Budget 2016/17: Will super changes affect your retirement?

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As we plunge into Election 2016 campaigning, there are two competing proposals on the table concerning superannuation.

On the conservative side, one of the most significant changes to super in Treasurer Scott Morrison’s first budget affects the amount of capital you can keep in a tax-free super structure.

The policy of the other major party, the Labor Party, is to tax super over $75,000.

So are either, both, or neither of these policies fair?

First up, let’s consider the Turnbull Government’s Budget 2016 change, as this is likely to become law, assuming the return of a Coalition Government with a Senate majority. A big assumption perhaps, but a real possibility nonetheless.

This policy means that retirement savings accounts would be capped at $1.6 million and amounts over this cap can be held in superannuation accumulation accounts and taxed at 15 per cent or invested by other means. Additionally, a $500,000 lifetime cap on non-concessional contributions was put in place on 3 May 2016 and backdated to 2007.

The sting in the tail, of course, is the apparent retrospectivity of this proposed legislation. Whilst ministers Morrison and Bishop have declared that it is not retrospective – “It’s absolutely not retrospective. It’s about the tax rate on future earnings” Ms Bishop stated yesterday – the fact that this applies to savings accumulated over a nine-year period really does look, smell and even quack like retrospectivity.

This is the view of a former conservative Deputy PM Mark Vaille, who noted,

“What is happening is that year in and year out there is (sic) always changes to superannuation … (it) has become an issue which is tampered with too much and people can’t keep up with the changes”.

The alternative policy offered by the Labor Party would limit tax-free earnings for retirees to $75,000 a year, taxing earnings above this amount at 15 per cent.

Critics of Labor’s plan have noted that such a limit should be indexed for inflation or the (real) amount of tax would increase over time and fluctuating returns would, over the longer period, mean taxpayers are worse off. So if the actuaries are to be believed, the Labor Party will tax retirees at a higher rate over the longer term. The actuarial calculations, however, are based upon a $2.5 million balance with returns which range between -5.4 per cent to +17.8 per cent (a 6.6 per cent mean). Current retirees will perhaps gasp in wonder at the thought of a 6.6 per cent return – most haven’t enjoyed such a rate for a long while.

My take on this? A cap is necessary and a $2 million cap is much fairer than a $1.6 million one. But grandfathering of such legislation is essential. Retrospective changes are simply unfair to those retirees, rich or poor, who have saved for nearly a decade (2007 – 2016) under one system, only to have the rug pulled out from beneath their feet when back-dated changes are brought in. The arguments about retrospectivity are fierce – for instance Fairfax economics editor Peter Martin states clearly that the tax starts in 2017 so this tax cannot be retrospective. But this position seems to somewhat obtusely miss the point about retirement planning. It is not something that is – or should be – adjusted on a Federal Budget to Federal Budget basis. Most of us will live 25, 30 or more years in retirement. So planning our income for these decades requires consistency of legislative intent and stability of rules. As one recent YourLifeChoices survey respondent noted, “I would be fine if only they would stop shifting the goal posts”.

The Labor policy of limiting earnings is also defensible but, again, perhaps $100,000 is a better limit than $75,000, which is based on five per cent earnings on an assumed $1.5 million balance. Just as the Coalition’s cap could move from $1.6 to $2 million, so could the Labor assumption move to five per cent of $2 million, i.e. $100,000, as many retirees will need to fund themselves for 25-plus years. And if they eventually require aged care, our new ‘user pays’ system is far from inexpensive.

And this brings us back to the crux of the matter.

As we have noted before, the risk of retirement income funding has been shifted to the individual. This is now your problem. So those who have obeyed the ‘rules’ thus far need some latitude when it comes to savings and earnings caps – and an assurance that the goal posts will never again be retrospectively shifted. The grandfathering of any such legislation is a basic right, not a luxury now we are expected to more fully fund our own retirements.

What do you think? Are the proposed changes to the superannuation tax retrospective or prospective?

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Written by Kaye Fallick

59 Comments

Total Comments: 59
  1. 0
    0

    This Government has the sneaky reputation for not being open and transparent about their policies. They think they can pull the wool over our eyes.

    Don’t trust them.

