Superannuation, the ultimate government cash cow?

Julia · 11 February 2013

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.

Thanks for that confirmation syd boy.

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.

That's a good point. Apparently some people actually do simply spend money in order to get the age pension.
Hard to see the point of working to be self funded and then just ending up on the very miniscule age pension anyway.

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

And reasonably so. If this were not the case, it would leave the way open for family members to, on paper, take ownership of the retiree's funds allowing the pension to be accessed while leaving considerable earning capacity in place.

awg · 11 February 2013

Havent read past posts...but afaic..the problem is tax free over 60!

I want to know how it can be justified that you dont pay tax due to an arbitrary age if you are wealthy?

(Please dont crack out that hoary old chestnut, paid tax all their life...or I will throw-up)

imo, there should be a threshold...ie over $2M in super, pay some tax etc etc.

With the population aging, the maths are going all the wrong way.

I find almost no one agrees with me...my very wealthy 70 yr old accountant does though...vehemently!

The weird thing is that the vast majority of retirees would not have $2M in super.

Taxing the end user is the only thing makes sense to me

Julia · 11 February 2013

awg said:
Havent read past posts...but afaic..the problem is tax free over 60!

I want to know how it can be justified that you dont pay tax due to an arbitrary age if you are wealthy?

Presumably it's part of the overall incentive to save for one's own retirement in the first place, taking some of the burden off the age pension. The suggestion has been made that this saving does not balance out the loss of tax revenue. If anyone has bothered to find government figures on this, it would be interesting.

Coming from NZ where I'm pretty sure the age pension is not means tested but is taxed along with all other income, I was surprised about not even any tax on earnings here.

imo, there should be a threshold...ie over $2M in super, pay some tax etc etc.

That sounds reasonable enough, certainly on earnings: I don't think withdrawals should be taxed though if they've been taxed going in.

The weird thing is that the vast majority of retirees would not have $2M in super.

So why is it an issue?

sptrawler · 11 February 2013

awg said:
imo, there should be a threshold...ie over $2M in super, pay some tax etc etc.
.

Taxing the end user is the only thing makes sense to me

Agree $2m for a couple in todays dollars earns a reasonable income. As for taxing, the regime that is in place for those between 55 - 60 years of age, could be employed.

As for taxing the end user being the only thing that makes sense is debatable.

15% tax on contributions, now that the lowest tax scale is 19%, is unsustainable.
One would think it will have to move to at least 19%, otherwise there is a real fall in tax revenue.

Possibly making the tax concession proportional to the individuals income bracket, would balance the inequity in the benefit.
Both in contributions as well as earnings.

McLovin · 11 February 2013

Julia said:
Presumably it's part of the overall incentive to save for one's own retirement in the first place, taking some of the burden off the age pension. The suggestion has been made that this saving does not balance out the loss of tax revenue. If anyone has bothered to find government figures on this, it would be interesting.

Where do you draw the line then? By some of the logic I've seen in here (not by you) it seems that the prevailing mindset is "I saved it, so I shouldn't have to pay tax because I'm not a burden". There are plenty of people who have saved or who have been successful enough to live off their investments well before 60 or whose investments are outside of the superannuation system, yet they still have to pay tax.

The original purpose of the super system was to provide a pension that the government didn't have to pay for. Along the way all these perks have been added. Was the intention to create a tax sheltered environment for savings that would provide beyond the basic pension?

Julia · 11 February 2013

McLovin said:
Where do you draw the line then? By some of the logic I've seen in here (not by you) it seems that the prevailing mindset is "I saved it, so I shouldn't have to pay tax because I'm not a burden". There are plenty of people who have saved or who have been successful enough to live off their investments well before 60 or whose investments are outside of the superannuation system, yet they still have to pay tax.

The original purpose of the super system was to provide a pension that the government didn't have to pay for. Along the way all these perks have been added. Was the intention to create a tax sheltered environment for savings that would provide beyond the basic pension?

I guess, McLovin, the whole idea was designed not for people like yourself who will obviously not be depending on a government pension, but for those who - without significant incentives - would not take the initiative to even think about their future.

sptrawler · 11 February 2013

McLovin said:
Where do you draw the line then? By some of the logic I've seen in here (not by you) it seems that the prevailing mindset is "I saved it, so I shouldn't have to pay tax because I'm not a burden". There are plenty of people who have saved or who have been successful enough to live off their investments well before 60 or whose investments are outside of the superannuation system, yet they still have to pay tax.

