Superannuation, the ultimate government cash cow?

[sptrawler]

Removing the LISC was a dumb move made by a dumb Liberal govt (coming from me, traditionally a Liberal voter). I agree with you in that it was a good move, and I think that whatever solutions come out of this review we will see something along the lines of the LISC or a change in how tax is applied so that low income earners don't pay tax they otherwise wouldn't have needed to. They are, however, still net tax recipients not tax contributors, and frankly any bleating about how it's not fair on them should take into consideration the welfare available in this country. I dislike the contributions and earnings tax on super for low income earners because it's inconsistent with our tax system, not because it's 'not fair'.

You have mentioned a few times that super doesn't need any tax concessions because it's compulsory. If they take away the tax concessions they should also take away the compulsory nature, otherwise it might as well be confiscation of private assets. Who are the government to tell private individuals how they should manage their money?

You've also taken aim at fees, with fund managers "Raking it in". What return would an everyday person get on their forced investments if they didn't have professional management? Hint: They'd be sitting in cash. A negative real return in cash doesn't help people save for retirement. For the benefit of generating a real return and growth over the long-term, what fees would be reasonable for managers to charge? Or should the government dictate them as well?

It's been said a few times here, and in about 95 other pages of this thread; capping the amount of assets in a super fund that receive concessional tax treatment is the only way to ensure the top end (who are few in number but large in balance) don't milk it for all it's worth. What needs to be preserved is people's ability to contribute to super at a time that suits them, through reasonable or generous contribution caps. Most people tend to play catch up towards retirement, and a large part of their super might all be contributed in the 10 years prior to them stopping work. They should still be able to get the money from the sale of an investment property, an inheritance or a significant redundancy into super - that's what the current non-concessional cap and bring-forward rule achieve. Limiting everyone's ability to do that because doctors, lawyers and engineers are in a position to take advantage of concessional contributions for more of their working life would be a crap solution.

*I'm in favour of more consistent treatment of lower income earners between income tax and super tax.
*I'd also like to sea reasonable benefit limits/asset caps on super balances after which point tax benefits are phased out gradually to 0 (to avoid reluctance to contribute to super at all for fear of going over the limit).
*I'd be in favour of significant inheritance taxes, as those that would be impacted would be most able to afford it, those that passed away won't miss it, and those that are receiving the assets as a result of the estate are essentially receiving a windfall anyway.

*I don't want to see the tax system and super system become more complicated.
*I don't want resources pumped into helping low income earners build up assets when they're unlikely to achieve enough to reduce their pension entitlement anyway.
*I really don't want contributing to super in general to be disincentivised or fall out of favour. People need to contribute more than they are as it is to fund a comfortable retirement.

+1 Great explanation Vixs, exactly what I have been trying to say, but unable to articulate.

 

[Vixs]

Thank You for that

No disrespect to Financial Planners, but I'll shy away from them unless I absolute must. Noing personnal to them, just my opnion.

I've run the numbers through extensively myself. All in todays's numbers: Anticiptate having $1.3M to $2.0M in Super dependant on whether I retire at 65 or go through to 70. Haven't factored the equity in my House, downsizing from $1.2M to $600K either. I'll be debt free from 65 (no need to use Super to pay any debts off).

I'm probably one of the 'hated' Super people in here. On a circa $200K salary + Super, SGC fluctauates from $17K to $18.5K a year. Salary Sacrificing $11K a year. Hoping the Contribution Threshold is raised to $35K so I can get more Salary Sacrifice in.

Cheers

I can appreciate the scepticism, the reason I recommended seeing a planner is because the questions you're looking for answers to are bread and butter stuff for most financial planners. Concessional cap is already $35,000 for people over age 49, for example.

Financial planning is not what it was 10 years ago. I strongly recommend if this is the situation you're in and the questions you're facing, speak to a few planners to find one that seems genuinely interested in helping you reach your goals and not so concerned with changing around super fund products. Good luck to you - if you'd like to ask anything else feel free to PM me, I'd rather not derail this thread.

 

[sptrawler]

Here is a fairly good article, on the implementation and original intent of the super system. Also how it was sold to the workers at the time.

http://www.abc.net.au/news/2015-11-...esigned-to-get-people-off-the-pension/6923582

A couple of extracts, that highlight how intent and objectives get warped over time.

