Superannuation, the ultimate government cash cow?

sydbod · 12 August 2015

sydboy007 said:
So you believe that someone with a million dollar property - the median in Sydney - is somehow not advantaged compared to someone who doesn't own their own home?

Whooo there ... I never said that.
I also never said that a person in the outback that may only have a house valued at $50,000 is not greatly disadvantaged compared to a person with no house.

One can pick circumstances that will disadvantage one or the other as one chooses.

The point I am making is that "Owning your home does impact on the pension."
AND
"This provides a reasonable financial balance between the non home owner and the home owner."
Please note the word "reasonable" ........ it may not be "just" or "fair" for all people and all situations, but what the situation currently happens to be is within reason as it covers such a wide range of house values, living locations, rent costs etc.

sydboy007 · 12 August 2015

sydbod said:
Whooo there ... I never said that.
I also never said that a person in the outback that may only have a house valued at $50,000 is not greatly disadvantaged compared to a person with no house.

One can pick circumstances that will disadvantage one or the other as one chooses.

The point I am making is that "Owning your home does impact on the pension."
AND
"This provides a reasonable financial balance between the non home owner and the home owner."
Please note the word "reasonable" ........ it may not be "just" or "fair" for all people and all situations, but what the situation currently happens to be is within reason as it covers such a wide range of house values, living locations, rent costs etc.

The number of 50K properties would be inconsequential to the number worth $500K+. 2/3 of the population live in the capital cities. IIRC roughly 80% of pensioners are home owners. They are the only age cohort to have increased home ownership over the 1994-2014 period. Amazingly, it turns out that there are more homeowners over the age of 75 than there are among people in their 20’s and 30’s combined, yet income taxes are kept higher because of the lax standards for accessing the aged pension.

Shielding the primary residence from the pension asset test just encourages people to over invest into unproductive housing. It also encourages people to not downsize as any excess funds are now part of the asset test.

sptrawler · 12 August 2015

sydboy007 said:
Shielding the primary residence from the pension asset test just encourages people to over invest into unproductive housing. It also encourages people to not downsize as any excess funds are now part of the asset test.

That sums it up well, what has to be focused on IMO, super is there to enhance your retirement. It isn't for wealth creation above that and IMO it shouldn't be a pension replacement tool.
In the same way, the dole shouldn't be worth more, than reward for working

Finding the right balance, where super is still more attractive, than spending all your money and relying on a government pension, is the trick.

At the moment IMO, the issue is being clouded by the few that have $3 million + in super.
As you pointed out, RBL would sort it.

Both sides of politics have trouble addressing the issue, as they are the worst offenders, their super is ridiculous. Also as was proven with the Bishop issue, there are plenty just waiting to highlight the politicians entitlement mentality.

sydboy007 · 12 August 2015

sptrawler said:
At the moment IMO, the issue is being clouded by the few that have $3 million + in super. As you pointed out, RBL would sort it.

Well unless there's some agreement as to what level an RBL should be that's not going to happen.

The current assets limit for a couple is $1,305,500. At a 5% yield that's over $67K, and over double the pension. At a 4% yield they'd still be living on over $52K which is some 60% better than the aged pension.

So how does it benefit tax payers to allow further accumulation of assets within super? At the very least further contributions should be taxed at marginal rates. May require some for of combined married account to make it easier to monitor how much has been accumulated.

Then someone would need to tackle the issues surrounding lump sum withdrawals and increased access to the pension. It's an issue likely to become greater as super balances increase.

The longer these issues fester the harder change will be since more people will be affected by them

sptrawler said:
Both sides of politics have trouble addressing the issue, as they are the worst offenders, their super is ridiculous. Also as was proven with the Bishop issue, there are plenty just waiting to highlight the politicians entitlement mentality.

It's been about a decade since changes to Govt super was made. Anyone joining parliament from that time has a super system pretty much like you and me. Basically those elected over the last 3 (4?) elections wont be able to access their super till aged 60 and wont be getting a defined level increasing each year like Chopper Bishop will be retiring on.

christianrenel · 12 August 2015

sydboy007 said:
Well unless there's some agreement as to what level an RBL should be that's not going to happen.