I asuume I'm getting a mention there.lol

As for the people who invested outside of super and had to pay tax.
Firstly they had access to that money to use as they wished, the superannuant didn't
Secondly they could employ tax minimisation strategies to accumulate the wealth.

Also I personaly don't agree that it shouldn't be taxed. What I argue is it should be addressed in an holistic way.
Not just saying a person with $x in retirement phase should pay, when there are discrepancies through all phases of the process.
Just to make it clear I'm not on any sort of pension, so it isn't from my personal perspective or experience.

McLovin · 11 February 2013

Julia said:
I guess, McLovin, the whole idea was designed not for people like yourself who will obviously not be depending on a government pension, but for those who - without significant incentives - would not take the initiative to even think about their future.

Point taken Julia. But for those people who don't think about their own retirement they have little choice but to invest in superannuation. That, to me, was the main point of super; employer makes the contribution which is then ringfenced until retirement. Like all pension systems, it cuts the beneficiary out of the equation until they retire. In many other countries you make a "social security contribution" on each payslip that goes straight to the government and in return the government pays you a pension at retirement. Our privatised system has created a whole industry around pensions, maybe the explains why there are so many more perks (especially as your super balance grows) than in other countries.

sptrawler said:
I asuume I'm getting a mention there.lol

You did cross my mind.

sptrawler said:
Also I personaly don't agree that it shouldn't be taxed. What I argue is it should be addressed in an holistic way.
Not just saying a person with $x in retirement phase should pay, when there are discrepancies through all phases of the process.
Just to make it clear I'm not on any sort of pension, so it isn't from my personal perspective.

Fair enough. FWIW, I don't know who should or shouldn't be taxed. I'm just thinking aloud.

sptrawler · 11 February 2013

McLovin said:
Point taken Julia. But for those people who don't think about their own retirement they have little choice but to invest in superannuation. That, to me, was the main point of super; employer makes the contribution which is then ringfenced until retirement. Like all pension systems, it cuts the beneficiary out of the equation until they retire. In many other countries you make a "social security contribution" on each payslip that goes straight to the government and in return the government pays you a pension at retirement. Our privatised system has created a whole industry around pensions, maybe the explains why there are so many more perks (especially as your super balance grows) than in other countries.

You did cross my mind.

Fair enough. FWIW, I don't know who should or shouldn't be taxed. I'm just thinking aloud.

I really find super interesting McLovin and as you say the reasons it was first introduced have been lost.
Now there is so much money involved, both sides of government want to get into it.lol
Not to mention the fund administrators.

As with you I'm just thinking out loud, debating it causes me to think of the issues I haven't thought of.
That is why I enjoy Sydboys input, they are from angles I've never thought of.

I think personaly if the system is becoming a huge tax burden, then the whole thing needs to be put on a sustainable footing.
Not just politically expedient jabs at it. Both parties are as guilty as each other.

I hope the debate can continue in the nature it has been, I've thoroughly enjoyed it and I have no background in economics or accounting, as you have probably recognised already.

DocK · 11 February 2013

I've been enjoying reading this thread, so when I saw this article this afternoon I though it might be of interest to the participants. Maybe we'd be better off if there were no contributions tax on the compulsory employer contributions, no contributions tax on voluntary contributions up to a higher cap than the present $25,000, no tax on earnings within super, but a tax at normal marginal rates on all payments made out of the super fund regardless of the age of the recipient. This would encourage people to put extra in, thereby lessening the taxpayer provided pension load, and would also provide ongoing tax revenue when they were old enough to take it out. I'd also have no problem with being told I had to take the compulsory employer provided portion as a fixed pension/annuity.

Aust super concessions stack up poorly

Tax concessions within Australia's superannuation system are not as generous as those in other countries.

A new study shows the net retirement benefits of an average British worker is 16.4 per cent - or $43,534 - higher than their Australian counterpart.

It compares Australia to eight other countries considered to have the best pension systems in the world: Canada, Chile, Denmark, Netherlands, Sweden, Switzerland, the United Kingdom and United States.

Australia is the only country of all nine that charges a tax rate on employer contributions, at 15 per cent, and the only one not to offer employee tax deductible contributions.

