Superannuation, the ultimate government cash cow?

as a couple with kid, we live happily on 60k a year so 30k a year is very sufficient IMHO as long as you are debt free and do not waste your money;

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Qld frog: that's somewhat of a disingenuous conclusion. A single person living in a similar house to your couple with kid will have all the same non-discretionary outgoings, viz council rates, electricity, maintenance, insurance, running of one vehicle etc etc.

The other factor which needs to be considered is the increasing cost of health care when ageing. Just today I read about PBS co-payments increasing substantially. We are, imo, going to be facing ever increasing user pays systems in healthcare and aged care.

Someone wishing a very frugal lifestyle may well be able to survive on just $30K, but I don't see that as being sustainable to the end of that person's retirement years.
And if someone has worked and saved hard all their working lives, why shouldn't they aim for a retirement which includes a level of comfort, rather than just a level of survival.

Julia said:

Qld frog: that's somewhat of a disingenuous conclusion. A single person living in a similar house to your couple with kid will have all the same non-discretionary outgoings, viz council rates, electricity, maintenance, insurance, running of one vehicle etc etc.

The other factor which needs to be considered is the increasing cost of health care when ageing. Just today I read about PBS co-payments increasing substantially. We are, imo, going to be facing ever increasing user pays systems in healthcare and aged care.

Someone wishing a very frugal lifestyle may well be able to survive on just $30K, but I don't see that as being sustainable to the end of that person's retirement years.
And if someone has worked and saved hard all their working lives, why shouldn't they aim for a retirement which includes a level of comfort, rather than just a level of survival.

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Julia, untill someone gets to 55 and starts to contemplate supporting themselves, on the funds they have accumulated.
They are just talking off the top of their heads.
I have retired from a workplace that is closing down, untill the older workers are faced with the prospect of "what you have is what you've got", they don't realise the enormity of it.
The realisation that there isn't another job around the corner sinks in, then $hit I don't think I have enough.

Well that's my experience.

True that the 60k for two may not be 30k for one;
Julia, you have a point

But I am seriously considering stopping 8 to 5 work within 2 to 5 years and I base my computations on $55k to $60k a year (inflation ajusted) for both of us
I can not count on super for another 20 to 25 years so has to really be self funded and this will have to include sale of capital/assets along the way.
I would agree with sp that most people have absolutely no idea how much assets are required to actually be self funded;
my own spreadsheet indicates a figure around the 2.5 M if you want to get that 60k a year inflation ajusted and based on conservative investment returns;
and that is not that easy to get!

qldfrog said:

True that the 60k for two may not be 30k for one;
Julia, you have a point

But I am seriously considering stopping 8 to 5 work within 2 to 5 years and I base my computations on $55k to $60k a year (inflation ajusted) for both of us
I can not count on super for another 20 to 25 years so has to really be self funded and this will have to include sale of capital/assets along the way.
I would agree with sp that most people have absolutely no idea how much assets are required to actually be self funded;
my own spreadsheet indicates a figure around the 2.5 M if you want to get that 60k a year inflation ajusted and based on conservative investment returns;
and that is not that easy to get!

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That is the figure I reckon is needed, qldfrog.
Like you say, getting that sort of money together takes some doing.

Well it looks as though the first step in reducing the cost of super is locked in.

http://www.smh.com.au/business/aust...funded-retirement-on-ice-20140902-10bi1j.html

sptrawler said:

Well it looks as though the first step in reducing the cost of super is locked in.

http://www.smh.com.au/business/aust...funded-retirement-on-ice-20140902-10bi1j.html

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thanks for that;
I do resent the article:
"The freeze hits the lower paid disproportionately. "

In my view, the freeze helps the lower paid disproportionately.
And this is good!When you are struggling and paying credit card interest rate to go from month to month, the last thing you need is a lower pay check whith a grand 3 or 4% return on that money after inflation, probably less after fees

qldfrog said:

thanks for that;
I do resent the article:
"The freeze hits the lower paid disproportionately. "

In my view, the freeze helps the lower paid disproportionately.
And this is good!When you are struggling and paying credit card interest rate to go from month to month, the last thing you need is a lower pay check whith a grand 3 or 4% return on that money after inflation, probably less after fees

