Superannuation, the ultimate government cash cow?

[Bill M]

There was quite a bit of discussion on TV last night about the ageing population, super and the pension. It was mentioned that the Super Guarantee of 9.5% is not enough and that you really need to be putting in 15% of your income over your working life. All those people with only the super guarantee will end up on some form of Government pension, they said.

They interviewed an old lady who owned a small timber cottage near the beach. Her husband had died and she worked as a cleaner all her life. She was around 70, had no other assets and was living on the single persons government pension. She said "why should I be forced to move or downsize my house to free up my money that I have worked hard for all my life." The one and only thing I have is my house and when I go I want to leave something for my kids, she said. She said something along the lines of, the government should keep their greedy hands off our assets and go after the big fish.

She also said that there is no way people in some jobs can work until 70. Cleaning, boilermaker and trench diggers were 3 such jobs she mentioned. Raising the pension age to 70 was not an option for some occupations.

My comments are, she is right. No one should be forced to sell/downsize what little they have and who the hell wants to work until 70? A lot of people start dying off around that age and will never have the chance to live a normal retirement.

My wife's comments were, how about getting the politicians to give up their ridiculous, unfunded, scandalous pension payments and benefits after their "short"working lives. This infuriates many people out there.

Whist I understand that we are aging, I just think they are targeting the wrong people. People with just an ordinary home should not be targeted. Pensions and the Super scheme should always be strong and something worth saving for. Whether "enshrining"means that I don't know know. There is a lot of guessing/mind games going on within the Government right now. The sooner the budget comes out the better, then we can talk more about it.

 

[Vixs]

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?

The primary benefit would actually be for future legislation to be limited to things that are consistent with the purpose. Successive governments haven't been able to leave super alone for 20 years. It's a sore tooth they can't help touching.

By having the purpose of super clearly defined and enshrined in legislation the biggest thing would be that any future changes would need to be consistent with the purpose of superannuation.

Access is already challenging, and for 95% of Australia the management fees they're "fleeced" are the only reason they get anything more than a cash return.

 

[Vixs]

There was quite a bit of discussion on TV last night about the ageing population, super and the pension. It was mentioned that the Super Guarantee of 9.5% is not enough and that you really need to be putting in 15% of your income over your working life. All those people with only the super guarantee will end up on some form of Government pension, they said.

They interviewed an old lady who owned a small timber cottage near the beach. Her husband had died and she worked as a cleaner all her life. She was around 70, had no other assets and was living on the single persons government pension. She said "why should I be forced to move or downsize my house to free up my money that I have worked hard for all my life." The one and only thing I have is my house and when I go I want to leave something for my kids, she said. She said something along the lines of, the government should keep their greedy hands off our assets and go after the big fish.

She also said that there is no way people in some jobs can work until 70. Cleaning, boilermaker and trench diggers were 3 such jobs she mentioned. Raising the pension age to 70 was not an option for some occupations.

My comments are, she is right. No one should be forced to sell/downsize what little they have and who the hell wants to work until 70? A lot of people start dying off around that age and will never have the chance to live a normal retirement.

My wife's comments were, how about getting the politicians to give up their ridiculous, unfunded, scandalous pension payments and benefits after their "short"working lives. This infuriates many people out there.

Whist I understand that we are aging, I just think they are targeting the wrong people. People with just an ordinary home should not be targeted. Pensions and the Super scheme should always be strong and something worth saving for. Whether "enshrining"means that I don't know know. There is a lot of guessing/mind games going on within the Government right now. The sooner the budget comes out the better, then we can talk more about it.

9.5% is inadequate and yet the government sees fit to keep the lid on increases for another 10 years to keep business expenses down.

They're going to have to means test the family home at some stage, but just including it in the aged pension won't be a good solution. The states and local councils use land value for rates and land tax purposes, perhaps the value of your land that is higher than the postcode average could be included in the test. I'm not sure if that would be sensible, just spitballing ideas. Postcode might not be appropriate, the area may need to be larger to be fair.

When it comes down to it though, the lady in your story is only wanting to hang on to the house to be able to give it to her kids. That's an emotional argument, not a rational one for why every other taxpayer should pay to support her estate plan. She said she worked hard for it all her life, and fair enough, but if she'd worked harder or been more successful she might have some more savings and not be in a position to need to sell her home to increase the income.

