Superannuation, the ultimate government cash cow?

[Brickie2]

The untaxed element has a maximum tax rate of 30% when passed down to non-dependant beneficiaries...so it would be the lower of their marginal rate or 30%. You might be able to consider moving more funds outside of the super environment, or putting in place a testamentary trust if you're concerned about this. There are strategies available. This is not advice, DYOR.

With unrealised gains/losses, they might be reported as far as showing the performance of your fund each year. However, capital gains/losses are not included in assessable income until they are realised.

Thanks for that Junior, more research needed at my end it seems, have tried the ATO site but was more confused than when I started so will get the Admin people onto it.

Regards counting unrealised Cp/Gns etc as income will have to see how they set the Bill up.
My returns will have to be rearanged if it gets in.DYOR etc.
thanks again.

 

[sydboy007]

In Our SMSF in Pension mode all unrealised & realised C/Gns & Fr/Credits are counted in each years income.
As we have been in pens for over 15 years we have no losses carried fwd ( Not done I'm told), we lost about 35% in GFC.
Some years we have losses and some gains, will they even these out.
Don't forget the sting in the tail of SMSFs etc when you finally fall off your perch ( I'M getting close) your adult beneficiaries will pay tax on the untaxed amount they receive at their marginal tax rate.
Does the proposer of this new tax not realise good Generals lead from the front, not a mention of cutting their pensions + Perks.

Super is designed to provide an income during retirement.

if it's not used for that purpose, then shouldn't a more normal rate of tax be applied, otherwise it's just more encouragement for people to treat super as a tax shelter.

I do think it would make things easier of super contributions were taxed at full rates with an offset to bring it down to 15%. The same for earnings could also be done.

This would help people to understand just how much Govt support is directed at super. I'm currently receiving the equivalent of 1/3 of the single pension in super tax concessions on an annual basis, and that level will likely increase as my balance grows and fund earnings increasingly outweigh contributions. I still have 24 years till retirement, so it's possible I'll receive more in super tax concessions that the Govt would save on pension payments.

 

[craft]

Super is designed to provide an income during retirement.

if it's not used for that purpose, then shouldn't a more normal rate of tax be applied, otherwise it's just more encouragement for people to treat super as a tax shelter.

I do think it would make things easier of super contributions were taxed at full rates with an offset to bring it down to 15%. The same for earnings could also be done.

This would help people to understand just how much Govt support is directed at super. I'm currently receiving the equivalent of 1/3 of the single pension in super tax concessions on an annual basis, and that level will likely increase as my balance grows and fund earnings increasingly outweigh contributions. I still have 24 years till retirement, so it's possible I'll receive more in super tax concessions that the Govt would save on pension payments.

Syd you keep sing the same tune.

Here’s the thing – I have already contributed much more in actual tax dollars paid to the government via my super fund with the flat tax rate at 15% on earnings then I would have if the earnings tax rate was full marginal. I have to compound the tax concessions up because I don’t have access – Yes I have a larger balance because of the concessions but the gov’t has made a good investment by taking a 15% cut on the ongoing compounding of the tax concessions rather than an upfront 45%. I think your tax concession argument is seriously flawed.

 

[McLovin]

Don't forget the sting in the tail of SMSFs etc when you finally fall off your perch ( I'M getting close) your adult beneficiaries will pay tax on the untaxed amount they receive at their marginal tax rate.

This got me thinking.

Any of the resident accountants care to chime in...

What happens in a scenario where Joe is on his death bed and empties his super fund as an untaxed pension a few days before he dies, can it be passed on to his heirs tax free or does the ATO treat it differently?

From an estate law point of view, gifting assets to people close to death to get around the inheritence laws will generally be considered to be inheritence in kind and can be reversed by the court. I'm wondering if the ATO takes the same view in relation to tax.

 

[sydboy007]

Syd you keep sing the same tune.

Here’s the thing – I have already contributed much more in actual tax dollars paid to the government via my super fund with the flat tax rate at 15% on earnings then I would have if the earnings tax rate was full marginal. I have to compound the tax concessions up because I don’t have access – Yes I have a larger balance because of the concessions but the gov’t has made a good investment by taking a 15% cut on the ongoing compounding of the tax concessions rather than an upfront 45%. I think your tax concession argument is seriously flawed.

i don't see how it's possible to pay more in tax within super than at marginal rates, except if you're truly at the bottom of the income scale, in which case you're paying 15% extra tax while someone on $180+ gets a 32% break.