Ms O'Dwyer said: "When it was set up all those years ago in 1993, it was set up to be an alternative to the age pension so that people didn't have to rely upon the aged pension or even the part pension."

In the late 1980s, superannuation was sold as a supplement to the aged pension.
In 1989, the prime minister Mr Hawke said: "The pension will always be there for those who need it, but it will be supplemented by a range of superannuation options."
Instead, workers could "look forward to a better standard of living in retirement by supplementing the pension from their own savings".
Mr Howe tells Fact Check that "the age pension system is primarily designed as social security, whereas compulsory superannuation is about encouraging savings over and above the pension system".

Mr Howe tells Fact Check that "the age pension system is primarily designed as social security, whereas compulsory superannuation is about encouraging savings over and above the pension system".

"It was never imagined that one would replace the other," he says.


Interesting in 2017 the assett test is going to reduce from $1.1m to $800,000, before you can get a part aged pension.

Funny all the experts are saying you will have a better lifestyle, having full age pension, and keeping just under the threshold.:

So much for the original intent, it will be interesting to see how much they wreck it, before it is incorporated back into consolidated revenue.

 

[Bill M]

So much for the original intent, it will be interesting to see how much they wreck it, before it is incorporated back into consolidated revenue.

Thanks for sharing those videos sp. I liked the one one of Keating in the early 90's. We are so lucky here in OZ that at least somebody took it on and made it law that everybody would be entitled to super.

Just a bit of background from my own personal experiences through life. We had insurance salesmen back in the 70's selling us crappy products that returned very little. Just a hand full of us took those on and there was no super or pension scheme particularity for us plebs on the tools. The Government employees and those with good employers like BHP and CBA etc. were the lucky ones that did get a pension scheme as part of their package.

This went on for the next 20 years, me being a pleb on the tools got zilch and then we started hearing noises and it started to sound like someone was thinking about the future. Then came this wonderful super system we have. All my mates lived from pay packet to pay packet each week, no savings at all before compulsory super came in.

1993: Bang, we got compulsory super. To all those that think they are losing salary due to the super that your employer pays, this is not right. I remember exactly to the time super started to be paid. The employer paid it in addition to your salary. A freebee one could say. In some work places there was a bit of a trade off in wages growth for a year or two in order to absorb the super guarantee, no one really cared as in those times wages growth was like $8 a week or so.

Now we have the second best system in the world and we have built up $trillions in savings, mostly thanks to the super guarantee.

I am still in contact with a friend of mine whom I was on the job with 26 years ago. In those days he had nothing and he had no hope of saving. He is still there, same job, no money in the bank, no home, no nothing BUT he has $500,000 in is Super. When Super came about, I convinced him to salary sacrifice into it. If there were no such things as concessional contributions then he wouldn't have put in and he would have only half of what he has now.

My message is, read, look, listen and learn. Know your history, we were a piss poor nation of savers. Now everybody has Superannuation, keep it going as it is and put a cap on top end savings and keep our Super system strong and worthwhile to put into.

 

[Bill M]

Interesting in 2017 the assett test is going to reduce from $1.1m to $800,000, before you can get a part aged pension.

I missed this bit. So what would a normal sane human being with $1.1M in the bank be doing right now?

Well this sane cookie will be blowing 350K on a new car, a complete refurbishment for our house and a cupla cruises around the world for my wife and I and then come back and pick up the age pension. You see folks, the more you hit those that have the means the more they reduce those means to get the freebees. We are not talking about multi million $ super thieves, just someone with $1.1 M in the bank.

 

[sptrawler]

Good posts Bill, I'm in the same boat as you. Left school at 15 started an apprenticeship on $17/ week, when super came out I put as much in as I could afford.
I also have mates, who are all around 60, most only have their super and a mortgage.

The thing that hurts most is, we were told if you put it away you will enhance your retirement.

What will probably end up happening is, the assett test will keep dropping, untill you have to spend all your savings before being eligible for any pension.

Similar to what I believe happens, to qualify for centrelink.