I personally believe that significant death duties would have to be one of the most effective solutions to this issue. It is not the responsibility of the rest of the country to support your estate plan while you rely on the age pension. If you won't sell your assets, you should need to have a slice taken off when you pass away. The deceased doesn't need it anymore, and if the beneficiary has been living without the benefit of those funds they presumably can continue to live without the benefit of 100% of those funds and still be better off.

 

[Junior]

Her story is nice in theory, but the reality is, if she's living in a home worth say $800,000 and expects full age pension, healthcare, aged care etc. for the next 20 years....without spending a $$ of her own money, and then be able to gift $800,000 tax free to her children upon passing, that is not a fair or sustainable way for our economy to operate. The burden on the shrinking proportion of tax payers will become too great, and then we will all suffer as a result.

The system should allow for someone in her situation to stay in her home, and as noted above this could be through re-introduction of inheritance taxes, or the Government accumulating some equity in her home, in exchange for provision of full Age Pension benefits for the rest of her life. If her goal is to provide her children with financial assistance, well she has the option of downsizing, or taking a reverse mortgage. Or she could have considered this whilts still employerd, and set aside some funds for this purpose. Relying on the Government and other taxpayers to finance her estate planning is not fair.

Agreed that raising the Age Pension age is tough for those in occupations with heavy manual labour. Perhaps there could be different eligibility ages based on 'white collar' or 'blue collar' workers. Having said that, blue collar workers retiring from now onwards should have at least $100k-$200k in super...which should provide a buffer if they are to retire before meeting age pension age.

 

[Bill M]

When it comes down to it though, the lady in your story is only wanting to hang on to the house to be able to give it to her kids. That's an emotional argument, not a rational one for why every other taxpayer should pay to support her estate plan. She said she worked hard for it all her life, and fair enough, but if she'd worked harder or been more successful she might have some more savings and not be in a position to need to sell her home to increase the income.

I personally believe that significant death duties would have to be one of the most effective solutions to this issue. It is not the responsibility of the rest of the country to support your estate plan while you rely on the age pension. If you won't sell your assets, you should need to have a slice taken off when you pass away. The deceased doesn't need it anymore, and if the beneficiary has been living without the benefit of those funds they presumably can continue to live without the benefit of 100% of those funds and still be better off.

Maybe a blanket cap on the value of the family home. Something like $1 Million maybe? Nearly every country (except 3rd world ones) has an old age pension for their citizens.

I got a mate who is Polish/Australian his Mother lives in an apartment in Warsaw, it is worth around $400,000 USD, she gets a full Government Pension and can sustain a livable life off it. Another mate of mine returned back to the UK after living in Australia for 35 years, he bought himself a small flat and picked up the full minimum UK Pension. None are asked to used the equity in their home to fund their pension.

Why should we go backwards towards a 3rd world standard? I guess if all those other countries can afford to pay a basic pension why can't Australia? I think it's all Government miss-management and waste. Personally I think a fair cap on the family home before you have to draw on it is a good way to go.

 

[McLovin]

Maybe a blanket cap on the value of the family home. Something like $1 Million maybe? Nearly every country (except 3rd world ones) has an old age pension for their citizens.

I got a mate who is Polish/Australian his Mother lives in an apartment in Warsaw, it is worth around $400,000 USD, she gets a full Government Pension and can sustain a livable life off it. Another mate of mine returned back to the UK after living in Australia for 35 years, he bought himself a small flat and picked up the full minimum UK Pension. None are asked to used the equity in their home to fund their pension.

Why should we go backwards towards a 3rd world standard? I guess if all those other countries can afford to pay a basic pension why can't Australia? I think it's all Government miss-management and waste. Personally I think a fair cap on the family home before you have to draw on it is a good way to go.

OTOH, Bill, the current system has made property ownership for people of my generation (I'm 34) very difficult without familial help. The system as it is prevents Gen Y from owning property, and to add insult to injury we're also expected to pay for the retirement of pensioners with substantial property holdings.

Something's not right with that system.