The current assets limit for a couple is $1,305,500. At a 5% yield that's over $67K, and over double the pension. At a 4% yield they'd still be living on over $52K which is some 60% better than the aged pension.

So how does it benefit tax payers to allow further accumulation of assets within super? At the very least further contributions should be taxed at marginal rates. May require some for of combined married account to make it easier to monitor how much has been accumulated.

Then someone would need to tackle the issues surrounding lump sum withdrawals and increased access to the pension. It's an issue likely to become greater as super balances increase.

The longer these issues fester the harder change will be since more people will be affected by them.

It's been about a decade since changes to Govt super was made. Anyone joining parliament from that time has a super system pretty much like you and me. Basically those elected over the last 3 (4?) elections wont be able to access their super till aged 60 and wont be getting a defined level increasing each year like Chopper Bishop will be retiring on.

One of the options the government has with tax free income stream for superannuation, is to work out what is an acceptable living standard, less say $65k per year for couple. Any amount over this limit could be taxed at 15%. This may prevent people putting all the money into super, knowing that they may pay tax later. This will allow people to make investment in their own name as and use the marginal tax rate system.

Kind Regards

christian Renel

sptrawler · 12 August 2015

sydboy007 said:
Well unless there's some agreement as to what level an RBL should be that's not going to happen.

The current assets limit for a couple is $1,305,500. At a 5% yield that's over $67K, and over double the pension. At a 4% yield they'd still be living on over $52K which is some 60% better than the aged pension.

That is fair enough, but if people are expected to live for 30 years in retirement and allowing for the fact money halves in value approx every 10years, $1,305,500 won't last long.
Then everyone is on part pension again, much better to have a realistic RBL where there is little chance of needing government support.IMO

sydboy007 said:
It's been about a decade since changes to Govt super was made. Anyone joining parliament from that time has a super system pretty much like you and me. Basically those elected over the last 3 (4?) elections wont be able to access their super till aged 60 and wont be getting a defined level increasing each year like Chopper Bishop will be retiring on.

That's good to know, now all we have to do is wait for the last generation to move on, then we may see some realistic expectations.

sydboy007 · 12 August 2015

sptrawler said:
That is fair enough, but if people are expected to live for 30 years in retirement and allowing for the fact money halves in value approx every 10years, $1,305,500 won't last long.
Then everyone is on part pension again, much better to have a realistic RBL where there is little chance of needing government support.IMO

Even at a 4% yield al a person would need to do is save 2.5% of their income each year to maintain the real purchasing power.

A couple with 1.3M saved earning 4% and spending at 5% with their spending increasing by 2.5% a year to keep up with CPI would see their money last 25 years. Now they would slowly see a small increase in their ability for a part pension, so it's possibly they might be able to limit the increase in spending. At year 11 if they dropped their increased spending to just 2% they'd add over an extra year to how long their super lasts.

have a read of http://www.abs.gov.au/ausstats/abs@...ummary&prodno=6523.0&issue=2011-12&num=&view=

It will show you just how well off the above couple would be in relation to a couple over 65 who own their own home - double better off.

sptrawler · 12 August 2015

sydboy007 said:
Even at a 4% yield al a person would need to do is save 2.5% of their income each year to maintain the real purchasing power.

A couple with 1.3M saved earning 4% and spending at 5% with their spending increasing by 2.5% a year to keep up with CPI would see their money last 25 years. Now they would slowly see a small increase in their ability for a part pension, so it's possibly they might be able to limit the increase in spending. At year 11 if they dropped their increased spending to just 2% they'd add over an extra year to how long their super lasts.

have a read of http://www.abs.gov.au/ausstats/abs@...ummary&prodno=6523.0&issue=2011-12&num=&view=

It will show you just how well off the above couple would be in relation to a couple over 65 who own their own home - double better off.

Using your example $1.3m at 4% (which will require some risk to attain) will give an income of $52,000.

The full pension $34,000 + say $300,000 invested at 4% will give an income of $46,000.

