Superannuation, the ultimate government cash cow?

I find the last few posts on this thread a refreshing change to the normal content.

Perhaps changes to pension eligibility is the biggest risk – rather than adverse changes to the superannuation system.

As the number of pensioners grow and the workforce to support them shrinks, the size of the transfers to fund the current level of entitlements are not realistic.

I suspect we as a country will ‘strive’ to maintain an adequate safety net for the elderly who can’t do it for themselves and not want to see the pension so low that it causes enormous hardship or homelessness etc.

But I bet as the size of the transfer burden really starts to bite it will become an expectation that people use up their own financial resources before receiving the safety net and some day that will even include using equity in the family home.

If you are younger then the first of the Boomer generation it seems to me the most risk lies in not being financially self sufficient for your entire life. The tax favoured superannuation system is designed to help you achieve that and risks to it are less than risks to relying on the old transfer pension system IMO.

I also agree that despite the tax benefits in super it is prudent to hedge your bets with some savings for retirement outside the super system. But to totally ignore super because of the potential legislative risks seems poor risk management to me and founded on unnecessary fear mongered up by a lot of the sort of content found in this thread.

Despite all the shrill calls to do so, undermining the super system by taxing it more to prop up the transfer system doesn’t seem to be high on the politician agenda – even for balances at the top end, Labor’s proposal was modest with grandfathering and no impact until after preservation age and the ability to remove your money. Liberal don’t seem keen to even tighten the top end saying it was an aberration of past policy that won’t repeat under current contribution caps and to tax it now would be retrospective.

Maybe Superannuation is not so bad or legislatively risky – maybe super is NOT the ultimate government cash cow to prop up the old transfer system – maybe the real risks are in finding yourself in a situation where you are reliant on the transfer system to stay at current levels.

Great posts Craft, I hope you are correct.

It certainly seems to be counter productive to constantly demonise savers and reward spenders.

The long term logics to that just reinforces a welfare mentality, which they keep saying is unsustainable, very contradictory.

As you say the current transfer system is destined to fail, and constantly searching for more tax avenues to support it, just exacerbates the structural problem.

I mentioned in another thread, I find it strange when politicians keep bashing the middle class, when that is what you need everyone to aspire to.
That's exactly what encourages endeavour, personal sacrifice, striving and achievement, that is what has built Australia.
Currently we seem to be encouraging people, to look for the easy option, and that goes for most facets of our lives. IMO

craft said:

Despite all the shrill calls to do so, undermining the super system by taxing it more to prop up the transfer system doesn’t seem to be high on the politician agenda – even for balances at the top end, Labor’s proposal was modest with grandfathering and no impact until after preservation age and the ability to remove your money. Liberal don’t seem keen to even tighten the top end saying it was an aberration of past policy that won’t repeat under current contribution caps and to tax it now would be retrospective.

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Considering how easy it is to put non concessional $$ into super, not sure if that is valid. 35K concessional and $180 non concessional a year is not beer money. Not sure how the carry forward provision works, but it seems like in your final year of work before retirement you could add up to an extra $360K of non concessional contributions on top of the usual $180K.

If super is to remain tax free for the over 60s then the primary residence is going to somehow have to impact on access to the pension, or the system will collapse as younger workers migrate to countries with less onerous tax systems.

When younger people are already facing exclusion from the housing market it's rather unfair to allow those lucky enough to be homeowners to benefit disproportionately from it.

sptrawler said:

Great posts Craft, I hope you are correct.

It certainly seems to be counter productive to constantly demonise savers and reward spenders.

The long term logics to that just reinforces a welfare mentality, which they keep saying is unsustainable, very contradictory.

As you say the current transfer system is destined to fail, and constantly searching for more tax avenues to support it, just exacerbates the structural problem.

I mentioned in another thread, I find it strange when politicians keep bashing the middle class, when that is what you need everyone to aspire to.
That's exactly what encourages endeavour, personal sacrifice, striving and achievement, that is what has built Australia.
Currently we seem to be encouraging people, to look for the easy option, and that goes for most facets of our lives. IMO

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As much the politicians fault pandering to people sense of entitlement. when we have $250K or $150K mention as not beign particularly wealthy households, when in fact the opposite is true, you know something is wrong. Back in 2011 when Swan set $150K as a cut off for a number of Govt benefits. Abbott rushed to the defence of the affected families with his "And people earning $83,000 a year and families on $150,000 a year are not rich, especially if they’re paying mortgages in our big cities." At the time the Average wage in Sydney was around $53K, so the Abbott strugglers were having trouble living on around 60% more than the average, or to put it another way, better off than 80% of Australians. Most of their cost of living issues were self inflicted - large mortgages and expensive private school fees, combined with generally oversized housing that costs a bomb to heat and cool throughout the year.

