Superannuation, the ultimate government cash cow?

k.smith · 6 May 2016

sptrawler said:
Has anyone got more enlightenment on the budget superannuation measures?

The more I think about it the more it seems very fair, I would like to find a viable argument against it, but I can't.

What of those who contributed non-concessional $$$ into their SMSF and invested it in the many failed Managed Investment Schemes ? A lot of them lost most, if not all of their $$$.
What if they have made further non-concessional contributions to their super over the last few years?
Will they be faced with having to withdraw these funds now? :1zhelp: there may be a negative balance ! Won't some face wind-up?

That doesn't seem fair !

http://www.afr.com/personal-finance...ving-to-withdraw-excess-funds-20160505-gon3l6

I support the there be a ceiling on super accounts, and on how much one can contribute. But as always, there are the fine details.

McLovin · 6 May 2016

k.smith said:
Will they be faced with having to withdraw these funds now? :1zhelp: there may be a negative balance ! Won't some face wind-up?

No. The $1.6m cap is for account balances, not contributions. The $500k cap is retrospective only to the extent that it applies on future contributions. That is to say, if you have contributed $500k since 2007, then you cannot contribute any more; if you have contributed $750k since 2007, then you cannot contribute any more, but you do not have to remove the excess $250k you have already contributed.

SmokeyGhost · 6 May 2016

k.smith said:
What of those who contributed non-concessional $$$ into their SMSF and invested it in the many failed Managed Investment Schemes ? A lot of them lost most, if not all of their $$$.
What if they have made further non-concessional contributions to their super over the last few years?
Will they be faced with having to withdraw these funds now? :1zhelp: there may be a negative balance ! Won't some face wind-up?

That doesn't seem fair !

http://www.afr.com/personal-finance...ving-to-withdraw-excess-funds-20160505-gon3l6

I support the there be a ceiling on super accounts, and on how much one can contribute. But as always, there are the fine details.

The market and poor investment outcomes can be a beast but that is the extent of it. It can go just as wrong outside the superannuation structure and rarely do individuals get compensation for that - at least I've never received any.

k.smith · 6 May 2016

McLovin said:
No. The $1.6m cap is for account balances, not contributions. The $500k cap is retrospective only to the extent that it applies on future contributions. That is to say, if you have contributed $500k since 2007, then you cannot contribute any more; if you have contributed $750k since 2007, then you cannot contribute any more, but you do not have to remove the excess $250k you have already contributed.

Does this mean that a million dollar fund made up of $800k of post 2007 non-concessional contributions which lost 85% of it's investment and is now worth just $200k cannot make any further non-concessional contributions? And with current low returns on investments, how will such a fund grow, let alone survive, if it is no longer possible to add to the remaining balance?

SmokeyGhost said:
The market and poor investment outcomes can be a beast but that is the extent of it. It can go just as wrong outside the superannuation structure and rarely do individuals get compensation for that - at least I've never received any.

My concern here is that unlike losses outside of the super structure, losses within have the potential to have a detrimental effect on accounts left with smaller balances. Hardly worth having an account perhaps?

McLovin · 6 May 2016

k.smith said:
Does this mean that a million dollar fund made up of $800k of post 2007 non-concessional contributions which lost 85% of it's investment and is now worth just $200k cannot make any further non-concessional contributions?

Yes.

k.smith said:
And with current low returns on investments, how will such a fund grow, let alone survive, if it is no longer possible to add to the remaining balance?

Not letting whoever lost 85% of the funds assets near the fund is probably a good start.

k.smith said:
My concern here is that unlike losses outside of the super structure, losses within have the potential to have a detrimental effect on accounts left with smaller balances. Hardly worth having an account perhaps?

For the overwhelming majority of people who lose that sort of money out of their retirement savings they state pension is what will realistically fund their retirement.

k.smith · 6 May 2016

McLovin said:
Yes.

Not letting whoever lost 85% of the funds assets near the fund is probably a good start.

