Superannuation, the ultimate government cash cow?

[sptrawler]

The point of a forum is different perspectives. I think about things a lot differently now than I did a few years ago.

I haven't got an excuse, just had a really bad week and was bordering on trolling, my apologies.
Anyway enough crying, let's move on.

I still think the Labor policy,has more underlying merit, easier to control and fine tune.
What happens if after a few years some astute investors, such as ASF members, end up with $5m in super?
Will that cause another upheaval?
With Labors option, you just move the tax thresholds, as per normal.

 

[DB008]

Great post Vixs. The system still offers very low tax rates for all those over 60. To say you shouldn't put any money in super because the rules will change is over the top.

As I've said many times, the tax rates are FAR LOWER than any other tax structure available.

Company tax rate 30%,
individual tax rates up to 49%,
super (accum) 15%,
super (pension) 0%

All l see is the gray haired army heading into retirement, and then wanting their cake and to eat it too.

From my perspective, the baby boomers have done f**k all and want Gen X/Y to pay for it.

The latest was how much they could contribute into super (cap). Get over it, they need to pay their fair share as well, but don't want to. Super is meant to be a retirement vehicle, not a wealth creating/building vehicle. You can't take your money beyond the grave...

 

[sptrawler]

All l see is the gray haired army heading into retirement, and then wanting their cake and to eat it too.

From my perspective, the baby boomers have done f**k all and want Gen X/Y to pay for it.

The latest was how much they could contribute into super (cap). Get over it, they need to pay their fair share as well, but don't want to. Super is meant to be a retirement vehicle, not a wealth creating/building vehicle. You can't take your money beyond the grave...

Well there is two answers to your statements.

Firstly gen x and y aren't proving to be cash cows.

Secondly, most of the baby boomers, if like me started work on $17/wk and expected $50/wk when they finished their trade.

So in short the population has boomed and property prices have boomed, most baby boomers I know are risk averse and only at best have their own home.

Many are bailing out gen x and y children, that can't find their way.

So in short.
Putting a cap on what can be rolled into super, is cumbersome and flawed, another gfc makes the amount that is rolled in change immensely.
The $1,6m could change to $800k instantly, with minimal dividends, it just doesn't make sense.They could be on a part pension overnight.

Labors idea of just taxing excessive earnings makes sense, then all that needs to be applied is a death tax, to stop the wealth creation or inter generational wealth transfer.

That would mean the people who earned it, get to enjoy it and pay tax if it is deemed as excessive.
Then if there is any left, it is taxed at a rate to compensate the government, for rewarding the workers and savers.

Win Win. IMO

But I have been shot down recently.

P.S

The other thing the baby boomers have done, is pay the taxes for their parents pensions, without bitching about it.lol

 

[sptrawler]

The hint at allowing a new breed of annuity style retirement products with favourable tax treatment, means that new strategies and planning opportunities may also present themselves in coming years. I attended a Challenger Financial event last week, and they were very excited by this prospect.

I wasn't online when you posted this Junior, but why in gods name, would anyone sign up for that.

The signs on the horizon, are showing any super changes aren't for the benefit of savers, and favourable tax treatments can be unfavourable with the stroke of a pen.

 

[Vixs]

Well there is two answers to your statements.

Firstly gen x and y aren't proving to be cash cows.

Secondly, most of the baby boomers, if like me started work on $17/wk and expected $50/wk when they finished their trade.

So in short the population has boomed and property prices have boomed, most baby boomers I know are risk averse and only at best have their own home.

Many are bailing out gen x and y children, that can't find their way.

So in short.
Putting a cap on what can be rolled into super, is cumbersome and flawed, another gfc makes the amount that is rolled in change immensely.
The $1,6m could change to $800k instantly, with minimal dividends, it just doesn't make sense.They could be on a part pension overnight.

Labors idea of just taxing excessive earnings makes sense, then all that needs to be applied is a death tax, to stop the wealth creation or inter generational wealth transfer.

That would mean the people who earned it, get to enjoy it and pay tax if it is deemed as excessive.
Then if there is any left, it is taxed at a rate to compensate the government, for rewarding the workers and savers.

Win Win. IMO

But I have been shot down recently.

P.S

The other thing the baby boomers have done, is pay the taxes for their parents pensions, without bitching about it.lol

I hope you don't feel like I shot you down, it wasn't personal.

I happen to agree that death taxes are a good solution and feel they are inevitable. I fear they will also come in too late and miss the wealth transfer that is occurring and will accelerate over the next few decades.

 

[k.smith]

I haven't read anything about what happens if you lose your investments like so many did during the GFC.
If you do your contribution limit, does that exclude you from re-saving within super?
If that is so it seems to me there would be little incentive to re-save. That is a waste imo...