I think people need to have a far better understanding of income distribution in the country. Govt largesse shouldn't be available to anyone in the top half of income earners. Cut back on the programs, cut the churn cost of money in and money out, and then lower taxes accordingly.

sydboy007 said:

As much the politicians fault pandering to people sense of entitlement. when we have $250K or $150K mention as not beign particularly wealthy households, when in fact the opposite is true, you know something is wrong. Back in 2011 when Swan set $150K as a cut off for a number of Govt benefits. Abbott rushed to the defence of the affected families with his "And people earning $83,000 a year and families on $150,000 a year are not rich, especially if they’re paying mortgages in our big cities." At the time the Average wage in Sydney was around $53K, so the Abbott strugglers were having trouble living on around 60% more than the average, or to put it another way, better off than 80% of Australians. Most of their cost of living issues were self inflicted - large mortgages and expensive private school fees, combined with generally oversized housing that costs a bomb to heat and cool throughout the year.

I think people need to have a far better understanding of income distribution in the country. Govt largesse shouldn't be available to anyone in the top half of income earners. Cut back on the programs, cut the churn cost of money in and money out, and then lower taxes accordingly.

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Agree completely and as craft says, those on $150 or $250k should save to ensure their retirement lifestyle.

The best way to do that, is to have the pension the same as unemployment benefits, as a safety net.

You spend your assets before you qualify, it's simple it does away with all the lump sum withdrawls, buying expensive houses etc.

It is simple, you get a pension when you have an asset value of less than $x.

Then people can decide what sort of life they want to spend during the accumulation years, as opposed to the life they want to spend in retirement.

I resent doing without, during my accumulation years, and being victimised during my retirement years, just because I saved for them.

Best one sentence summary of what the aim of super policy should be:

The tax system should support and encourage superannuation savings up to the point of making people independent of the government age pension

http://www.smh.com.au/business/comm...ciples-to-superannuation-20150522-gh7ep7.html

banco said:

Best one sentence summary of what the aim of super policy should be:

The tax system should support and encourage superannuation savings up to the point of making people independent of the government age pension

http://www.smh.com.au/business/comm...ciples-to-superannuation-20150522-gh7ep7.html

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Yes, Pascoe on the odd occasion nails things down quite well.

But unless the Govt is willing to move away from Abbott's nope nope nope on super reform, the debate on how to achieve an affordable pension income system will be hard to achieve.

sydboy007 said:

Yes, Pascoe on the odd occasion nails things down quite well.

But unless the Govt is willing to move away from Abbott's nope nope nope on super reform, the debate on how to achieve an affordable pension income system will be hard to achieve.

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Well I suppose, someone in the accumulation phase, would agree with that.

The problem is, if you start taxing it when it is in the draw down phase, it just accelerates the time it takes to deplete it.
But I can understand those in the accumulation phase wanting government to support and encourage the accumulation.

The funny thing is, these same people will be screaming for tax breaks, when they are called upon to spend it.lol

Another example of the me, me, me generation.

Crafts idea is much simpler, leave it alone, put a lid on the amount you can have in there and you have to spend it before you qualify for a pension.

Fair all round, and actually, may be where LNP are heading.

I may be wrong (I often am), but these sort of articles, make me think people are shying away from super.

http://www.theage.com.au/money/supe...-labelled-scare-campaign-20150731-gip1d4.html

Super has become toxic.IMO

Salary sacrifice and after tax contributions, must have dried up. So that honey pot, will not save the economy. lol

It will just mean that more end up on the welfare ledger.

sptrawler said:

I may be wrong (I often am), but these sort of articles, make me think people are shying away from super.

http://www.theage.com.au/money/supe...-labelled-scare-campaign-20150731-gip1d4.html

Super has become toxic.IMO

Salary sacrifice and after tax contributions, must have dried up. So that honey pot, will not save the economy. lol

It will just mean that more end up on the welfare ledger.

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The ones that can afford to put much extra into super aren't the ones who would otherwise end up on welfare.

banco said:

The ones that can afford to put much extra into super aren't the ones who would otherwise end up on welfare.

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I don't know where you source your info from. But a lot of my friends work on the local council, blue collar workers, they were all salary sacrificing extra into super. They are all talking about stopping it, may be just talk, but they sound pretty fed up with super.
We are probably not talking about huge amounts individually, but when you consider the council employs 600 - 700 workers, I bet it adds up.