    • 0
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      Yes Brian. They do it for the same reason dogs lick themselves. Ii’s because they can. They know most of the public has the memory of a fish and the life experience of a newt. I love animal analogies.

    • 0
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      Have a look at Change.Org and sign up for the petition to stop us paying for no longer serving politicians.

    • 0
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      That petition is very misleading and you can’t just stop paying for non serving politicians as it was part of their wage package. It is like telling people they no longer get holiday pay or paid for sick leave.

    • 0
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      Point is it should never have been part of their wage package – they are well reimbursed already and all their living costs are covered as well. How then was there any need to give them a freebie for life when they are boosted out of office?

      If you can’t sit around on $200k+ without costs of living other than tax for a few years and set yourself up – you are either plain greedy or plain stupid and love the ponies and roulette wheels etc too much, or are too accustomed to the high life.

    • 0
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      They should be only drawing sustenance from their super IF – what a joke – they have no other income and work. This free handout for life at mega rates for ‘public service’ for a few years is a joke.

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      I didn’t say I agreed with pollies getting their pension. All I said was that the petition was badly worded and misleading.

    • 0
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      Fair enough – I tend to avoid those for that reason, Bonny. Fine-spirited but often misleading or mislead.

    • 0
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      I gave her the reasons why her petition was misleading and asked her to change it to give it more credibility but she thought otherwise. Problem now is that even if she get enough signatures it will not get the result she wants.

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      While it may never happen, I love Retired Knowall’s thought of not paying for ‘no longer serving politicians’. In fact, we could use Scott Morrison’s argument back at him and contend that ‘technically’ it is isn’t a grand-fathering issue as their pension payments would only stop from now on.

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      TheDon that’s why I ask the woman with the petition to change her petition as it should only be for new pollies.

    • 0
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      I think the petition should have said ”stop paying inept morons for stuffing the country”.

      I have never seen a dumber and more inept, corrupt and dishonest bunch of politicians in my life.

      No, Bonny. It shouldn’t only be for new pollies. It should be retrospective, like the stinking attacks on retirees. We also planned our retirement according to THE LAW. But they can pull the rug from under us without notice, in a cruel and unfair manner.

      If the law says they are entitled, CHANGE IT. They have no problem doing that with laws that affect others. The age of entitlement is OVER. Sacrifice should start at the top. Good leaders lead by example. We have BAD LEADERS who SHOULDN’T BE PAID.

  2. 0
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    I totally agree with previous YLC P post – its not right to shift the goal posts midway through the ‘game’.

    • 0
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      The fundamental rule for government inspired initiatives is similar to the religious rule. “What God giveth, God can take away.”

    • 0
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      I read that the bible also states ”he that has little, all that he has shall be taken from him.”
      Sounds like we have some bible bashers in parliament!

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      I think the quote should be what Caeser has given, Caeser can take away, as this government sees itself as a sort of republican /dictatorship.

  3. 0
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    This situation just reinforces the need to ensure you have a diversified portfolio. Anyone with all their savings in Super will always be subject to Sovereignty Risk.
    That said whichever party wins the election and modifies the Super rules, it will still be a tax effective place to park some of your savings. Tax free $75K income stream is pretty good and $1.6M tax free is also fair and reasonable.
    The other alternative is to draw down your Super to under the cap and buy fully franked Blue Chip shares.

    • 0
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      The best anyone can do, is not to rely on governments to secure your future. They can’t and they won’t. If you could rely on governments in this way, there would be no wars, unemployment, climate change caused by human intervention, poverty, blah blah, blah. We have to be as self reliant as we can possibly be and not get locked into the status quo.

    • 0
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      Easily said, Paulo – but remember that many people don’t have such an easy run. The coming generations who are suffering permanent unemployment and under-employment are a clear case in example, not to mention those who’ve endured divorces etc in their forties and then endured economic downturns and prejudice against the old etc in work.

      Would that life were as simple as being self-reliant – you are quite simply not allowed to be.

    • 0
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      And if you try to be self-reliant, sacrificing lifestyle to overcome disadvantage and save for old age, you are harshly punished. The government takes $78 a year for every $1000 you save over a low threshold, regardless of how it was acquired, taxed or what it’s needed for or what sacrifices you made to save it. They ignore the fact that you can only earn maybe $25 to $50 on that money. They force you to reduce your savings, no matter how many years of retirement you have left.