So for saving an extra million dollars, it is in reality making 0.8%, to keep you off the pension. Dumb, dumb, dumb.

No intelligent person will buy that.

Obviously you don't understand how hard it is to save $1,000,000 as well as own your own home.

So, you either have to make the pension less attractive, or make it worthwhile saving money not to get it.

sptrawler · 12 August 2015

Actually re reading your post, the self funded couple saving 2.5% of their $52,000 income, to allow for inflation, makes it a sillier proposition.

$52,000 - 2.5% (1,300) = $50,700.

When the couple with the pension, get it indexed at CPI or average weekly wage, whichever is the greater.
It's a no brainer, F##k super.

With your scenario, save an extra $1,000,000 in super to gain an extra $4,700 in the first year.

After that it will reduce as the pension is indexed, sounds dumb to me, maybe you can explain the rationale.

sydboy007 · 12 August 2015

sptrawler said:
Using your example $1.3m at 4% (which will require some risk to attain) will give an income of $52,000.

The full pension $34,000 + say $300,000 invested at 4% will give an income of $46,000.

So for saving an extra million dollars, it is in reality making 0.8%, to keep you off the pension. Dumb, dumb, dumb.

No intelligent person will buy that.

Obviously you don't understand how hard it is to save $1,000,000 as well as own your own home.

So, you either have to make the pension less attractive, or make it worthwhile saving money not to get it.

So what's your solution?

We have a growing deficit. We are facing years of low or possibly negative growth. We already have some of the highest income and corporate taxes compared to those we trade with. Super tax concessions already cost close to the aged pension and will surpass it in 2 or 3 years time. The number of workers to pensioners is on decline till at least 2050.

Every dollar in super tax concessions has to be funded from:

* higher deficit
* lower govt spending
* higher taxation

Possibly a way forward in terms of generating the revenue to support larger super balances is to move to a broadly based land tax

https://www.prosper.org.au/2015/03/30/treasury-unearths-a-beautiful-tax/

Modelling also suggests that broad-based land taxes, such as municipal rates, have a low economic cost (Chart 2.9). This is because land is immobile (unlike other capital) and cannot be moved or varied to avoid tax. The model applies this assumption to both domestic and foreign ownership of land. Land taxes paid by foreign and domestic landowners are only redistributed to the domestic households, providing a benefit to Australian households and generating a negative marginal excess burden for a broad-based land tax shown in the chart.

Treasury’s table suggests each dollar raised in land tax costs us 90c. Compare that with conveyancing Stamp Duty where a dollar raised costs the taxpayer $1.70. The 80c difference between the two taxes is simply wasted, spilled on the ground. Across Australia, we are talking tens of billions of dollars each and every year.

sydbod · 12 August 2015

Gentlemen (woops and ladies) this discussion is nonsensical as there are changes already put in place to change the landscape of superannuation. we all already know that the income /assets test changes will be different at the start of 2017.... yep less than 1.5 years away.
if one wants to talk about reforming superannuation (and the fairness of it) and have a sensible discussion about this topic then we should be talking about the assets tests and pension impacts that are to be introduced and not those that are becoming irrelevant as they will soon be phased out.

https://www.supercentral.com.au/sms...-government-drops-proposed-indexation-change/

With the lower threshold were the pension ceases to be available, and the taper rate of $3 per $1000 (7%) is making super a relatively unattractive proposition. When you go above the full pension cut off threshold, your pension is decreased as if you are earning 7.5% on your extra assets.

Why would a person NOW put more than full pension threshold into super. You have to earn better than 7.5% return .... and what sort of risk profile does that sort of investment have attached to it.

I suspect more people will be spending big or cutting their super contributions to stay under this threshold.

sptrawler · 12 August 2015

sydboy007 said:
So what's your solution?

We have a growing deficit. We are facing years of low or possibly negative growth. We already have some of the highest income and corporate taxes compared to those we trade with. Super tax concessions already cost close to the aged pension and will surpass it in 2 or 3 years time. The number of workers to pensioners is on decline till at least 2050.