Now, after labor freed up regulation on SMSF being able to invest in the real estate bubble, we have the coalition getting SMSF to offload money.

http://www.smh.com.au/money/super-a...youve-saved-all-you-need-20150805-gisnei.html

if you have between $800k and $1m, it's a no brainer, if you are saving to get a comfortable retirement, think again.

Just another brain fart, that moves the problem further into the future, jeez what pi$$ poor management.

But still smarter than Labor's plan, of taxing earnings above $75k, in bad years they would pay nothing.

With the coalitions changes, the retirees with above $800k have to spend it, makes more sense.

The average after tax income as reported by the ATO is approx $55K (not the 80K figure the Govt uses to justify leaving NG alone)

Why is it OK for a super pension to pay out any amount tax free?

From an equity perspective shouldn't there be a tax on super pension payments above what the average tax payer is left with? Considering the super pension is likely to have a far lower cost of living as they'd be very likely to be a home owner, rather than the tax payer facing high rents or mortgage costs, along with the costs of raising children.

So why is it good policy to keep income taxes higher so that super pension taxes can be lower?

sptrawler said:

Now, after labor freed up regulation on SMSF being able to invest in the real estate bubble, we have the coalition getting SMSF to offload money.

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The original change in rules to allow borrowing within SMSFs was by Howard - started in September 2007 under the simpler super changes.

Stupid policy for a country that was already massively over allocating scarce capital into a non productive asset.

From one of the hundreds of websties promoting property within super they have this great idea

Buying sea-change property now as baby boomers begin the move to retirement, they should consider acquiring sea-change property now with their SMSF. Although they cannot use it until retirement, once they reach that milestone they can sell their home, contribute the proceeds into the fund and transfer the sea-change property to the member tax free as a lump sum superannuation benefit.

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from the Murray Inquiry (had to get it from the recyling bin and Hockey's copy hadn't been read)

“Direct borrowing by superannuation funds could pose risks to the financial system if it is allowed to grow at high rates. It is also inconsistent with the objectives of superannuation to be a savings vehicle for retirement income. Restoring the original prohibition on direct borrowing by superannuation funds would preserve the strengths and benefits the superannuation system has delivered to individuals, the financial system and the economy, and limit the risks to taxpayers.”

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Further from the Murray Inquiry

“the absence of leverage in superannuation funds meant that rapid falls in asset prices and losses [during the GFC] in funds were neither amplified nor forced to be realised. The absence of borrowing benefited superannuation fund members and enabled the superannuation system to have a stabilising influence on the broader financial system and the economy during the GFC. Although the level of borrowing is currently relatively small, if direct borrowing by funds continues to grow at high rates, it could, over time, pose a risk to the financial system.”

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So I can understand your angst that Labor would actually read and understand an inquiry released by a Liberal Govt and mull changes based on recommendations from it. Shame they didn't do the same with the Henry tax revue but hopefully they've learned from their mistakes.

The problem for Hockey is that this change isn’t one he can hand to the regulators — it requires legislative amendment. And the affected sector is a rusted-on section of the Liberal vote — higher income middle-aged Australians. Financial planners have also done well out of the burgeoning SMSF sector, and closing down loans will shut off a source of fees for advisers.

sydboy007 said:

The average after tax income as reported by the ATO is approx $55K (not the 80K figure the Govt uses to justify leaving NG alone)

Why is it OK for a super pension to pay out any amount tax free?

From an equity perspective shouldn't there be a tax on super pension payments above what the average tax payer is left with? Considering the super pension is likely to have a far lower cost of living as they'd be very likely to be a home owner, rather than the tax payer facing high rents or mortgage costs, along with the costs of raising children.

So why is it good policy to keep income taxes higher so that super pension taxes can be lower?

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I suppose they could go back to the U.K, Canada and NZ model, where everyone gets the pension, but the money from your super is taxed as income.

Why punish those who saved, and reward those who spent? Same old loop.

sptrawler said:

I suppose they could go back to the U.K, Canada and NZ model, where everyone gets the pension, but the money from your super is taxed as income.

Why punish those who saved, and reward those who spent? Same old loop.

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Superannuation was designed to help everyone save for retirement, or put some some money for the future. The reality is that it is a tax shelter for higher income earners to put money aside at a tax rate of 15%.

Over the next couple of years as the baby boomers start to leave the workforce, this drain on the government budget on Aged Pensions. Then we may see some tinkering with the super system and the how income stream will be taxed.