 

[McLovin]

Her story is nice in theory, but the reality is, if she's living in a home worth say $800,000 and expects full age pension, healthcare, aged care etc. for the next 20 years....without spending a $$ of her own money, and then be able to gift $800,000 tax free to her children upon passing, that is not a fair or sustainable way for our economy to operate. The burden on the shrinking proportion of tax payers will become too great, and then we will all suffer as a result.

She says she wants to leave something for the kids, in reality she wants the taxpayer to leave something for her kids.

 

[sptrawler]

Access is already challenging, and for 95% of Australia the management fees they're "fleeced" are the only reason they get anything more than a cash return.

Apologies Vixs, that was badly worded, of course fees have to be charged. I was referring to the perception, constantly pushed by the media, that fees are excessive.

 

[sptrawler]

Her story is nice in theory, but the reality is, if she's living in a home worth say $800,000 and expects full age pension, healthcare, aged care etc. for the next 20 years....without spending a $$ of her own money, and then be able to gift $800,000 tax free to her children upon passing, that is not a fair or sustainable way for our economy to operate. The burden on the shrinking proportion of tax payers will become too great, and then we will all suffer as a result.

The system should allow for someone in her situation to stay in her home, and as noted above this could be through re-introduction of inheritance taxes, or the Government accumulating some equity in her home, in exchange for provision of full Age Pension benefits for the rest of her life. If her goal is to provide her children with financial assistance, well she has the option of downsizing, or taking a reverse mortgage. Or she could have considered this whilts still employerd, and set aside some funds for this purpose. Relying on the Government and other taxpayers to finance her estate planning is not fair.

Agreed that raising the Age Pension age is tough for those in occupations with heavy manual labour. Perhaps there could be different eligibility ages based on 'white collar' or 'blue collar' workers. Having said that, blue collar workers retiring from now onwards should have at least $100k-$200k in super...which should provide a buffer if they are to retire before meeting age pension age.

I can definitely see the inheritance tax re-introduced, at the moment it would be political suicide, but that won't always be the case.

 

[McLovin]

I can definitely see the inheritance tax re-introduced, at the moment it would be political suicide, but that won't always be the case.

It's the easiest tax there is to get around. The people who pay will be the ones with enough to be taxed, but not enough to have paid for advice on how to get around the tax. The best solution, imo, is if someone has $x in assets and wants a state pension then the state takes a cut of the assets when the person dies. They get to live in their home until they die and in return the state is not left out of pocket.

 

[Bill M]

It's the easiest tax there is to get around. The people who pay will be the ones with enough to be taxed, but not enough to have paid for advice on how to get around the tax. The best solution, imo, is if someone has $x in assets and wants a state pension then the state takes a cut of the assets when the person dies. They get to live in their home until they die and in return the state is not left out of pocket.

That actually sounds like a good idea. No one is forced to move or sell their home and when they go the house can be sold on the open market, if there is anything left then the family gets it. The only thing is that no one will vote for any Government that wants to bring that in.

 

[sptrawler]

It's the easiest tax there is to get around. The people who pay will be the ones with enough to be taxed, but not enough to have paid for advice on how to get around the tax. The best solution, imo, is if someone has $x in assets and wants a state pension then the state takes a cut of the assets when the person dies. They get to live in their home until they die and in return the state is not left out of pocket.

The problem that I can see is, the assets will need to be monitored or some form of caveat put on them, to stop the person selling them. That then leads to the starting of an assets register, that would become another govt dept.

 

[McLovin]

The problem that I can see is, the assets will need to be monitored or some form of caveat put on them, to stop the person selling them. That then leads to the starting of an assets register, that would become another govt dept.

I can't see it being that hard. The register already exists in each state, the government would just need to put a caveat on the existing title, which they already do for things like bail.

 

[sptrawler]

I can't see it being that hard. The register already exists in each state, the government would just need to put a caveat on the existing title, which they already do for things like bail.

So if the person has been on the pension for say 5 years, then decides to sell their property to down size, would the government get a percentage of the sale price? Or would the amount owing be carried over to the next property, that then brings in question, what happens when the amount owing exceeds the asset value?
Is the owner then evicted and the property sold?
Also would the pension forthcoming to someone who has underpining assets, be the same as someone who has no assets?
I think it may be difficult to sell the idea in a logical and convincing way.

