrepit. You will note the ones supporting the changes have already retired or of an age where they won't be affected. It feels like communism to me. I want to get the money and spend and invest it as I see fit.this country is really starting to suck.

 

[Faramir]

A key factor Montgomery ignores is the voting power of an aging population and it's influence on government policy.

Thank you everyone who answered my question. It was very interesting to get everyone's views. I only quoted FxTrader cos it leads to my next question.

Can I take the focus off the author and can we focus on FxTrader's quote?

For people roughly aged between 35-50 years, when we reach "Grey Power" age, will there be enough of us to influence Government Policy? In stereo-type assumption is that Baby Boomers were always politically active and thus they can influence Policy. It is stereo-type attitude that our generation is less political active and the generation below ours even more less poitically active. (I know am very wrong on many counts, I am wrongly stereo-typing.)

Will the generations below us have more influence on Super Policy than us than we reach "Grey Power" since they will be in Government? The Generation before Baby Boomers did not (on the most part) have Super. Baby Boomers will be the first, Gen X, Gen Y and so on will have more Super.

I think the less politcally active each generation becomes, the more likely Governments will know that they get away with more taxes, more rule changes, etc. I am making some very broad based assumptions here. Please express your opinions and let me know where I have overlooked things.