For the overwhelming majority of people who lose that sort of money out of their retirement savings they state pension is what will realistically fund their retirement.

I think it ridiculous that it is still allowed to invest superannuation monies, including compulsory super contributions, into schemes where it is possible to loss ALL of your investment.

McLovin · 6 May 2016

k.smith said:
I think it ridiculous that it is still allowed to invest superannuation monies, including compulsory super contributions, into schemes where it is possible to loss ALL of your investment.

Schemes, shares, bonds, hybrids. Any investment carries the risk of total loss. Where do you draw the line?

Personally, I think it's too easy to set up an SMSF, and the average punter would do better having their super in a low cost index type fund. It's pretty hard to blow-up 85% of your assets in that scenario. There are way too many vested interests in the financial planning industry to ever get that over the line though.

SmokeyGhost · 6 May 2016

Assuming the superannuation fund is an SMSF, the operative phrase is Self-Managed. It matters not whether the Trustee use the services of a financial adviser or not. The Trustees place the money on behalf of the members of the fund and, fraudulent behaviour aside and the Courts have a view on that, it is the responsibility of the Trustees invest with due caution having regard to the risks.

When I'm in charge, and that will never happen fortunately, before any one even thinks of starting an SMSF gets near investing, I'd place them in a locked room, get in a lawyer well versed in superannuation law and read them the Riot Act on the roles and responsibilities of Trustees. If, after shaking in their boots and pale faced, they still wish to establish a SMSF, only then should they be permitted to invest.

And losing money outside of superannuation can be just as devastating I'll have you know. In the 30 plus years I have been involved, I have seen more than one or two who have been bankrupted and/or distressed when their investing dreams have been shattered beyond repair.

craft · 6 May 2016

Bill M said:
You have hit the nail on the head Junior, I agree with all aspects of your post.

The 2 main points I raised initially (lifetime caps and TRP) was raised on Channel 9 news 2 nights ago. It really does seem as though they did not take this big group of people into consideration.

Example, my wife earns 26K per year part time and relies on her TRP for extra support. Now (even though she has been on the TRP for a couple of years) she will get taxed on the income earnings of that pension (at the stroke of a pen one could say). It is a unfair to enter a system under existing rules and then have them changed half way through. This is not catching big fish as the government would like to have us believe, this is penalising small time savers who are trying to maximise their super.

Do you need to borrow my violin bill?

Bill M said:
Otherwise I don't have any problems with the changes to Super.

No problems with the parts that don't effect you. But are not all the changes, rules that have been changed half way through.

craft · 6 May 2016

Junior said:
In general I like the changes and they are fair, except for the retrospective nature of the lifetime cap.

There are a number of people out there who plan to retire within say, 5 years, who were planning on using the $180k pa and $540k cap to boost their super at the last moment. People in this situation include self-employed with low super balance, and widows who typically raised kids in the 80s/90s and therefore did not accumulate much of a balance. I use these examples because I personally know many in this position.

These people would be using funds from an inheritance, sale of small business, sale of investment property, or downsizing of the family home to boost their super just in time for retirement.

Having the rules changed so radically at the last moment, has stuffed up the planning for a few people.

So to say that $1.6mill is a reasonable amount to have in super, but only allow $500,000 to be contributed is unfair. The $500k cap is plenty for younger folk who will have SG and concessional contributions every year until retirement, and it's plenty for a couple who can double that cap, but it's not enough for a single person in the situation I've described.

Labour will (and have already) pounce on this aspect of it, and I predict it will be amended to include either a higher lifetime cap, or a transitional arrangement for those over 50.

I’m not so sure I agree with the argument about life time caps mucking up plans. Super has always had legislative risk to those with money committed to it. The 1.6M tax free cap is a change that will see my fund pay millions more in tax than I would have otherwise under the existing rules – fair enough.