Super tax concessions are growing at twice the rate of the aged pension. It just doesn't seem to be providing the value we're told it does, except if you'e part of the finance industry scooping out their obscene profits from it then the gravy train is all good.

 

[sptrawler]

i don't see how it's possible to pay more in tax within super than at marginal rates, except if you're truly at the bottom of the income scale, in which case you're paying 15% extra tax while someone on $180+ gets a 32% break.

Super tax concessions are growing at twice the rate of the aged pension. It just doesn't seem to be providing the value we're told it does, except if you'e part of the finance industry scooping out their obscene profits from it then the gravy train is all good.

Syd, after debating with you over a long per, it has become obvious to me, that your suggestion of RBL's which are adjusted makes the most sense.

The only issue I would have is the starting point, our ToT and currency is in freefall, the economy is a basket case.

Therefore I would say it would be prudent, to set the starting point at a level that gives a good standard of living.

Then the RBL could be stopped, increased or decreased as the economy dictates, allowing for cpi and inflation.

This would obviously create difficulties, when people exceed the RBL in accumulation phase and pension phase, but that should be able to be overcome.

 

[Bill M]

Therefore I would say it would be prudent, to set the starting point at a level that gives a good standard of living.

I reckon that amount should be $2 Million. Reason being that it should give you a comfortable retirement where your money is invested in a term deposit or other cash "safe" investments. Right now for a year term you can get around 3.2%, that would pay you $64,000 which near enough to today's average salary. That would be a fair starting point, it gives the conservative investors their piece of mind and if you were an active sharemarket investor it could provide a lot more.

 

[craft]

i don't see how it's possible to pay more in tax within super than at marginal rates, except if you're truly at the bottom of the income scale, in which case you're paying 15% extra tax while someone on $180+ gets a 32% break.

The only thing that changes in the spreadsheet is the tax rate.



The lower the return the longer it takes to get to tax paid breakeven but hopefully the example gives you the gist. Overall tax foregone by the government over a typical superannuation time frame, with typical return will be nothing like the simplistic snap shot notional tax concessional calculations that are bandied around.

 

[qldfrog]

craft:
I like you excel snapshot:
a simple way to demonstrate how high taxation rate destroys the actual tax income

 

[sydboy007]

Syd, after debating with you over a long per, it has become obvious to me, that your suggestion of RBL's which are adjusted makes the most sense.

The only issue I would have is the starting point, our ToT and currency is in freefall, the economy is a basket case.

Therefore I would say it would be prudent, to set the starting point at a level that gives a good standard of living.

Then the RBL could be stopped, increased or decreased as the economy dictates, allowing for cpi and inflation.

This would obviously create difficulties, when people exceed the RBL in accumulation phase and pension phase, but that should be able to be overcome.

* What is a good standard of living? Does that include holidays? What level of lifestyle do people deserve to have Govt subsidies to enjoy?

* If the RBL can go up and down then what certainty does a person have? it would be simpler to just set a level then let it increase by CPI or wages growth.

* I suppose if the RBL needs to be decreased causing some to be over it, then the simplest way would be to make further contributions at marginal rates, which limits the attractiveness of going over the RBL.

I reckon that amount should be $2 Million. Reason being that it should give you a comfortable retirement where your money is invested in a term deposit or other cash "safe" investments. Right now for a year term you can get around 3.2%, that would pay you $64,000 which near enough to today's average salary. That would be a fair starting point, it gives the conservative investors their piece of mind and if you were an active sharemarket investor it could provide a lot more.

Is it fair to have general taxation much higher so as to allow a few to accumulate up to $2M, along with a PPOR possibly in excess of that? Remember that the ratio of workers to retirees is heading back to levels close to 40 or 50 years ago in the not too distant future. Income tax rates were far higher back then, even though the pension consumed a far smaller % of Govt spending.

The median income is $48K. Does it make sense to provide a massive level of tax expenditures to accumulate so much within super?

