Superannuation, the ultimate government cash cow?

Rather than speculate on what is a great amount of money, use this calculator, to work out your own circumstances.

https://www.moneysmart.gov.au/tools...rs-and-tools/account-based-pension-calculator

You can download the excel spreadsheet and play with till your hearts content.

sptrawler said:

As for $2m ,If you want a comfortable lifestyle it will cost about $80k.
That is an overseas trip of say 6 - 8 weeks, going to the movies once a week, changing your car every 7-8 years.
I'm going off a friend who has been retired for 20 years and is fairly diligent with his money. Neither of them smoke.
We are talking about having enough money to never need any government support.
Having $1m you just about qualify for part pension and you will be on full pension within 20 years.

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I've obviously got a totally different concept of a comfortable life.

Being mortgage free with no addictions (except maybe books but the bookdespository saves me there) and I find I'm able to have 2 to 3 overseas holidays a year (6 to 8 weeks away) on about 45K after tax.

The rest of my income is going into building a share portfolio.

I suppose I'm lucky in that I don't have a car, but I'd really have trouble blowing 80K a year.

With so many boomers heading for retirement I just don't see how the remaining tax payers are going to be able to afford to support the system when around 25% of the population will have largely tax free income. GST increase is about the only way to resolve that insanity.

sydboy007 said:

With so many boomers heading for retirement I just don't see how the remaining tax payers are going to be able to afford to support the system when around 25% of the population will have largely tax free income. GST increase is about the only way to resolve that insanity.

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Again you say you don't know how the tax payers are going to pay for people who have a tax free income.
They are not costing anything as it is being paid from their own earnings from saved funds.
If they were pulling government assistance the tax payer is paying for it.

The only cost is loss of percieved tax that could be levied on that money.
If there was no super there would be no money to tax and a huge pension bill. Now that would be insane.

As I said earlier the only net loss currently is contributions being taxed at 15%, this is a loss of personal income tax reciepts.
Also as the lowest tax bracket is now 19%, all workers contributions are now costing the government money. This is the unsustainable part currently.
Same as taxing earnings at 15% instead of at marginal rate, in accumulation phase, that's costing also.

It is interesting that if someone is living off their investments and not recieving any government welfare, they are demonised.
Yet if they spend it, they recieve sympathy and taxpayer support.

sptrawler said:

Again you say you don't know how the tax payers are going to pay for people who have a tax free income.
They are not costing anything as it is being paid from their own earnings from saved funds.
If they were pulling government assistance the tax payer is paying for it.

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I think he's referring to who is going to pay for the very large chunk of the boomer population that don't have sufficient retirement resources and don't have private health insurance. The superannuation industry and the wealthier boomers seem to be pushing a model where the well off baby boomers will have comfortable, relatively low taxed retirements while the working age population will be paying tax out their ass to support the poorer boomers with age pensions and healthcare.

banco said:

I think he's referring to who is going to pay for the very large chunk of the boomer population that don't have sufficient retirement resources and don't have private health insurance. The superannuation industry and the wealthier boomers seem to be pushing a model where the well off baby boomers will have comfortable, relatively low taxed retirements while the working age population will be paying tax out their ass to support the poorer boomers with age pensions and healthcare.

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What you are saying is absolutely correct.
What Sydboy and Labor are saying is that the boomers who have saved, should be taxed (over $1m)
What I'm trying to show is how stupid that is, if you tax their earnings, they will also be on the pension in no time.
Suggest you read back through this and and other related threads,to get a background.

Also at the moment everyone is getting their a$$es taxed off to subsidise the 15% contribution concessions and 15% earnings concessions at the moment.
I don't hear the young high income earners complaining about that.

sptrawler said:

It is interesting that if someone is living off their investments and not recieving any government welfare, they are demonised.
Yet if they spend it, they recieve sympathy and taxpayer support.

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Maybe if I put some $ figures to what my argument i about it might be clearer.

My position is that superannuation should only be about minimising the aged pension cost. It seems most people agree to do nothing would leave us either destitute in old age, or a minimal working population paying ludicrous taxation.

The current single aged pension is $18512 a year

I'd argue allowing someone to build up savings within super to to provide 125% of the current age pension is reasonable. There's nothing to stop a person from saving more for their retirement outside of super.

Using your spreadsheet it would seem a balance of $470K would provide a 23.5K annual income indexed to CPI till age 82 (assuming 5% a year with 0.55% management fee). Personally I think you could buy some IABs and get a much better net return, but that's a whole other topic. If you haven't fallen off ya perch by 82, and there's a reasonable chance you wont, then it might be time to take a reverse mortgage or downsize your house. A million $ balance with the same earning rate would provide a 50K income till age 88. 50K after tax puts you in the top 20-25% of income earners in the country.