It's also one of three to have a tax rate on investment income, alongside Denmark and Sweden.

This has a direct impact on the final benefit received by retirees, and in many cases increases the likelihood of people receiving an age pension, Mercer says.

Australia makes no impost on pension benefits after the age of 60. Chile is the only other country with the same regime, although its workers generally have lower incomes.

But Australia does have the lowest contribution cap - at $25,000 per annum - which is significantly short of other countries when expressed as a percentage of average earnings.

"We believe increasing concessional caps, particularly for those aged over 45 should be a priority for government, rather than reducing super tax concessions," Mercer managing director David Anderson said.

"Higher superannuation benefits due to increased contributions, improved investment returns or lower taxation will lead to less pressure from the ageing population in future budgets."

http://www.businessspectator.com.au/bs.nsf/Article/Super-concessions-not-so-generous-report-4T4XJ?OpenDocument&src=pm&utm_source=exact&utm_medium=email&utm_content=178730&utm_campaign=pm&modapt=news

qldfrog · 11 February 2013

In my opinion, every income should be taxed the same irrespective of the origin, so capital gain or share income, PPOR or investment unit, wages it should be the same and a single tax rate ideally:
Has no one been amazed that no one challenges the fact that the more income you get the higher your taxation rate is ?
It is similar to adding weight on a sprinter who win too many competition.
Handicap the winners....
a single rate would still mean most of the taxes will be paid by the wealthy, whereas currently, really rich people probably pay less tax than me as they use complex instruments to "not avoid" yet still pay less tax...

But it seems our western society does not even challenge that concept...

In the case of super, no tax on contribution at all but standard tax when receiving the benefits.
This would provide the incentive to go into super yet tax retiree as everyone based on actual income, why would a retiree be taxed less than a 20y old working full time?

Pension should be treated as other welfare payment should, a survival amount, not an entitlement.
This should be enough to motivate people to be responsible, and if not-> well bad luck
Instead of the current system where 20y old at mc donald are doing a de facto gift to union or finance managed so called super funds while people in wealth accumulation phase are actually restricted..crazy...

anyway, thinking loud and scaring the left as this would be really egalitarian and freedom based.
Just thinking aloud...

sptrawler · 11 February 2013

DocK said:
I've been enjoying reading this thread, so when I saw this article this afternoon I though it might be of interest to the participants. Maybe we'd be better off if there were no contributions tax on the compulsory employer contributions, no contributions tax on voluntary contributions up to a higher cap than the present $25,000, no tax on earnings within super, but a tax at normal marginal rates on all payments made out of the super fund regardless of the age of the recipient. This would encourage people to put extra in, thereby lessening the taxpayer provided pension load, and would also provide ongoing tax revenue when they were old enough to take it out. I'd also have no problem with being told I had to take the compulsory employer provided portion as a fixed pension/annuity.

My guess is that the government would lose too much revenue. Remembering we are talking about 9% of Australia's wage bill
Currently contribution tax is 15%, therefore untill the recent tax scale changes, the only loss of revenue were on contributions made on behalf of workers on the 30-45% tax rates. That is workers on more than $37k

Now in 2013 there is a loss of revenue from contributions on the salary of a worker on more than $18,200
I think that will cost a lot to government income tax reciepts.
To lose the tax completely it would be a massive lot of revenue.

No tax on the earnings, currently they are taxed at 15%, again that is a huge amount of revenue.

Taxing pensions at marginal rates, would mean that the first $36,400 is tax free(married couple).
Then if they were drawing a pension of $40,000 each their combined tax would be approx $9,000.
Assuming they have a combined sum of $2m i.e $40k pensions, they would only be paying 1% tax.

It would cause a massive hole. IMO

sptrawler · 11 February 2013

I think a lot of the issues arise from the fact the average baby boomer only has $150k in super. Mainly due to the fact the scheme has only been in operation for 20 years.
Therefore currently, the only way they can get into a position of reducing their dependence on a government pension, is with after tax contributions. To do this they will probably have to sell assetts e.g rental properties, shares, downsize the house etc. They won't do that if there is no upside.

I feel as the average super balance(younger generation) come through the amount of after tax contributions you can put in will reduce. This will happen as the concessional contribution increases to 12 then probably 15%.

Therfore I think, the contribution tax will go to the lowest tax rate and a discount of 19% for contributers on higher tax brackets.