Personally I'd be happy with an RBL that provides a couple with 50% more than the current pension at a 4% yield. $50.5K tax free seems a reasonable amount, and for those who want a better lifestyle there's nothing stopping them from down sizing their house or saving outside super to achieve that goal.

If RBLs are going to be that high then you'd need to more than undo the tapering adjustments of Howard and Costello, and give more serious consideration of at least partially including the PPOR in the pension assets test.

We also have the situation with the removal of the LISC that poor people get penalised for any savings within super ie the poorest end up paying 15% extra tax while those at the top enjoy a 32% reduction. That doesn't seem the way to encourage those on low incomes to actually get interested in saving for their future.

 

[Bill M]

We also have the situation with the removal of the LISC that poor people get penalised for any savings within super ie the poorest end up paying 15% extra tax while those at the top enjoy a 32% reduction. That doesn't seem the way to encourage those on low incomes to actually get interested in saving for their future.

Several pages back I mentioned this terrible policy, I can't believe they took away the LISC and did nothing on the top end.

As to everything else you mentioned, yes I think everything in the accumulation phase of super is good now but I do agree that there should be reasonable benefit limit. I still think $2 M is a good starting point, indexed to CPI (up or down) each year. It's up to the punter if they save with super or not. In my working life I never earn't anywhere near the average wage, well under, but I still managed to save.

 

[Pager]

My wife has a part time job and at first I said to her she should salary sacrifice some of her wage into super, im the main bread winner and I thought if she added $100 a week she would pay less tax and without even noticing our super would get an additional $5K a year, THEN THE PENNY DROPPED We would actually be worse off

Does seem totally crazy and very unfair to have a flat tax of 15% on Super contributions from employer and salary sacrifice, surely a better way is to have it tiered in the same way income tax is, so those on low wages would pay none or very little and those on high salary’s would pay more, the current system is very much in favour of the high income earner, that way the low paid could accumulate a lot more to fund part of there retirement, in turn surely this would be less burden on the state.

 

[sydboy007]

The only thing that changes in the spreadsheet is the tax rate.

The lower the return the longer it takes to get to tax paid breakeven but hopefully the example gives you the gist. Overall tax foregone by the government over a typical superannuation time frame, with typical return will be nothing like the simplistic snap shot notional tax concessional calculations that are bandied around.

left side is under the super system and right side is at marginal rates of tax.

Assumed income growth 3% each year with earnings of 4.5% and cap growth of 4% each year.

Roughly 50% less tax paid within the super system over a 20 year period

Calculations based on SG contribution less appropriate tax ie earnings and capital growth calculated after tax

Annual total tax is based on tax from SG contribution and earnings.

it seems to show that saving within super more than halves the tax paid over a 20 year period, and stays at a similar level out to 30 years.

 

[sptrawler]

This article more or less backs up what Bill and myself have been saying, "it requires quite a lot of money, to support a sustainable self funded retirement".

http://www.smh.com.au/business/the-...retirement-income-system-20150427-1mukxg.html

Some feel we are being over the top, but having been retired for 3 1/2 years, I can already notice the escalating costs.
The problem is a difficult one and won't be resolved easily, finding the balance between reasonable returns, reasonable account balance and reasonable tax erosion of the capital will be difficult.

 

[Knobby22]

This article more or less backs up what Bill and myself have been saying, "it requires quite a lot of money, to support a sustainable self funded retirement".

http://www.smh.com.au/business/the-...retirement-income-system-20150427-1mukxg.html

Some feel we are being over the top, but having been retired for 3 1/2 years, I can already notice the escalating costs.
The problem is a difficult one and won't be resolved easily, finding the balance between reasonable returns, reasonable account balance and reasonable tax erosion of the capital will be difficult.

Glenn Stevens can see the problem obviously. Can our politicians?
Good post.

 

[Pager]

https://au.finance.yahoo.com/news/stop-making-super-rich-people-035407855.html


Australia needs to put an end to a superannuation debate that continually focuses on a minority of rich people while alienating the rest of the population, the head of a major industry fund says.
Between the unattractive jargon, inequitable government policy and overdramatic media headlines about needing $1 million in retirement, many Australians, particularly women, are tuning out when it comes to super, HESTA boss Debby Blakey says.
As chief executive of the industry super fund for health and community services, most of Ms Blakey's members are middle-aged women on modest wages, juggling part-time work with motherhood and with little superannuation to speak of.
Most of them will live on the age pension and use their super for little luxuries, like buying Christmas presents for their grandchildren, or having friends over for dinner, she says.