People seem to be treating super as tax minimisation shelter, when it should be viewed as providing a basic level of income for retirement. The majority of the tax benefits go to the wealthiest and to me it seems to be an expensive way to solve the retirement income problem. It would be much better to limit how much can be accumulated at the lower tax rate. I'd much rather see lower income taxes than the current super rort continuing.

The tax forgone on contributions is small when compared to the income earned of say 30K on a decent sized super balance compared to what someone would pay at their marginal rate for that. The tax free pension phase is another huge cut to Govt revenue. I don't know why Howard had to cut the RBL system. No idea why people are allowed to take lump sums and blow them as they like then expect to get the age pension when it runs out. People argue it's their money, but quite a bit of it is tax payer subsidy. Don't I have the right to expect your tax payer subsidised super to last you as long as possible and minimise the aged pension you'll receive?

I know in this tiny microcosm of aussiestockforums everyone here is practically a fully self funded retiree who will never ask for money from the Govt, but the reality is that the fully self funded retiree is only just slightly less rarer than hens teeth.

sydboy007 said:

The tax forgone on contributions is small when compared to the income earned of say 30K on a decent sized super balance compared to what someone would pay at their marginal rate for that. The tax free pension phase is another huge cut to Govt revenue. I don't know why Howard had to cut the RBL system. No idea why people are allowed to take lump sums and blow them as they like then expect to get the age pension when it runs out. People argue it's their money, but quite a bit of it is tax payer subsidy. Don't I have the right to expect your tax payer subsidised super to last you as long as possible and minimise the aged pension you'll receive?

I know in this tiny microcosm of aussiestockforums everyone here is practically a fully self funded retiree who will never ask for money from the Govt, but the reality is that the fully self funded retiree is only just slightly less rarer than hens teeth.

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There are already laws in place to stop people 'blowing' money in order to obtain a pension!

I agree min - max will be brought back. But that won't stop people withdrawing their own money.

As concessional limits are so low ($25k) the only people who have large amounts in super, have done so with their own money.

So therefore a married couple with $1m in super, currently get no pension.
They introduce a 15% withdrawl tax on them. Minimum withdrawl is 4% i.e $40,000 minimum withdrawl.
So on their $1m it earns 5% = $50k - 40k minimum withdrawl - 15% ($6k) = $44k available after tax.

Or they withdraw the money put it in term deposit, $1m at say 5% = $50k or 25k each
The first $$18k tax free the remaining $7k is taxed at 19% = approx$1,300 tax each.
So on the $50k interst they keep $47,400 no strings attached.
Like that works out.

As the concessional component is so low in super, what is the difference between someone 'blowing' money they hold outside of super or inside super.
If the result is the person obtains a pension, I really think that the 'blowing' of money in super to obtain a pension isn't as big an issue as you think. There is more likelyhood of it happening outside the super structure.

sydboy007 said:

I know in this tiny microcosm of aussiestockforums everyone here is practically a fully self funded retiree who will never ask for money from the Govt, but the reality is that the fully self funded retiree is only just slightly less rarer than hens teeth.

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If you think it's such a tiny microcosm, isn't all you said before that statement and will say after a waste of time ?

This sort of categorisation of those who have views that differ from your own only detracts from the substance of your argument.

Is the current government interested in changes to taxing super from the context of raising revenue or broader tax reform ?

That's the fundamental question of this thread.

The tiny microcosm to which you refer is much broader than you would like to acknowledge.

drsmith said:

If you think it's such a tiny microcosm, isn't all you said before that statement and will say after a waste of time ?

This sort of categorisation of those who have views that differ from your own only detracts from the substance of your argument.

Is the current government interested in changes to taxing super from the context of raising revenue or broader tax reform ?

That's the fundamental question of this thread.

The tiny microcosm to which you refer is much broader than you would like to acknowledge.

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I was enjoying the debate, but exactly drsmith.

sptrawler said:

There are already laws in place to stop people 'blowing' money in order to obtain a pension!

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Are there? I wasn't aware of that. Can you be specific about this?
As I understand it, as long as any withdrawals from Super are clearly nominated as being "Pension Payments", you can pull out as much as you like, spend it on what you like, and then have access to a government pension, if that were to be what you wanted.

sydboy007 said:

Maybe if I put some $ figures to what my argument i about it might be clearer.

My position is that superannuation should only be about minimising the aged pension cost. It seems most people agree to do nothing would leave us either destitute in old age, or a minimal working population paying ludicrous taxation.

The current single aged pension is $18512 a year

I'd argue allowing someone to build up savings within super to to provide 125% of the current age pension is reasonable. There's nothing to stop a person from saving more for their retirement outside of super.
.

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Even using this example is flawed, up untill about 4 years ago the single age pension was approx $14,000 now it is $18,500.

Using your reasoning if someone was allowed to build up their super, to provide for 125% the pension of 4 years ago, they would be getting less than the pension now.
Also as they are retired there is no way of recovering the situation.