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As some posters on here say, why should someone with a low super balance be allowed to take it out, to pay off debts when they retire.
I agree with you, why not let them have the money now, to pay down their debts before they retire?
It is weird how the do gooders want to help everyone, by punishing them.lol

sptrawler said:

As some posters on here say, why should someone with a low super balance be allowed to take it out, to pay off debts when they retire. I agree with you, why not let them have the money now, to pay down their debts before they retire? It is weird how the do gooders want to help everyone, by punishing them.lol

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The notion that the lower paid are "disproportionately" worse off is misinformation at best. Employers are not under any obligation to wear the progressive increase in the SGL and many did not, just adjusted down the salary component of the package. The only way for those on lower incomes to have any prospect of being self-funded in retirement is compusory co-contribution and this seems politically impossible to sell here.

FxTrader said:

The notion that the lower paid are "disproportionately" worse off is misinformation at best. Employers are not under any obligation to wear the progressive increase in the SGL and many did not, just adjusted down the salary component of the package. The only way for those on lower incomes to have any prospect of being self-funded in retirement is compusory co-contribution and this seems politically impossible to sell here.

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The current couple full pension is roughly $30K a year.

At a 5% yield you'd need 600K to provide that.

The couple will still receive 10.5K p.a in pension between them. 45K a year tax free for a home owner isn't a bad income.

The below table is the latest income deciles (June 2014)

The bottom 40% of households are sitting at < 53K a year. After living costs there's not going to be much surplus income for investing, and being in such a precarious state of low income I'd argue they'd be better off saving outside super.

The tax benefits to a couple with a combined income of less than 53K a year are minimal. Most likely both wage earners are in the 19c tax rate so the benefits of 15% super tax are minimal. Then there's the fee gouge for super. After a decade the fees on their super are probably approaching the tax savings they're getting.

Since RBLs were removed super has turned from being something to provide a decent retirement income to a tax shelter for the wealthy. When RBLs were removed in 2007 a couple could have a tad over $2M in super before they'd suffer high taxes. CPI increases till today would probably see that figure towards the $2.5M mark. Why is the Govt bleeding revenue to allow people to accumulate far higher amounts than this? Does't that mean other taxes have to be higher to compensate, or the Govt has to spend less on services and infrastructure?

The bottom 40% of individual income earners receive ~8% of super tax reductions. The top 10% receive ~37%. The top 20% receive ~57%.

Super is not the only way to save for retirement, but it's increasingly becoming one of the most expensive ways for us to do it. $23B in fees alone annually and counting. In 10 to 15 years those fees will be more than the cost of the aged pension.

sydboy007 said:

The current couple full pension is roughly $30K a year.

At a 5% yield you'd need 600K to provide that..

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The current pension is secured and indexed, secure yeilds are 3.5% not 5%.
$600k ? you really are joking, aren't you?

sydboy007 said:

The couple will still receive 10.5K p.a in pension between them. 45K a year tax free for a home owner isn't a bad income..

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How much lifestyle have they foregone to obtain that $45k, whereas the people who haven't foregone lifestyle enjoy $30k lifestyle anyway. I'm seeing this scenario unfold before my eyes, with friends of my age, it is scary.

sydboy007 said:

The below table is the latest income deciles (June 2014)

The bottom 40% of households are sitting at < 53K a year. After living costs there's not going to be much surplus income for investing, and being in such a precarious state of low income I'd argue they'd be better off saving outside super..

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sydboy007 said:

The bottom 40% of individual income earners receive ~8% of super tax reductions. The top 10% receive ~37%. The top 20% receive ~57%..

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The bottom 40% of income earners probably pay minimal net tax, so do you think the tax payers should also be paying savings for them, to give them more in retirement?
It would be easier to just up the pension and make it more difficult to access.

sydboy007 said:

Super is not the only way to save for retirement, but it's increasingly becoming one of the most expensive ways for us to do it. $23B in fees alone annually and counting. In 10 to 15 years those fees will be more than the cost of the aged pension.