"Some of the mainstream media is obsessed with us needing $1 million in retirement and for many of our members, when they hear that, it actually switches them right off and they take the attitude that, `well I'm never going to reach $1 million so I won't even bother'," Ms Blakey told AAP.
"Who benefits from the conversation about needing $1 million in super? There's a very small part of the financial planning community that benefits from that conversation."
The whole point of superannuation is that it's for every Australian, Ms Blakey says.
The conversation needs to start including low income earners and women.
And while policy is needed to bridge the super gap between women and men, women also need to stop being complacent about superannuation, she said.
"The reality is that women don't think about it," Ms Blakey said.
"The reality is that nobody expects their marriage to end and the reality is that if it does, women are often left in a more difficult situation."
Super funds also need to do their bit, Ms Blakey said, by demystifying the complex language they use and communicating simple messages.

 

[sptrawler]

https://au.finance.yahoo.com/news/stop-making-super-rich-people-035407855.html


Australia needs to put an end to a superannuation debate that continually focuses on a minority of rich people while alienating the rest of the population, the head of a major industry fund says.
Between the unattractive jargon, inequitable government policy and overdramatic media headlines about needing $1 million in retirement, many Australians, particularly women, are tuning out when it comes to super, HESTA boss Debby Blakey says.
As chief executive of the industry super fund for health and community services, most of Ms Blakey's members are middle-aged women on modest wages, juggling part-time work with motherhood and with little superannuation to speak of.
Most of them will live on the age pension and use their super for little luxuries, like buying Christmas presents for their grandchildren, or having friends over for dinner, she says.


"Some of the mainstream media is obsessed with us needing $1 million in retirement and for many of our members, when they hear that, it actually switches them right off and they take the attitude that, `well I'm never going to reach $1 million so I won't even bother'," Ms Blakey told AAP.
"Who benefits from the conversation about needing $1 million in super? There's a very small part of the financial planning community that benefits from that conversation."
The whole point of superannuation is that it's for every Australian, Ms Blakey says.
The conversation needs to start including low income earners and women.
And while policy is needed to bridge the super gap between women and men, women also need to stop being complacent about superannuation, she said.
"The reality is that women don't think about it," Ms Blakey said.
"The reality is that nobody expects their marriage to end and the reality is that if it does, women are often left in a more difficult situation."
Super funds also need to do their bit, Ms Blakey said, by demystifying the complex language they use and communicating simple messages.

Which goes right back to what I've being saying, stop going on about the 450 people with $10m in super.

Stop talking about the cost of the tax breaks, and what they are costing, it is all garbage.

Limit the maximum amount you are allowed in super, and leave the rest alone.

Anyone with over $x in super, pull it out, you can re contribute as limits are lifted. Easy

Also just apply a 15% offset on contributions. ie if you are on a marginal rate of 49%, your contributions are taxed at 34% etc.

 

[sptrawler]

Apparently it isn't all doom and gloom on the pension.

http://www.smh.com.au/business/comm...hile-workers-stand-still-20150429-1mvwww.html

 

[sptrawler]

I thought I may as well check out what the pension for a couple is currently, well surprise it is $34,000.

That is the same as 3.4% on $1million in super, the only problem is the 3.4% in super is probably going lower and the $34,000 pension is going up faster than wages.

Why would anybody put anything into super, when Syd and myself started debating the issue a couple of years ago, the pension was $32,000.

It is obvious where the smart money is, or isn't.

On current trends the Government pension will make most SMSF pensions look like poor relatives.

 

[Ferret]

I thought I may as well check out what the pension for a couple is currently, well surprise it is $34,000.

That is the same as 3.4% on $1million in super, the only problem is the 3.4% in super is probably going lower and the $34,000 pension is going up faster than wages.

Why would anybody put anything into super, when Syd and myself started debating the issue a couple of years ago, the pension was $32,000.

Well perhaps because if you selected a decent balanced fund you would have earned 7.7% pa average over the last 10 years. Add another 1% at least if in pension mode.

So $1m is bringing in 2 1/2 x the pension. Why wouldn't you prefer this?