 

[k.smith]

Removing the LISC was a dumb move made by a dumb Liberal govt (coming from me, traditionally a Liberal voter). I agree with you in that it was a good move, and I think that whatever solutions come out of this review we will see something along the lines of the LISC or a change in how tax is applied so that low income earners don't pay tax they otherwise wouldn't have needed to. They are, however, still net tax recipients not tax contributors, and frankly any bleating about how it's not fair on them should take into consideration the welfare available in this country. I dislike the contributions and earnings tax on super for low income earners because it's inconsistent with our tax system, not because it's 'not fair'........

While I agree with some of what you say, my opinion that tax concessions on super contributions be abolished remain.

We have a compulsory superannuation system where the minimum contribution for ALL is 9.5% of ordinary earnings, but where the consequences of making these contributions differ dramatically according to your income. Tax concessions on super contributions result in a loss to the economy of $17 billion. More than 50% of tax concessions go to the top 20% (and 20% of concessions to the top 3%) Low income earners are disadvantaged. Tax concessions on super are unacceptable because of their inequality. Whether an earner is a "tax recipient or a tax contributor" is irrelevant, all are compelled by law to contribute. It isn't about who earns the most or who gets the most in benefits or rewarding or penalising earners. We're all in this together, some with more, some with less, and it needs to work for everyone. Whether you deposit $300 or the limit of $30,000 a year, the emphasis of tax concessions should be on the super accumulation phase.

''.....You have mentioned a few times that super doesn't need any tax concessions because it's compulsory. If they take away the tax concessions they should also take away the compulsory nature, otherwise it might as well be confiscation of private assets. Who are the government to tell private individuals how they should manage their money?....''

Why would you regard this as a "confiscation of private assets" when the assets remain your property ?

Obviously, you are looking at this from the perspective of a top earner when you suggest that if concessions were removed, superannuation would be a "confiscation" of private assets. In fact, you reinforce the dilemma as this is exactly the position low earners currently face. Why should they be in a position that you don't want to be in for doing exactly the same as all of us...contributing 9.5% of their $$$? Is it OK for them, but not for another?

Where around 70% of tax payers earn less than the average wage, the benefits to the majority are significantly less than those at the top 10% who earn an average of $150k plus. While I really don't care who earns what, it seems to me that the only solution where earners get equality is by removing the concessions on contributions.

''....You've also taken aim at fees, with fund managers "Raking it in". What return would an everyday person get on their forced investments if they didn't have professional management? Hint: They'd be sitting in cash. A negative real return in cash doesn't help people save for retirement. For the benefit of generating a real return and growth over the long-term, what fees would be reasonable for managers to charge? Or should the government dictate them as well?...''

"Raking it in" were not my words...they were the journalist's, see http://www.smh.com.au/business/bank...lian-super-fund-industry-20151112-gkxsi7.html

I said that I think something needs to be done about fees.

Interesting comments from the Treasury :

http://www.smh.com.au/federal-polit...es-too-high-says-treasury-20140623-3apqd.html

".....Australians are paying an extraordinary $20 billion per year in superannuation fees, about three times as much as they need to, the Commonwealth Treasury says.
Addressing the Committee for the Economic Development of Australia on Monday, Treasury director David Gruen said super fees averaged $726 per year for members with a fund balances of $50,000.There was little evidence to suggest the fees were value for money. On average high fees were "simply a net drain to investors".
Australia's fees are about three times those in Britain, accounting for 1 per cent of gross domestic product....''

''....
It's been said a few times here, and in about 95 other pages of this thread; capping the amount of assets in a super fund that receive concessional tax treatment is the only way to ensure the top end (who are few in number but large in balance) don't milk it for all it's worth. What needs to be preserved is people's ability to contribute to super at a time that suits them, through reasonable or generous contribution caps. Most people tend to play catch up towards retirement, and a large part of their super might all be contributed in the 10 years prior to them stopping work. They should still be able to get the money from the sale of an investment property, an inheritance or a significant redundancy into super - that's what the current non-concessional cap and bring-forward rule achieve. Limiting everyone's ability to do that because doctors, lawyers and engineers are in a position to take advantage of concessional contributions for more of their working life would be a crap solution....''

I agree with you re capping. ....think the cap being suggested here is probably a little low...
http://www.smh.com.au/business/bank...onal-super-contributions-20151117-gl0tja.html

 

[sptrawler]

While I agree with some of what you say, my opinion that tax concessions on super contributions be abolished remain.