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That's true, but as Keating said in his rebuke of Abbott, it underpins alot of our fiscal exposure, it isn't all about pensions.

It's about time you realised, you can't buy people a sense of responsibilty and you can't keep crucifying those that have one.
Eventually you end up with everyone at the lowest common denominator.

sptrawler said:

The current pension is secured and indexed, secure yeilds are 3.5% not 5%.
$600k ? you really are joking, aren't you?

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Depends on your definition of secure.

If you're world is only Government bonds and TDs then yes, getting 5% yield is nigh on impossible,

If you're willing to upgrade your risk profile a bit then some hybrids and corporate bonds will provide you with a 5% yield relatively easily.

If you don't want hybrids a combination of CIBs and IABs would give you 5.5% easily, with INFLATION proection, where income is sourced from monopoly assets and regulated returns, or assets used by Governments, so in theory should be reliable payers of interest and return of capital.

I have no sympathy for someone who's only willing to get barely above CPI yields.

sydboy007 said:

Depends on your definition of secure.

If you're world is only Government bonds and TDs then yes, getting 5% yield is nigh on impossible,

If you're willing to upgrade your risk profile a bit then some hybrids and corporate bonds will provide you with a 5% yield relatively easily.

If you don't want hybrids a combination of CIBs and IABs would give you 5.5% easily, with INFLATION proection, where income is sourced from monopoly assets and regulated returns, or assets used by Governments, so in theory should be reliable payers of interest and return of capital.

I have no sympathy for someone who's only willing to get barely above CPI yields.

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This is the issue you aren't understanding.

The baby boomers that are retiring, with a reasonable sum in super, are the conservative ones.
( and don't demean me, and your arguement, by bringing up the 0.0001% who are rorting the system).

They have squirreled away money, the less conservative would have lost most in the GFC and the spenders didn't have any.

That is why most of the SMSF have a conservative spread, i.e a lot in cash. Yes they are conservative and yes they are afraid of loosing what they have worked hard to accumulate.
When you are at the end of your working life you will see it through different eyes.

You have no sympathy for those who wish to protect, what they saved hard for.
Yet you are full of sympathy for those who saved nothing. Strange IMO.

You criticise a culture of saving and acting responsibly, yet applaud a culture of spending and welfare dependence.

Well Rice Warner, agree that most people who have saved a nest egg in super, aren't blowing it, to get on the pension.
It's o.k for some to debunk, the NBN Myths, while perpertating their own Superannuation Myths.

Myths of Retirement Income.

The subject of retirement income is cloaked in "myths" and "suppositions", says Rice Warner Actuaries in its submission to the Australian Government's current inquiry into the financial system, chaired by David Murray.

As Rice Warner states, a range of myths and suppositions makes it difficult to conduct a debate about how to improve Australia's retirement income system - one of the core issues being examined by the Murray inquiry.

Most of the myths highlighted in the Rice Warner submission revolve around the attitude of retirees to retirement incomes.

It is widely reported - based on interpretations of government statistics - that a high proportion of retirees take much of their super as a lump sum rather than a pension. In other words, Australia is often regarded as a lump sum society. Rice Warner begs to differ, estimating that just 15 per cent of the value of retirement benefits is taken as a lump sum.

"It is true that more than 50 per cent of [superannuation] accounts are paid out as lump sums," Rice Warner acknowledges. "However, these are generally small amounts." Keep in mind that there is an average of more than two accounts for each member.

Other factors contributing to the myth about the favouring of lump sums include the reality that a proportion of fund members roll their super out of their funds upon retirement to take a pension in another fund. Additionally, some retirees choose to move their savings out of super into personally-held term deposits and other income-producing investments.

An associated myth addressed is that "Australians do not buy retirement incomes". In fact, many retirees draw a regular income from account-based pensions rather than buying an annuity.

Another much-discussed myth is that "retirees spend their superannuation too quickly". However, Rice Warner comments: "In practice, most retirees are frugal and many take the legislated minimum withdrawal amount [from their super pensions] each year." (The firm calculates that the average amount drawn down annually as a super pension is 7 per cent of a member's pension assets.)

