Super expert’s scheme to increase retirement income for all

Scheme could enable greater wealth for all, with big benefits flowing to low-income earners.

Scheme to increase retirement savings

Upfront tax is crippling retirement, says the former chair of the Commonwealth Superannuation Schemes Peter Reynolds, who has a scheme to ensure more income in retirement.

In his submission to the Retirement Income Review, Mr Reynolds has called on the government to adopt an asset-based dividend method to increase all retirement balances and government revenue, reports Super Review.

“The upfront tax limits the potential of the super scheme by reducing the superannuation guarantee (SG) to eight per cent of ordinary time earnings before investment (e.g. a $10,000 SG is reduced to $8500). This configuration of taxes reduces the return to individuals and government,” he said.

A more effective system, Mr Reynolds said, would be an annual asset-based fee or dividend of 1.25 per cent on the super pool of funds in accumulation mode.

For example, when taxing individuals at 15 per cent upon deposit of funds, the government currently pulls in tax revenue of around $30 billion a year. A dividend of 1.25 per cent from an asset base of $2.4 trillion (in accumulation mode) would yield the same amount.

“This approach redistributes the tax burden from the earlier years of accumulation to the latter years. In so doing, it enables greater wealth to be created for all participants with the greatest benefit flowing to low-income earners and those with low balances,” he said.

A worker earning $50,000 per year who has had Superannuation Guarantee contributions at 9.5 per cent over 25 years, taxed at 15 per cent, would have a balance of $320,500. With Mr Reynolds’ 1.25 per cent dividend method, that balance would be $359,800.

This is assuming 2.5 per cent inflation and eight per cent compound returns.

The same worker with 25 years of Superannuation Guarantee contributions at 12 per cent, taxed at 15 per cent, would have a balance of $404,800. With the dividend method, that balance would be $454,500.

“The dividend method would increase and stabilise government revenue with a predictable compound growth rate of seven per cent per annum for the next 15 years,” said Mr Reynolds.

He noted it would not only benefit fund members, but would also streamline the system, as the government would only require one calculation per year on the mandated 30 June balance of each super account.

Read Mr Reynolds’ full submission here.

What do you think of this idea? Would you be disadvantaged by it?

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    11th Mar 2020
    But what about the truly lowest paid? Those who've been robbed and have only the pension?

    Not everyone has a nice super balance... without going into all the details, this idea is no good.
    11th Mar 2020
    That's all very well. BUT what about the people on the Full Age Pension. When are we going to get some relief; an increase in the Old-age Pension Rate? so we can live better with dignity.
    11th Mar 2020
    Sounds good to me, but when the 15%tax was imposed by Mr Keating , it was designed to produce an instantly increases taxation revenue ....wouldn’t the proposed 1.25 % assets tax defer tax revenue, and hence be unacceptable to those for whom a balanced budget is the Holy Grail.
    I favour a universal pension taxed as income when received
    11th Mar 2020
    What then is your position on superannuation and other payments over and above that income taxable pension? Are they to be taxed as well?
    11th Mar 2020
    Is this a scheme to get those who already paid 15% to now get slogged again every year on their balance in accumulation? There is no mention of what the plan is for those who have already paid 15% on their super. Not as simple as it’s made to sound.
    11th Mar 2020
    Maybe there needs to be a calculated income tax rate on the accumulated capital gain....... if a person already got a discount to put money into super and then expects it totally tax-free.... can you see a difficulty?

    I can assure you that the founding fathers of universal superannuation and their smoke-filled room conference mates would have know the minefield they were setting for the future.

    Is it right that an income tax discount be set in place during the working life of the account, and then that account not pay capital increase tax once it is paid?

    Sounds to me that the whole approach was flawed from the outset.
    11th Mar 2020
    Methinks a properly handled national super scheme would be a far better answer - but as politicians know - it is already too late since any massive changes will cause strife and dissension all over. Politicians have a history of putting in place things that they know can never be removed or fixed, since to do so would be far too costly.
    11th Mar 2020
    Yes, how to treat those who have already paid 15% ?
    11th Mar 2020
    Yes, Mad As - too hard a calculation now... they invested in good faith, so if you change the rules that is totally wrong. Typical government planning ahead... never allow your system to be changed - too costly one way or the other.

    Why do we elect them?
    11th Mar 2020
    Karen, there are also some who paid into super from after tax income, so no tax savings there. Super funds generally pay tax on earnings before it goes into members’ accounts.
    11th Mar 2020
    That's why the current system, already installed and allowed to flourish, is so difficult to change now. It's like government signing a contract for some road deal, and installing a phrase that if they change it - or heaven forbid their opposition take power and change it - it will cause a massive payout, and thus changing it is not viable.
    11th Mar 2020
    nobody worse off, government shares the risk and a win-win result, a good idea.
    11th Mar 2020
    As usual, those on the full pension, with no super are the ones disadvantaged.
    Politicians are the only ones "laughing all the way to the bank". They know, no matter how atrocious a job they do, they're assured of their disgracefully hefty pensions, at the taxpayers' expense.
    When fat cat politicians finish their term of office, they should be forced to live on the normal pension. That should make the bludgers think twice about the rules they so flippantly make.
    When ScoMo, our very Christian Prime Minister, was Treasurer, he was famously quoted as saying "... the Age Pension should not be regarded as an entitlement, instead, it should be regarded as a welfare payment for those who do not have the ability to save enough to fund their own retirement..." This from such a good Christian?
    He should try living on the age pension, if he feels this way.
    Sadly, we will never know, exactly how much we taxpayers are paying for each fat cat's retirement.
    12th Mar 2020
    The proposed change may be a workable policy for someone who will retire in 40 years time.

    Someone who is already retired should have their pension plan grandfathered.

    As it was in 2004 for those on the Parliamentary Contributory Superannuation Scheme.

    As it should have been done with the changes to 2017 Pensioner Assets Test.

    12th Mar 2020
    I certainly would no longer have super as it would no longer be a tax shelter.

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