We have a compulsory superannuation system where the minimum contribution for ALL is 9.5% of ordinary earnings, but where the consequences of making these contributions differ dramatically according to your income. Tax concessions on super contributions result in a loss to the economy of $17 billion. More than 50% of tax concessions go to the top 20% (and 20% of concessions to the top 3%) Low income earners are disadvantaged. Tax concessions on super are unacceptable because of their inequality. Whether an earner is a "tax recipient or a tax contributor" is irrelevant, all are compelled by law to contribute. It isn't about who earns the most or who gets the most in benefits or rewarding or penalising earners. We're all in this together, some with more, some with less, and it needs to work for everyone. Whether you deposit $300 or the limit of $30,000 a year, the emphasis of tax concessions should be on the super accumulation phase.

It does have to work for everyone, that's why those with more than $800k, are going to get f##ck all pension.

Jeez your hard work, how much does the pension cost? yet you harp on about how much EXTRA your not getting out of, those who are paying the taxes, that are paying the pensions. FFS

Everyone has concensus that caps need to be applied, but you can't help yourself, you want to demonise anyone who has done the decent thing and saved for their retirement or has a high income..

Anyway, time for me to give this thread away.

Troll on. lol

 

[k.smith]

It does have to work for everyone, that's why those with more than $800k, are going to get f##ck all pension.

Jeez your hard work, how much does the pension cost? yet you harp on about how much EXTRA your not getting out of, those who are paying the taxes, that are paying the pensions. FFS

Everyone has concensus that caps need to be applied, but you can't help yourself, you want to demonise anyone who has done the decent thing and saved for their retirement or has a high income..

Anyway, time for me to give this thread away.

Troll on. lol

I will get a pension.... a part pension, just.
Am also in the top 20%

Except unlike most here, saved it not once, but twice.
Lost more than 3/4 in the GFC (400k +)
Husband had a heart attack and quad pass in 2007, so bad timing.
He worked rotating shifts for 30 years, 8 hour days, 12 hours on weekends.
Day, Night and Afternoon shifts.
Four kids, sent two to uni, one trade apprentice (the other became a good worker)
I stayed home to raise them. Our choice. Great kids. No problems TG for that !
I started work in 1994.
We both paid taxes. Got around $80 per month for child endowment.
No other government benefit, peeved to have missed out on first homebuyers grant - and baby bonus...joke imo
We saved, saved . Paid off mortgage.

After the GFC losses, left with just $120k.
Faced with choice to spend the lot to qualify for benefits or get on with it
Got on with it.
Husband went back to work part time. Manual work.
Joint income less than $60k, including interest.
Determined to replace losses..
Lived on $25k...any idea what that takes???....oh, including private health insurance {$3k+ p/a}, have to, heart patient..

Never ever collected one cent in welfare, other than the low income supplement - $300 p/a.
Deposited $35k into super p/a (average) part concessional, part voluntary.
Tax concessions minimal, as in the lower tax bracket.

Husband still working to date to become financially independent.
Major surgery stopped me a year ago...

Lots of lessons learnt from the GFC.
I learnt to be sceptical.


Never asked for a cent, trawler.....just posted an idea which makes sense to me.

Hard work isn't just done by the high earners.

 

[sptrawler]

I will get a pension.... a part pension, just.
Am also in the top 20%

Except unlike most here, saved it not once, but twice.
Lost more than 3/4 in the GFC (400k +)
Husband had a heart attack and quad pass in 2007, so bad timing.
He worked rotating shifts for 30 years, 8 hour days, 12 hours on weekends.
Day, Night and Afternoon shifts.
Four kids, sent two to uni, one trade apprentice (the other became a good worker)
I stayed home to raise them. Our choice. Great kids. No problems TG for that !
I started work in 1994.
We both paid taxes. Got around $80 per month for child endowment.
No other government benefit, peeved to have missed out on first homebuyers grant - and baby bonus...joke imo
We saved, saved . Paid off mortgage.

After the GFC losses, left with just $120k.
Faced with choice to spend the lot to qualify for benefits or get on with it
Got on with it.
Husband went back to work part time. Manual work.
Joint income less than $60k, including interest.
Determined to replace losses..
Lived on $25k...any idea what that takes???....oh, including private health insurance {$3k+ p/a}, have to, heart patient..