It seems that despite myths and suppositions to the contrary, many retirees regard an income stream as the key means to stretch their savings for as long as possible.

The next challenge is try to ensure that the investment portfolio backing the income stream is as appropriate and effective as possible. That is a challenge for individual retirees, super funds and government.

Smart Investing also discussed this issue on August 28 in Let the Great Retirement Income debate begin.



Written by Robin Bowerman, Principal, Market Strategy and Communications

Very interesting, sptrawler. Thanks for posting the above. Good to see some of the categorical assertions exposed as myth.

sptrawler said:

It is widely reported - based on interpretations of government statistics - that a high proportion of retirees take much of their super as a lump sum rather than a pension. In other words, Australia is often regarded as a lump sum society. Rice Warner begs to differ, estimating that just 15 per cent of the value of retirement benefits is taken as a lump sum.

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So basically they're forming a contrary "suppositions", or estimate, but don't have a lot of proof to back up their claims.

They might be on the right track, maybe not.

What is a small amount?

It would have been good if they'd been able to say the median lump sum is $XXXX

What is the value of the 15% lump sum? Is that on an annual basis? How much does that increase access to the pension?

sydboy007 said:

So basically they're forming a contrary "suppositions", or estimate, but don't have a lot of proof to back up their claims.

They might be on the right track, maybe not.

What is a small amount?

It would have been good if they'd been able to say the median lump sum is $XXXX

What is the value of the 15% lump sum? Is that on an annual basis? How much does that increase access to the pension?

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Actually their estimates are very conservative.

From other sources, which I posted earlier in the thread, of those who operate a SMSF only 3% withdraw lump sums. Most draw a pension.

But as you say it is only estimates, similar to those presented in the NBN roll out arguement.
How much credibility you give it, is dependent on how much interest you have in the outcome and that is probably proportional to the effect it has on you personaly.

sptrawler said:

Actually their estimates are very conservative.

From other sources, which I posted earlier in the thread, of those who operate a SMSF only 3% withdraw lump sums. Most draw a pension.

But as you say it is only estimates, similar to those presented in the NBN roll out arguement.
How much credibility you give it, is dependent on how much interest you have in the outcome and that is probably proportional to the effect it has on you personaly.

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Definitely. When you're account / advisor says taking a lump sum of $XXXXX and spenidng it on a holiday or renovations will get you $XXX in extra pension every fortnight I'm sure plenty of interest will be expressed.

sydboy007 said:

Definitely. When you're account / advisor says taking a lump sum of $XXXXX and spenidng it on a holiday or renovations will get you $XXX in extra pension every fortnight I'm sure plenty of interest will be expressed.

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I don't know how that works, all the people I know are just drawing the minimum drawdown, applicable to their age.

Ah the penny drops, you mean old age pension, I'm not anywhere near that and can't get it untill I'm 66.5.

Most of the guys I worked with, were fairly active investors while working. So most won't qualify for any pension, they will be self funded.

But I do agree those with low balances, that are heavily reliant on the Government pension, would no doubt make money disappear.

sydboy007 said:

Definitely. When you're account / advisor says taking a lump sum of $XXXXX and spenidng it on a holiday or renovations will get you $XXX in extra pension every fortnight I'm sure plenty of interest will be expressed.

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Actually following your train of thought, if someone has a super balance that qualifies them for a part Government pension, maybe lump sums should be prohibited.

sptrawler said:

Actually following your train of thought, if someone has a super balance that qualifies them for a part Government pension, maybe lump sums should be prohibited.

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Really? So you're going to deny someone who has done their best to save as much as possible into Super, especially women whose earning capacity is less than that of men, particularly the child bearing years out of the workforce, the ability to pay off any remaining mortgage when they retire, maybe upgrade that 20 year old car to something that will last them out?

Why would you do that? What sort of moral authority would say to such a person:
"You may not pay off your mortgage. Instead, although your Super will only provide you with less than the age pension if taken as an allocated pension or annuity, that's what you will have to do."

Flies totally in the face of everything you have previously said.
It would also be counterproductive to the idea of making voluntary contributions to Super. Instead, if your proposed conditions were to be imposed, that person would be much better off making higher mortgage repayments.