If they want to sort it out, just tell everyone to withdraw there super and apply an exit tax of 15% on the taxable component.
Let's see if that happens.lol

Julia said:

Are there? I wasn't aware of that. Can you be specific about this?
As I understand it, as long as any withdrawals from Super are clearly nominated as being "Pension Payments", you can pull out as much as you like, spend it on what you like, and then have access to a government pension, if that were to be what you wanted.

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I'm pretty sure when you apply for a pension, they look at your expenditure over the last five years.
Therefore if you withdrew say $100k last year, they would want to know what it was spent on.
You can't actively dispose of money in order to obtain government assistance.
I will stand corrected if I'm wrong, but I'm pretty sure that's the way it is.

sptrawler said:

I'm pretty sure when you apply for a pension, they look at your expenditure over the last five years.
Therefore if you withdrew say $100k last year, they would want to know what it was spent on.
You can't actively dispose of money in order to obtain government assistance.
I will stand corrected if I'm wrong, but I'm pretty sure that's the way it is.

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from the industry funds services website

Can I spend my entire super and then get the pension?

If you are over 60 and have permanently retired from the workforce, you will be able to withdraw 100% of your super, spend it, and then apply for the age pension if you have reached the qualifying age.

You do not need to spend all your money to receive the pension and in many cases you may be better off maximising the income from your super/investments than solely relying on the age pension.

If you intend to give funds away please note Centrelink has gifting limits (see above).

drsmith said:

If you think it's such a tiny microcosm, isn't all you said before that statement and will say after a waste of time ?

This sort of categorisation of those who have views that differ from your own only detracts from the substance of your argument.

Is the current government interested in changes to taxing super from the context of raising revenue or broader tax reform ?

That's the fundamental question of this thread.

The tiny microcosm to which you refer is much broader than you would like to acknowledge.

Click to expand...

IIRC fully self funded retirees make up something like 5-7% of retirees, so if that isn't a small microcosm then I stand corrected.

Neither the ALP of the LNP are interested in broad tax reform. They're only interested in the getting their flabby butts onto the treasury benches.

sptrawler said:

Even using this example is flawed, up untill about 4 years ago the single age pension was approx $14,000 now it is $18,500.

Using your reasoning if someone was allowed to build up their super, to provide for 125% the pension of 4 years ago, they would be getting less than the pension now.
Also as they are retired there is no way of recovering the situation.

If they want to sort it out, just tell everyone to withdraw there super and apply an exit tax of 15% on the taxable component.
Let's see if that happens.lol

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I suppose I should have clarified that the amount would move in line with the pension.

I'd prefer forcing people to have to take a pension with their super. The Govt has already forced us to save the money, so they might as well force us to use it for what it was intended for ie provide an income for as long as possible in retirement.

sydboy007 said:

IIRC fully self funded retirees make up something like 5-7% of retirees, so if that isn't a small microcosm then I stand corrected.

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Aussiestockforums is even a smaller proportion of the population, so the question stands.

Why are you wasting your time for what you regard as such a tiny microcosm ?

sydboy007 said:

I know in this tiny microcosm of aussiestockforums......

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sydboy007 said:

I suppose I should have clarified that the amount would move in line with the pension.

I'd prefer forcing people to have to take a pension with their super. The Govt has already forced us to save the money, so they might as well force us to use it for what it was intended for ie provide an income for as long as possible in retirement.

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Your point is?
As I said in the example of allowing people to save enough to provide 125% of the pension.
Four years later they will be drawing pension from consolidated revenue. That's dumb.
If the person had enough in super, so that he can support himself from his own earnings, without taking anything from consolidated revenue.
That has to be a better outcome rfor the tax payer.

sydboy007 said:

from the industry funds services website

Can I spend my entire super and then get the pension?

If you are over 60 and have permanently retired from the workforce, you will be able to withdraw 100% of your super, spend it, and then apply for the age pension if you have reached the qualifying age.

You do not need to spend all your money to receive the pension and in many cases you may be better off maximising the income from your super/investments than solely relying on the age pension.

If you intend to give funds away please note Centrelink has gifting limits (see above).

Click to expand...

The last line is very important.

sydboy007 said:

IIRC fully self funded retirees make up something like 5-7% of retirees, so if that isn't a small microcosm then I stand corrected.

Neither the ALP of the LNP are interested in broad tax reform. They're only interested in the getting their flabby butts onto the treasury benches.

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No, they are interested in a tax free pension from the moment they leave parliament, indexed to cpi for the rest of their lives.
So they can leave at 47 years old and work, plus recieve the pension tax free on top.
You say someone retired getting $25k is taking the pizz, I don't think so, at least they've paid some tax on it.

sydboy007 said:

I suppose I should have clarified that the amount would move in line with the pension.

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It doesn't matter, the person who retired four years earlier is now in the pension phase and can't add to his total.
So he is still screwed.