Never ever collected one cent in welfare, other than the low income supplement - $300 p/a.
Deposited $35k into super p/a (average) part concessional, part voluntary.
Tax concessions minimal, as in the lower tax bracket.

Husband still working to date to become financially independent.
Major surgery stopped me a year ago...

Lots of lessons learnt from the GFC.
I learnt to be sceptical.


Never asked for a cent, trawler.....just posted an idea which makes sense to me.

Hard work isn't just done by the high earners.

Thanks for your honest reply, I see you have done it tough and you deserve the best retirement that the system can afford.

We brought up four kids with varying degrees of success, I had to retire due to multiple joint replacements.

Fortunately I have always saved for retirement, I'm just a tradesman and never ran a business.
The gfc, knocked us for six also, had $700k before after, $350k.
Fortunately I had purchased a couple of investment properties in the late 1990's, one for $60k, the other $140k.
Both positively geared. just in case someone wants to have a go.
Sold them and downsized the ppr, when I had to retire 5 years ago, put all the money into super.

As they say, life wasn't meant to be easy, the problem is finding a balance that encourages and rewards work and endeavour.
The welfare system in Australia, IMO, is very good, I will probably end up on it.

What must be kept in perspective, is that the cost to fund it adds to our already uncompetitive economy.

The consensus on this forum appears to be, that a cap or limit on how much can be held in super, is the obvious way to ensure its sustainability.

 

[k.smith]

have you read this?

http://www.superannuation.asn.au/Ar...er-and-high-account-balances_Apr2015.pdf.aspx

 

[sptrawler]

have you read this?

http://www.superannuation.asn.au/Ar...er-and-high-account-balances_Apr2015.pdf.aspx

Well at a quick read, that seems to support the same idea, the amount should be capped at a level that ensures a self funded reasonable retirement.

What shouldn't happen, is turning people against putting money away, for their retirement.

Currently the new cap, is a disincentive to add to your super.

 

[qldfrog]

Well at a quick read, that seems to support the same idea, the amount should be capped at a level that ensures a self funded reasonable retirement.

What shouldn't happen, is turning people against putting money away, for their retirement.

Currently the new cap, is a disincentive to add to your super.

and the cap should not be stupidly on $xx per year but on a total (reviewed yearly): I made years at 250k, I will not get 50k this year.
you should be able to top your account up to a limit and be mandatory super free once reached.
The system is seen via the narrow view of employees earning smooth income year aftyer year.
This is and will be less and less relevant in our economy with more instability and self employed

 

[k.smith]

and the cap should not be stupidly on $xx per year but on a total (reviewed yearly): I made years at 250k, I will not get 50k this year.
you should be able to top your account up to a limit and be mandatory super free once reached.
The system is seen via the narrow view of employees earning smooth income year aftyer year.
This is and will be less and less relevant in our economy with more instability and self employed

The report http://www.superannuation.asn.au/Ar...er-and-high-account-balances_Apr2015.pdf.aspx shows how much of the concessions go to earners who took advantage of being allowed unlimited contributions in 2006.

I agree with you that there should be a limit of the amount that you can contribute over a lifetime .... if you contribute more, there should be no tax concessions/advantages.

I would like to see a more equality in enticing the lower earners to contribute in the first place.

 

[sptrawler]

The report http://www.superannuation.asn.au/Ar...er-and-high-account-balances_Apr2015.pdf.aspx shows how much of the concessions go to earners who took advantage of being allowed unlimited contributions in 2006.

I agree with you that there should be a limit of the amount that you can contribute over a lifetime .... if you contribute more, there should be no tax concessions/advantages.

I would like to see a more equality in enticing the lower earners to contribute in the first place.

The lower income earning couple have a huge enticement to contribute, they are going to get an indexed tax payer funded pension, equivalent to having $1,000,000 in term deposit at 3.4% = $34,000.

On top of that, if they can contribute any extra dollars it won't affect the pension upto what, $250,000.
Now if they are getting say the normal rate of 2.8% = $250,00 x 2.8% = $7,000

That equates to an annual income of $41,000.