A lot of the money invested outside super with an eye to entering it at the last minute has been accumulated outside and held out so as to avoid such legislative risk. When that legislative risk goes against them they seem to cry like babies and want transitional arrangements. Tough luck – you had your chance.

Sure there may be some genuine cases - but most if not viewed through self interest bias's probably don't have much merit to transitional arrangements.

Ves · 6 May 2016

craft said:
But are not all the changes, rules that have been changed half way through.

Most of the changes are actually changes to changes that were introduced half way through (1 July 2007).

Junior · 6 May 2016

craft said:
I’m not so sure I agree with the argument about life time caps mucking up plans. Super has always had legislative risk to those with money committed to it. The 1.6M tax free cap is a change that will see my fund pay millions more in tax than I would have otherwise under the existing rules – fair enough.

A lot of the money invested outside super with an eye to entering it at the last minute has been accumulated outside and held out so as to avoid such legislative risk. When that legislative risk goes against them they seem to cry like babies and want transitional arrangements. Tough luck – you had your chance.

Sure there may be some genuine cases - but most if not viewed through self interest bias's probably don't have much merit to transitional arrangements.

Legislative risk is always a factor, but the lifetime cap is a significant and largely unexpected change, and it is applied RETROSPECTIVELY. That is unfair to those who have not/are not taking advantage of the system, but simply following the rules and are now locked out of the super system, at well below the reasonable benefit limit of $1.6mill. The game has suddenly changed.

I hardly think you should be accusing people of 'crying like babies', since, according to your claim you must be in the top 0.01% who has $20,000,000+ already in tax-free pension phase. Or is that an exaggeration that your fund will "pay millions more in tax" under these changes?

Ves · 6 May 2016

Junior said:
There are a number of people out there who plan to retire within say, 5 years, who were planning on using the $180k pa and $540k cap to boost their super at the last moment. People in this situation include self-employed with low super balance, and widows who typically raised kids in the 80s/90s and therefore did not accumulate much of a balance. I use these examples because I personally know many in this position.

These people would be using funds from an inheritance, sale of small business, sale of investment property, or downsizing of the family home to boost their super just in time for retirement.

Having the rules changed so radically at the last moment, has stuffed up the planning for a few people.

There is literally no difference in the tax (not) paid between $540k of income producing assets (say $25-30k income per annum) held in the superannuation system versus holding it personally as an individual if that is the only asset base we are talking about (ie. "I want it all in super before I retire" scenarios).

Unless you absolutely shoot the lights out with your investing skills (by which point, it isn't going to affect your quality of life any way) the tax treatment only starts to converge when the amount invested is a fair bit higher.

So it really doesn't matter that it's stuck outside of super. Most people in this case would be advised to have their higher-yielding / risk assets in the tax free super environment and their lower yielding, lower risk assets (fixed income etc.) outside of super if it's a problem.

McLovin · 6 May 2016

Ves said:
Most of the changes are actually changes to changes that were introduced half way through (1 July 2007).

The 2007 changes were a free-for-all, and a not even thinly veiled electoral bribe. The ironic part was that within one or two years the "no changes half-way through" brigade was already trying to make sure those generous benefits were not touched.

SmokeyGhost · 6 May 2016

McLovin said:
.............It's pretty hard to blow-up 85% of your assets in that scenario.........

Apparently not it would seem.

McLovin · 6 May 2016

For the small business/self-employed...

Treasury has confirmed that the small business retirement exemption will continue, meaning sellers of small businesses can contribute up to $500,000 of the sale proceeds into their super in addition to the new $500,000 cap, effectively doubling potential contributions. The small business retirement exemption has been in place since 1999 and was amended in 2006.

"Taxpayers who sell their small business are in a much better position than the general population when it comes to accumulating money in superannuation because of the proposed lifetime cap," says Mark Molesworth, a partner with BDO Australia, a consultancy that offers tax advice.