Every dollar in super tax concessions has to be funded from:

* higher deficit
* lower govt spending
* higher taxation

Possibly a way forward in terms of generating the revenue to support larger super balances is to move to a broadly based land tax

https://www.prosper.org.au/2015/03/30/treasury-unearths-a-beautiful-tax/

Treasury’s table suggests each dollar raised in land tax costs us 90c. Compare that with conveyancing Stamp Duty where a dollar raised costs the taxpayer $1.70. The 80c difference between the two taxes is simply wasted, spilled on the ground. Across Australia, we are talking tens of billions of dollars each and every year.

All I was highlighting, was how your easy answer can't work.

You need to realise that not only should there be limits on super, but there should also be limits on access to pensions.
The access to pensions, should be limited to people who have just cause, for never contributing to the tax system.

Why should me and my wife, who have both worked since we left school, brought up four children and saved for our retirement.
Have to be discriminated against, to pay for people who have saved nothing and blown all their life savings on a good time?

I'm not saying they are the norm, but if you use your argument, that all self funded retirees are being subsidised to a ridiculous degrees .
It is the same argument in the opposite, everyone who isn't self funded is a bludger, that unless they haven't a disability they should have prepared for retirement. At least in some way.

I know guys I worked in the same workshop with, 40 years ago, they still don't own a house, but they have had a great life. Overseas holidays, new cars, everything that winks and wanks.

Your telling me I should subsidise their retirement? FF off.

sptrawler · 12 August 2015

sydbod said:
Gentlemen (woops and ladies) this discussion is nonsensical as there are changes already put in place to change the landscape of superannuation. we all already know that the income /assets test changes will be different at the start of 2017.... yep less than 1.5 years away.
if one wants to talk about reforming superannuation (and the fairness of it) and have a sensible discussion about this topic then we should be talking about the assets tests and pension impacts that are to be introduced and not those that are becoming irrelevant as they will soon be phased out.

https://www.supercentral.com.au/sms...-government-drops-proposed-indexation-change/

With the lower threshold were the pension ceases to be available, and the taper rate of $3 per $1000 (7%) is making super a relatively unattractive proposition. When you go above the full pension cut off threshold, your pension is decreased as if you are earning 7.5% on your extra assets.

Why would a person NOW put more than full pension threshold into super. You have to earn better than 7.5% return .... and what sort of risk profile does that sort of investment have attached to it.

I suspect more people will be spending big or cutting their super contributions to stay under this threshold.

Yes sorry, we didn't realise the font of all knowledge had arrived, my apologies.

By the way what number is your post 1351 or something, did you read the previous posts, before sharing your brilliance.

Some of the people on this site actually are well versed in superannuation, and the thread in a lot of cases are an ongoing discussion.

There is an amazing amount of relevant information relating to super in the thread, if it is your field of interest, it would be well worth reading through.

I pride myself on knowing a reasonable amount about the super system, I run my own fund.

However there are members on here, who I would ask their opinion in a heart beat, real smarts not self professed smarts.IMO

sydbod · 12 August 2015

sptrawler said:
Yes sorry, we didn't realise the font of all knowledge had arrived, my apologies.

By the way what number is your post 1351 or something, did you read the previous posts, before sharing your brilliance.

......

Ouch ... that was a bit below the belt.

Yes I had read from start to finish this whole thread.

Thank you for praising me as "the font of all knowledge", but I believe you are giving me way too much praise here.

The reason I posted my previous post was to highlight that using the old super tables for calculations has no merit because they are being changed in the very near future. There is no point in doing any calculations based on that about to be obsoleted data.

I am pleased to see you are running your own super fund. I also suspect that more that half the active members on this board are probably doing the same. I do not see how this has any relevance to what I posted.

Naturally there are many very bright and informed members on this forum. You can rest assured that I would not be here if they were not.

sptrawler · 12 August 2015

sydbod said:
Ouch ... that was a bit below the belt.

Yes I had read from start to finish this whole thread.

Thank you for praising me as "the font of all knowledge", but I believe you are giving me way too much praise here.