 

[sptrawler]

I hope you don't feel like I shot you down, it wasn't personal.

I happen to agree that death taxes are a good solution and feel they are inevitable. I fear they will also come in too late and miss the wealth transfer that is occurring and will accelerate over the next few decades.

No offence intended or taken, Vixs, I appreciate your posts immensely.

 

[craft]

You have to make some assumptions to model things so these are mine:

1.6M cap and wages increase by 3%pa
Compulsory super stays at 9.5%
Earnings achieved are 4% above wage inflation – 7%
Tax bracket creep is kept under control so somebody on the average continues to get the current 19.5c tax saving for each dollar of concession contribution.

A theoretical person works for 45 years (starts at 22 after uni and retires at 67 current preservation age) and earns the average wage their entire working career (currently 80K)

With the above assumptions they will need to sacrifice 15% of there before tax earnings to reach the cap which by their retirement will be approx 5.9M. (still 20 times average earnings)
They will sacrifice 1.1Million and save 215K dollars in the difference between marginal tax rates and contribution tax rates.
They will pay 616K in earnings tax out of the super fund over the 45 years. (with a 50:50 mix or income and discount capital Gains)

In their struggle to fund their retirement, meet housing and living costs pay HECS etc there probably will be nothing more left over to make after tax contributions, so if they happen to die early in their retirement their dependents (or charities they bequest to) will pay 15% tax.

One alternative example - somebody that didn’t use the super system to save for retirement could have ploughed the money into their primary residence. Yes they forgo the possible 215K saving on contributions to super but they also will not pay the 615K of earnings tax. The capital gains are exempt. And mean while the poor Muppet who has sacrificed for his retirement probably can’t afford a house and has to pay rent with after tax income. Sell the house prior to retirement put it into super as Non-concessional contribution (yes that may mean you will have to rent a little earlier while you feed the proceeds in now that the abolishment of work requirements for 65-74 wont get up) But being non-concessional contributions at least there is no 15% tax on it if you happen to die early in retirement. The up side is also that if leaving your house to your kid’s tax free is more important to you than a self funded retirement you can just go on the pension.

And these seemingly little tweaks that will ultimately keep the working class struggling whilst the inheritance class thrives are ironically done under and lapped up as “fairer super”
I’ve gone full circle on Super – As a retirement savings vehicle for working class I wouldn’t touch it. The precedence is set - it’s being worked into just another tool for the entrapment of the working class. Keep your money outside – Jump the worker/capitalist divide if you can and then exploit it as a tax shelter for wealth and estate planning as late as you can.

There is no doubt that the political power is on the side of capital and capital loves cheap un-empowered labour.

And yes I do have identity crises because I see all this crap from the prospective of a working class background that happens to now have some coin.

And I can clearly tell you that the scales are not in the favour of working class and especially working class young they are politically outnumbered by the boomers and getting screwed big time.

Egalitarian Australia is dead – there will always be people who can jump the divide but for most – what your parents can provide/leave you will define your opportunities and living standards.

 

[McLovin]

I’ve gone full circle on Super – As a retirement savings vehicle for working class I wouldn’t touch it. The precedence is set - it’s being worked into just another tool for the entrapment of the working class.

Super went full circle as a legitimate tool to provide for people who would otherwise end up on a state pension years ago. It's been totally debased from its original, noble intention. There are people my age who have no realistic chance of ever owning a home while Baby Boomers can say with a straight face that system is unfair because they want to downsize and put the excess into super at retirement so they can live a tax free existence. All the while taxes on the middle class get ratcheted up and those same Baby Boomers tut tut "middle class welfare". The system lacks equality, is unsustainable and would make a Swiss banker blush.

 

[qldfrog]

Super went full circle as a legitimate tool to provide for people who would otherwise end up on a state pension years ago. It's been totally debased from its original, noble intention. There are people my age who have no realistic chance of ever owning a home while Baby Boomers can say with a straight face that system is unfair because they want to downsize and put the excess into super at retirement so they can live a tax free existence. All the while taxes on the middle class get ratcheted up and those same Baby Boomers tut tut "middle class welfare". The system lacks equality, is unsustainable and would make a Swiss banker blush.

We can agree McLovin!!
I am especially upset at the fact that the system is already unsustainable, and results in promoting RE against productive investments for the nation, ending up in a system taxing to death not just middle class , but working for a wage class be they on 40k or 210k a year . And if you can not climb the ladder by work, then we are back to wealth by birth, may you be parking shopping trolley at the mall or discovering the next antibiotic.
Rant over.I have a deep belief this super system will collapse in a heap at the next GFC.