Molesworth says taxpayers must have a net worth of less than $6 million or a business turnover of less than $2 million to be eligible. The $500,000 has to be contributed to their super fund before they lodge their tax return for that year.

"Eligible small business owners can make superannuation contributions that do not count to their non-concessional contribution cap," a Treasury spokesman says. "[This is on condition that] the contribution is the proceeds from the disposal of a CGT asset that is exempt from capital gains tax."

Read more: http://www.afr.com/news/policy/budg...more-into-super-20160505-gon264#ixzz47qtUcPQe

Junior · 6 May 2016

Ves said:
There is literally no difference in the tax (not) paid between $540k of income producing assets (say $25-30k income per annum) held in the superannuation system versus holding it personally as an individual if that is the only asset base we are talking about (ie. "I want it all in super before I retire" scenarios).

Unless you absolutely shoot the lights out with your investing skills (by which point, it isn't going to affect your quality of life any way) the tax treatment only starts to converge when the amount invested is a fair bit higher.

So it really doesn't matter that it's stuck outside of super. Most people in this case would be advised to have their higher-yielding / risk assets in the tax free super environment and their lower yielding, lower risk assets (fixed income etc.) outside of super if it's a problem.

Yes, with some decent financial advice, most people will be able to structure their arrangements such that it's not a major disadvantage. It's a peace of mind thing also, as superannuation is the structure designed to house retirement assets.

My general point though, is that if $1.6mill is an acceptable limit, folks within a few years of retirement should have some transitional arrangement in place to allow themselves to move their assets into super. The rules have been changed significantly and in my opinion, it's a bit harsh making it retrospective.

Particularly for the types I mentioned earlier who might have balances under $500k and are over 50 - i.e. single mums with now adult children who are downsizing homes, self-employed, people who had marriage breakdown etc.

craft · 6 May 2016

Junior said:
Legislative risk is always a factor, but the lifetime cap is a significant and largely unexpected change, and it is applied RETROSPECTIVELY. That is unfair to those who have not/are not taking advantage of the system, but simply following the rules and are now locked out of the super system, at well below the reasonable benefit limit of $1.6mill. The game has suddenly changed.

the 1.6M is the UPPER limit. They are not locked out unless they have already put in 500K (non-concessional) in the last 10 years plus work test is scrapped on concessional contributions up to 75. Maybe everybody with enough funds outside to do so, can't reach the UPPER limit now - but hey they've just been caught on the wrong side of the legislative risk and will have to pay a little more tax (or dump it into their primary residence or some such tax dodge that's not available in superannuation)

Junior said:
I hardly think you should be accusing people of 'crying like babies', since, according to your claim you must be in the top 0.01% who has $20,000,000+ already in tax-free pension phase. Or is that an exaggeration that your fund will "pay millions more in tax" under these changes?

I am accusing people of crying like babies because of rule changes. It seems to me that the prevailing attitude seems to be its O.K to change the rules if it effects somebody else but don't change the rules if it effects me.

15 Years to preservation (if they don't change it). No exaggeration - Millions!!!! you do the numbers even assuming a much more moderate return going forward.
https://www.aussiestockforums.com/forums/showthread.php?t=25070

Ves · 6 May 2016

McLovin said:
For the small business/self-employed...

If I recall there's also a 15-year exemption where you can bank up to $1.395mil of the business sale proceeds into super (this is a life-time limit) that you can use.

However, I'm fairly it stops you from using the other concessions, though (which may or may not matter).

edit:

http://superoracle.firststatesuper....s-and-contributions-to-super/lifetime-cgt-cap

This is the one.

Junior · 6 May 2016

Ves said:
If I recall there's also a 15-year exemption where you can bank up to $1.395mil of the business sale proceeds into super (this is a life-time limit) that you can use. However, I'm fairly it stops you from using the other concessions, though.

Yes, the Small Business CGT Cap.....I believe that was always a separate cap over and above non-concessional and concessional. There was no mention of that, so I assume it's still in place.

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