The reason I posted my previous post was to highlight that using the old super tables for calculations has no merit because they are being changed in the very near future. There is no point in doing any calculations based on that about to be obsoleted data.

I am pleased to see you are running your own super fund. I also suspect that more that half the active members on this board are probably doing the same. I do not see how this has any relevance to what I posted.

Naturally there are many very bright and informed members on this forum. You can rest assured that I would not be here if they were not.

Yes the thresholds change, but the general thrust of the debate doesn't vary much.

So it is easier to debate the general outcomes using the longer term thresholds, as most people are familiar with them.

As the new norms become entrenched, the discourse will more revolve around them.

The last financial year, which we are now reporting is on the old rules.

I hope that helps.

Vixs · 13 August 2015

With annuities not subject to the new deeming rules and instead being subject to the old centrelink income test with a deductible amount, we will see more find that an attractive option. It also continues to provide the same income but with a reducing asset value for centrelink purposes over time. It's no accident these are given relatively favourable treatment - the govt wants us locking in a level of guaranteed income in retirement as they have no intent to continue the generosity of the age pension in the future.

Any retirement plan that favours spending your own money that you have control over to access govt money you have no control over is foolish, as it's impossible to change it later.

Junior · 13 August 2015

sptrawler said:
Your telling me I should subsidise their retirement? FF off.

Nice in theory, but it's not realistic. It's the same as saying we should axe Newstart allowance, why should I fund someone who can't be f***ed working and supporting themselves?? Because we live in a society where we support those who can't or won't support themselves, we don't want 1 million ppl homeless on the streets.

sptrawler · 13 August 2015

Junior said:
Nice in theory, but it's not realistic. It's the same as saying we should axe Newstart allowance, why should I fund someone who can't be f***ed working and supporting themselves?? Because we live in a society where we support those who can't or won't support themselves, we don't want 1 million ppl homeless on the streets.

Very true Junior, but it doesn't make it any less frustrating.

sydboy007 · 13 August 2015

sptrawler said:
You need to realise that not only should there be limits on super, but there should also be limits on access to pensions.
The access to pensions, should be limited to people who have just cause, for never contributing to the tax system.

How would you get that to work? Any system I can think of would undoubtedly harm the "innocent" as much as those you feel need to be punished.

Isn't much of the debate purely due to the boomer generation not saving enough and blaming it on not having super all their lives? It seems much of the costs are being forced onto Gen X and those that come after.

Why do income taxes have to be maintained at internationally uncompettiive rates so boomers can over invest in housing? It's not rational policy.

From the RBA yesterday in WA

Instead, what is perhaps more remarkable is the extra resources that Australian households have used to purchase, from one another, the land on which these bigger and better dwellings sit. Indeed, most of the extra money that has gone into residential property has not gone not into the physical stock of housing, but rather into land. So our fascination with housing is really, mostly, a fascination with land…

sptrawler said:
Why should me and my wife, who have both worked since we left school, brought up four children and saved for our retirement.

Have to be discriminated against, to pay for people who have saved nothing and blown all their life savings on a good time?

My parents are poor but work hard. Never saved much in super because they never had much left over to add to it. How would you ensure they continue to access the pension while your "leaners" are excluded? What would you criteria be to define a leaner? How would you ensure that we don't have a crime surge similar to what you reported in WA and what we see in the USA when people are so desperate they need to steal to survive? How is rent seeking via NG or halving CGT much different to the person who has the attitude I paid my taxes and I have a right to get the pension?

sptrawler · 13 August 2015

There is no easy answer, other countries have different systems in place, maybe a combination of a few ideas.

The one thing that isn't going to work, is the system we have in place currently, where never working is a viable lifestyle choice. It is just as unaffordable as the current super system, eventually we run out of money to fund it.

It is a bit like a guy I know brought in and married a Thai girl, she then brought her children over, after obtaining Australian citizenship, she left. We just can't afford to keep providing lifetime welfare, to those who haven't contributed in any way.IMO

How that will be handled who knows, I believe in Germany you recieve a pension commensurate with the years you have worked. I don't know how it works in any detail.

Superannuation, the ultimate government cash cow?

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