 

[Junior]

One alternative example - somebody that didn’t use the super system to save for retirement could have ploughed the money into their primary residence. Yes they forgo the possible 215K saving on contributions to super but they also will not pay the 615K of earnings tax. The capital gains are exempt. And mean while the poor Muppet who has sacrificed for his retirement probably can’t afford a house and has to pay rent with after tax income. Sell the house prior to retirement put it into super as Non-concessional contribution (yes that may mean you will have to rent a little earlier while you feed the proceeds in now that the abolishment of work requirements for 65-74 wont get up) But being non-concessional contributions at least there is no 15% tax on it if you happen to die early in retirement. The up side is also that if leaving your house to your kid’s tax free is more important to you than a self funded retirement you can just go on the pension.

Hi craft,

How would one plough all of their wealth into their primary residence, throughout their working life?

Would this mean upgrading to a larger home, and/or constantly renovating/improving the home?

I'm not having a go, just interested to understand your thoughts on the best way to implement this type of strategy.

 

[craft]

Hi craft,

How would one plough all of their wealth into their primary residence, throughout their working life?

Would this mean upgrading to a larger home, and/or constantly renovating/improving the home?

I'm not having a go, just interested to understand your thoughts on the best way to implement this type of strategy.

In concocting the scenario I imagined taking on a larger mortgage to the extent you would save by not salary sacrificing. But eventually you would pay it down and probably need to upgrade. In reality though it's not an option for this current young generation because property valuation multiples in attractive capital growth areas are too high to start the process. Screeeeewed.

Your not expecting complete objectivity and solutions I a reactionary rant are you

 

[Junior]

In concocting the scenario I imagined taking on a larger mortgage to the extent you would save by not salary sacrificing. But eventually you would pay it down and probably need to upgrade. In reality though it's not an option for this current young generation because property valuation multiples in attractive capital growth areas are too high to start the process. Screeeeewed.

Your not expecting complete objectivity and solutions I a reactionary rant are you

haha, no.

Your comments (rant) just got me thinking. There is often reference to 'investing in the PPOR'.

I wonder if one could set out, as a first home buyer at 30yo with the intention of building their wealth primarily through their home - to avoid CGT of course.

This might involve living in a far larger or pricier home than is necessary, with the intention of an abrupt downsize at retirement to free up capital.

In reality, it is probably more tax effective to employ the standard Neg Gearing strategy.

Perhaps a combination of the two.

 

[sptrawler]

haha, no.

Your comments (rant) just got me thinking. There is often reference to 'investing in the PPOR'.

I wonder if one could set out, as a first home buyer at 30yo with the intention of building their wealth primarily through their home - to avoid CGT of course.

This might involve living in a far larger or pricier home than is necessary, with the intention of an abrupt downsize at retirement to free up capital.

In reality, it is probably more tax effective to employ the standard Neg Gearing strategy.

Perhaps a combination of the two.

The big problem, is the movement of the goal posts, the PPOR will eventually be involved in the equation.IMO

Also I think the death tax and the requirement to spend any transparent asset before qualifying for welfare, will be on the agenda, globalization the bringing about of a leveling of the playing field.IMO

 

[Toyota Lexcen]

Would be interesting to see the stats on the number of super accounts overall, it would have to be decreasing with the introduction of contracting

 

[sptrawler]

Would be interesting to see the stats on the number of super accounts overall, it would have to be decreasing with the introduction of contracting

Also with the introduction of a cap, I think SMSF's will reduce as I feel the requirement to be more proactive, will become onerous.
Only my opinion, which has been known to be wrong.

 

[sptrawler]

Next step,IMO, PPR in asset test.

 

[Bill M]

Next step,IMO, PPR in asset test.

It already exists for those that need to go into aged care, but yeah most likely that will be next for everyone else.

 

[sptrawler]

It already exists for those that need to go into aged care, but yeah most likely that will be next for everyone else.

Yes Bill, it seems to be a bit silly of the Government to drop the asset cap, while not stopping the people from just moving money into the PPR.

Initially it will keep the housing market turning over, but it will pave the way for those with very expensive houses, to be marginalised. IMO

As the saying goes, slowly slowly catch the monkey, the Government seems to trying to pump money into the economy, by forcing retirees to spend their asset base.

Which really isn't a bad thing, too many younger people waiting for their inheritance, rather than forging their own road. Again only my opinion.

 

[sptrawler]

Not a post since November, it is a BIG issue, but everyone is scared to say anything, after the latest tsunami.
I think everyone is in a state of "stunned mullet", with the recently enacted and impending rule changes.
Get ready for no pension if you own a brass razoo. lol
The upside is , we won't have to worry about boat people, they will be heading for N.Z, Canada and the U.K that still have the welfare system, that we embezzled.IMO