Kind Regards

christianrenel

sptrawler said:

I suppose they could go back to the U.K, Canada and NZ model, where everyone gets the pension, but the money from your super is taxed as income.

Why punish those who saved, and reward those who spent? Same old loop.

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Why make income and other taxation higher, or services provided lower, by providing excessive tax expenditures via super?

If someone has a super balance above the single pension assets test limit how are tax payers better off providing further tax breaks? having a limit like this would impact few people, but it would help to provide a decent level of quity into the system. The top 20% get over 50% of super tax expenditures. Throw in that the top 10% get 73% of CGT tax expenditures, and the top 20% hold something like 80% of investor mortgage debt, and the progressive nature of the tax system is very much eroded.

There is absolutely nothing stopping a person from saving further outside super. If they chose not to then they need to live with that decision.

sydboy007 said:

If super is to remain tax free for the over 60s then the primary residence is going to somehow have to impact on access to the pension, or the system will collapse as younger workers migrate to countries with less onerous tax systems.

.

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Owning your home does impact on the pension.

To get the pension one has to pass an assets value test.
The assets test for a home owner is significantly lower than the assets test for a non home owner.
Have a look at the bottom of this link http://www.humanservices.gov.au/customer/enablers/assets/
Secondly, the NON home owner is also eligible for rent assistance where the home owner is eligible for some small discount in council rates only.

This provides a reasonable financial balance between the non home owner and the home owner.

sydboy007 said:

Why make income and other taxation higher, or services provided lower, by providing excessive tax expenditures via super?

If someone has a super balance above the single pension assets test limit how are tax payers better off providing further tax breaks? having a limit like this would impact few people, but it would help to provide a decent level of quity into the system. The top 20% get over 50% of super tax expenditures. Throw in that the top 10% get 73% of CGT tax expenditures, and the top 20% hold something like 80% of investor mortgage debt, and the progressive nature of the tax system is very much eroded.

There is absolutely nothing stopping a person from saving further outside super. If they chose not to then they need to live with that decision.

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As the article that I linked said, why save more than 500k in super, at the moment?

I think this will be the norm, also many more will be on the pension.IMO

This whole debacle will end up being a disaster, for Australians, time will tell.

sydbod said:

Owning your home does impact on the pension.

To get the pension one has to pass an assets value test.
The assets test for a home owner is significantly lower than the assets test for a non home owner.
Have a look at the bottom of this link http://www.humanservices.gov.au/customer/enablers/assets/
Secondly, the NON home owner is also eligible for rent assistance where the home owner is eligible for some small discount in council rates only.

This provides a reasonable financial balance between the non home owner and the home owner.

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So you believe that someone with a million dollar property - the median in Sydney - is somehow not advantaged compared to someone who doesn't own their own home?

Lets see how that idea stacks up

To get a full pension the asset limits allows a non home owning couple to have an extra $146.5K. Now if they can generate a 5% incomes stream that provides them with an extra $7325 a year. The maximum rent assistance a couple can get is $3140.8. A couple of minutes searching didn't provide me with any info on if there is an assets or income test or how much rent you need to be paying to get the maximum level of assistance.

So your argument that a renting couple is somehow equal to home owning couple only stacks up if the renting couple are able to save an extra 50% of financial assets and can get rent for $201 a week or less. In Sydney that might get you a room in a share household. But then this forgets the fact that the home owning couple can have any valued primary residence without affecting their ability to access the pension.

A person saving for their retirement outside the primary residence is penalised. You can have a $2M home and get a full pension. A renting couple can only have $440.5K of financial assets before they start losing some of their pension.

sydboy007 said:

So you believe that someone with a million dollar property - the median in Sydney - is somehow not advantaged compared to someone who doesn't own their own home?

Lets see how that idea stacks up

To get a full pension the asset limits allows a non home owning couple to have an extra $146.5K. Now if they can generate a 5% incomes stream that provides them with an extra $7325 a year. The maximum rent assistance a couple can get is $3140.8. A couple of minutes searching didn't provide me with any info on if there is an assets or income test or how much rent you need to be paying to get the maximum level of assistance.

So your argument that a renting couple is somehow equal to home owning couple only stacks up if the renting couple are able to save an extra 50% of financial assets and can get rent for $201 a week or less. In Sydney that might get you a room in a share household. But then this forgets the fact that the home owning couple can have any valued primary residence without affecting their ability to access the pension.

A person saving for their retirement outside the primary residence is penalised. You can have a $2M home and get a full pension. A renting couple can only have $440.5K of financial assets before they start losing some of their pension.

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As we've said on numerous occasions, it's a real mess.