Now take the person who saves like hell and gets $900,000 in super.

They are $hit scared of losing any, so they put it in term deposit at 2.8%, they earn $25,200, don't qualify for any pension or concession card, so pull out their capital.
Which isn't a bad thing, except next year it gets worse, interest rates drop and the age pension goes up with inflation.

Yep I think the those fat cats with $1m in super need hammering, for being stupid enough to save it.

 

[qldfrog]

My thoughts as well, but many do not like figures as they do not lie:
indeed, any pensionner is the equivalent of a 1 million in savings, no investment risk owner coming straight from the taxpayer pockets;
any limitcap below 2 millions at least would be a disgrace..
And no, i do not have anywhere like this amount in super...

 

[k.smith]

The lower income earning couple have a huge enticement to contribute, they are going to get an indexed tax payer funded pension, equivalent to having $1,000,000 in term deposit at 3.4% = $34,000.

On top of that, if they can contribute any extra dollars it won't affect the pension upto what, $250,000.
Now if they are getting say the normal rate of 2.8% = $250,00 x 2.8% = $7,000

That equates to an annual income of $41,000.

Now take the person who saves like hell and gets $900,000 in super.

They are $hit scared of losing any, so they put it in term deposit at 2.8%, they earn $25,200, don't qualify for any pension or concession card, so pull out their capital.
Which isn't a bad thing, except next year it gets worse, interest rates drop and the age pension goes up with inflation.

Yep I think the those fat cats with $1m in super need hammering, for being stupid enough to save it.

It will be most interesting to read how super is to be defined when the government finally make up their minds.
Can't believe that we are compelled to contribute without a clear definition.

An income of $34k is a very basic income for a couple.
Who ever envisaged that the aged pension of $34k would be more than the interest on $1 mil ?
Who ever envisaged interest rates below 5%, let alone below 3%?
Even 5% on $900k would return $45k, big difference !
That conservative returns on investments are so low is a big problem for anyone with a nest egg.
The current system is making people less and less inclined to save, you are right about that !
http://www.humanservices.gov.au/cor...get/1516/measures/older-australians/43-002176
The incentive to save beyond $400k has evaporated... why????
From Jan 2017, $1000 invested by the conservative investor earns less than 3% or $30p/a and losses him $78 in pension, an effective loss of $48 per $1000
What a crazy state of affairs!

All the more reason to approach this from another angle, imo :

1. Abolish super concessions.
2. Limit the lifetime contributions
3. Remove the 15% tax within super up to the new limit.
4. Set in stone that super will never be taxed when in pension mode.

and do something to encourage saving, not discourage saving !

 

[sptrawler]

It will be most interesting to read how super is to be defined when the government finally make up their minds.
Can't believe that we are compelled to contribute without a clear definition.

An income of $34k is a very basic income for a couple.
Who ever envisaged that the aged pension of $34k would be more than the interest on $1 mil ?
Who ever envisaged interest rates below 5%, let alone below 3%?
Even 5% on $900k would return $45k, big difference !
That conservative returns on investments are so low is a big problem for anyone with a nest egg.
The current system is making people less and less inclined to save, you are right about that !
http://www.humanservices.gov.au/cor...get/1516/measures/older-australians/43-002176
The incentive to save beyond $400k has evaporated... why????
From Jan 2017, $1000 invested by the conservative investor earns less than 3% or $30p/a and losses him $78 in pension, an effective loss of $48 per $1000
What a crazy state of affairs!

All the more reason to approach this from another angle, imo :

1. Abolish super concessions.
2. Limit the lifetime contributions
3. Remove the 15% tax within super up to the new limit.
4. Set in stone that super will never be taxed when in pension mode.

and do something to encourage saving, not discourage saving !

That sounds fair, it will be interesting to see what evolves.

 

[sptrawler]

So what are the pros and cons of, " enshrining the purpose of superannuation", for the average Joe?

Will it make it more difficult to remove money, from your super fund?
Will it make it more difficult for industry and retail, to fleece you for management fees?

What is the underlying driver? What is the end game?

 

[Glen48]

Sounds like to me the Feds want the rich to reverse mortgage their home which means the owner takes the risk and the Feds save regardless..
This saves the feds from taxing home owners and they are seen as the good guys.???