After tax contribution allowance will be scaled back to a much lower level as balances increase.

In the accumulation phase earnings taxed at 19%.

Pension phase, earnings untaxed, the pension taxed as income with the 19% offset.

Well that's my thought, Sydboy will probably jump all over me

Julia · 11 February 2013

qldfrog said:
In my opinion, every income should be taxed the same irrespective of the origin, so capital gain or share income, PPOR or investment unit, wages it should be the same and a single tax rate ideally:

Let's remember that everyone needs X amount of income to just survive with paying for basic living needs.
So it doesn't seem fair to me to tax someone who is a very low earner equally on, say, the first $20Kpa
as a higher earner.
We need to make allowances that not everyone has the same capacity to earn and provide for their future, and this is one of the problems successive governments have had to contend with in designing the Super system.

most of the taxes will be paid by the wealthy, whereas currently, really rich people probably pay less tax than me as they use complex instruments to "not avoid" yet still pay less tax...

I guess they would still be able to find additional ways to maximise their position.

Pension should be treated as other welfare payment should, a survival amount, not an entitlement.
This should be enough to motivate people to be responsible, and if not-> well bad luck

As above, not everyone has the capacity to save at the same rate. And what you suggest is pretty much what happens at present, i.e. the age pension is only a basic survival amount and is means tested.

Your point about the need to encourage responsibility, however, is well made. A couple I know, in retirement, have no source of income other than the age pension. This is despite both working full time all their adult lives in well paid jobs, having no children to raise and educate. They simply spent as they went giving essentially no thought to needing anything other than the age pension in retirement. I don't think their situation is unusual, and that's what the compulsory scheme is attempting to counteract.

sptrawler · 11 February 2013

Julia, how do you slice up the quotes so you can answer each one individualy .
It reads a lot better than answering all the questions in one continuous answer.

Julia · 11 February 2013

sptrawler said:
Julia, how do you slice up the quotes so you can answer each one individualy .
It reads a lot better than answering all the questions in one continuous answer.

Here's Joe's thread on how to use the Quote tags, sp.
Essentially, you just have to wrap each comment you want to respond to with the correct Quote tags, having first ticked the Multiquote tag at the base of each post you want to comment on.
https://www.aussiestockforums.com/forums/showthread.php?t=2737&highlight=tags

sptrawler · 11 February 2013

Julia said:
Here's Joe's thread on how to use the Quote tags, sp.
Essentially, you just have to wrap each comment you want to respond to with the correct Quote tags, having first ticked the Multiquote tag at the base of each post you want to comment on.
https://www.aussiestockforums.com/forums/showthread.php?t=2737&highlight=tags

Right, I know where the multi quote tag is, it is the wrapping each comment with the correct quote tag, that I'm struggling with.
Do I copy and paste the quote tags at the beginning and ends of each quote, or is there a key that inserts the quote tags in the desired locations?

Julia · 11 February 2013

sptrawler said:
Right, I know where the multi quote tag is, it is the wrapping each comment with the correct quote tag, that I'm struggling with.
Do I copy and paste the quote tags at the beginning and ends of each quote, or is there a key that inserts the quote tags in the desired locations?

I don't think so. I always just type the Quote tags in manually. What you do have to remember is to insert the / after the initial bracket when typing the tag at the end of what you want to quote.

Do a bit of trial and error and see if it looks right in the Preview Post option.

sptrawler · 11 February 2013

Julia said:
I don't think so. I always just type the Quote tags in manually. What you do have to remember is to insert the / after the initial bracket when typing the tag at the end of what you want to quote.

Do a bit of trial and error and see if it looks right in the Preview Post option.

Thanks, back on topic.

sptrawler · 11 February 2013

Julia said:
Presumably it's part of the overall incentive to save for one's own retirement in the first place, taking some of the burden off the age pension. The suggestion has been made that this saving does not balance out the loss of tax revenue. If anyone has bothered to find government figures on this, it would be interesting.

McLovin that was a good question from Julia, you didn't answer it.

Also, a while back, I asked what you thought was a reasonable amount in todays fiscal climate to support a sustainable pension.
I posted Asics calculator to support my theory that $2m wasn't obscene, so what do you think?

Not putting you under the pump, but it keeps the thread going and obviously from the visits, it's popular.
Your comments are measured and well founded, also appreciated.

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