 

[DaveDaGr8]

Not sure where the argument is here. Politicians don't have to sell their houses to get a pension, so why should anyone else ???

What's fair for one should be fair for all

 

[Vixs]

Apologies Vixs, that was badly worded, of course fees have to be charged. I was referring to the perception, constantly pushed by the media, that fees are excessive.

No apology needed, just had to put that perspective in there because on an investment forum everyone drastically over-estimates the financial literacy of the average punter.

People borrow money, lots of it, for things like tattoos, weddings and holidays every day. This country is full of morons that the superannuation system is saving from themselves.

 

[McLovin]

So if the person has been on the pension for say 5 years, then decides to sell their property to down size, would the government get a percentage of the sale price?

Yes.

what happens when the amount owing exceeds the asset value? Is the owner then evicted and the property sold?

No. It's not supposed to be punitive.

 

[Vixs]

Maybe a blanket cap on the value of the family home. Something like $1 Million maybe? Nearly every country (except 3rd world ones) has an old age pension for their citizens.

I got a mate who is Polish/Australian his Mother lives in an apartment in Warsaw, it is worth around $400,000 USD, she gets a full Government Pension and can sustain a livable life off it. Another mate of mine returned back to the UK after living in Australia for 35 years, he bought himself a small flat and picked up the full minimum UK Pension. None are asked to used the equity in their home to fund their pension.

Why should we go backwards towards a 3rd world standard? I guess if all those other countries can afford to pay a basic pension why can't Australia? I think it's all Government miss-management and waste. Personally I think a fair cap on the family home before you have to draw on it is a good way to go.

I may have missed something in this thread but I think everyone here in this thread supports some reasonable level of home value excluded from any means testing. As with everything superannuation and pension related the challenge isn't whether or not to means test it's what the thresholds should be.

I'm sure there are a million ways to get around them but the UK has a 40% estate tax on all estate assets over 325k pounds (615k AUD at the moment). If we had that in Australia it wouldn't be such an issue, but there are going to be many thousands of million dollar homes inherited and sold tax-free transferring wealth over the next few years, after the parents collected age pensions for decades.

Generation Y is getting slammed for a sense of entitlement, but the sense of entitlement in hanging onto a house so that your kids get the warm and fuzzies of the house that grandpa built is out of whack with the economic value of the real estate being handed over. I know that the majority of the people in these circumstances didn't intend for this to happen and it was not their plan, but that's where we are.

 

[Bill M]

I may have missed something in this thread but I think everyone here in this thread supports some reasonable level of home value excluded from any means testing. As with everything superannuation and pension related the challenge isn't whether or not to means test it's what the thresholds should be.

Maybe something as generous as the USA? Look at this

---
There are several ways to give a home to your child. And a few are tax-free. But to get the best tax results, you’ve got to plan ahead. Here is a rundown of your options.

Stay put

If you plan to live in your home until you die, and your estate is below the unified federal estate gift and estate tax exemption amount ($5.45 million for 2016), this is your best strategy.

http://www.marketwatch.com/story/how-to-give-your-home-to-your-children-tax-free-2015-02-23
---

 

[McLovin]

Maybe something as generous as the USA? Look at this

---
There are several ways to give a home to your child. And a few are tax-free. But to get the best tax results, you’ve got to plan ahead. Here is a rundown of your options.

Stay put

If you plan to live in your home until you die, and your estate is below the unified federal estate gift and estate tax exemption amount ($5.45 million for 2016), this is your best strategy.

http://www.marketwatch.com/story/how-to-give-your-home-to-your-children-tax-free-2015-02-23
---

The high threshold is to avoid capturing family businesses. Personally, aside from the ease of avoidance, I think death tax is a pretty horrible concept. If you've paid tax all your life, have had no recourse to state pensions etc and your assets will continue to pay taxes after you pass, the government has little right to swoop in and take a % of your assets just because you carked it.

Look at Bill Gates, Buffett, Zuckerberg etc. They're donating their assets to a charitable trust (tax free) when they die to get around death taxes. Once the assets are inside the charity the earnings will be tax free. The government shoots itself in the foot.