      It’s impossible to be self-sufficient given these unfair and cruel rules they impose.

      Fine for the privileged, Retired Knowall. They keep their high tax-free income. The less privileged are totally screwed.

    • 0
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      RK, what a lot of people don’t realise is you can diversify within your Super Fund, all you need do is understand how Super money is invested.
      My fund offers investment opportunities within a range of low risk, low to medium, medium to high risk and high risk. You choose which environment you wish to invest in. The main benefit is that the money is in a low tax investment.
      My main concern with the Super investment environment is the potential for interferance from the governement, who can’t seem to resist the temptation to interfere with the system in order to get their hands on money that does not belong to them.

  4. 0
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    The issue of retrospectivity is a complex one. Governments can change taxes anytime they feel like it. There are also laws which enable them to stretch the boundaries for budgetary reasons. To give an example – In 2012, the NSW Coalition amended the Workers Compensation laws to place time limits on those on weekly benefits as well as limit coverage for medical conditions. All injured workers (except police, paramedics etc), regardless of their injuries and when they occurred were affected. The consequences of this was some workers having their court decisions overturned – some court decisions for compensation included ‘weekly benefits until normal retirement age of 65’ within the settlement (if you knew how little compensation for permanent injuries are, you would understand why this occurred). Suddenly workers with injuries so bad they could not work faced being forced back to work or onto the dole. That is definitely a retrospective application of the law and was not really challenged as injured workers do not have the resources to do it, so it remains.

    In my own case, I purchased solar panels in April 2011 three days before Barry O Farrell abolished the solar buy back system. Despite numerous calls to the Liberal party, I was told basically ‘tough luck’ despite the fact that I had evidence that I qualified for it. The reasoning I was given and why it is relevant to the superannuation issue was this – “The solar buy back program is a benefit the government has given to people, it is not a right so it can be taken away anytime we feel like it.”
    So there you go, they can take away your benefits whenever they feel like it, they can make laws retrospectively and not care about the consequences. The point is this, the next time you hear about anything being made retrospective, protest and complain about it, do not sit back and only think about when it might affect you because once they get away with doing it in one area, it makes it a lot easier to do it next time.
    Retrospective laws are illegal in the USA and are illegal for criminal charges under the UN, but here in Australia they are becoming more common, it is up to all of us to fight it.

    • 0
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      As I indicated before, what the government giveth, the government can taketh away. In this country we don’t have a bill of rights, which means the government can legistlate anything it likes. No one is safe in this country, but then no one is safe anywhere.

    • 0
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      “was not really challenged as injured workers do not have the resources to do it”

      Gold – you are totally correct – government has always known at the back of its beady little mind that nobody can effectively challenge it. That is why we need careful guards set against government itself, and avenues made available for challenge without massive cost.

      There is NO price on Justice, and the duty of government is the protection of the people from all enemies, domestic and foreign – as I’ve stated elsewhere – that most importantly includes itself.

    • 0
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      At the risk of being subjected to theire of the anti-union movement, I make this statement.
      If these workers had been members of a union and had a reasonable claim the Union would have fought their case fo them. Many Union members join as a kind of insurance policy, if you need the services it is quite cheap.
      TREBOR, though I agree with your sentiment, I also think that in this country you get the justice that you can afford, you don’t see many rich white collar offendors spending much time in gaol.

  5. 0
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    Hold on. Are the parties proposing taxing savings, or taxing interest and other returns from invested savings?

  6. 0
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    Well said Kaye. I completely agree with you. Even though I am not affected (this time), why penalise people who have followed the rules and planned accordingly. The whole idea of retrospectivity on some things and not others is wrong and confusing

    • 0
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      Sundays, did you object to the changes to the assets test, or is it only unfair when it hurts those who can genuinely afford the pain?

  7. 0
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    people on this site were baying for the blood of the so called ‘rich’. Well now they’ve got it (or will have) and they are now whining about the unfairness of it. Could it be they finally realise that $1.6m does NOT make you rich? Or is it that it hits just a bit too close to home and they are now affected themselves?

    • 0
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      Agree people whinge here no matter what.

      Problem with LNP policy is that it is just so complicated and wil take an army of people to police it.

      ALP policy is too restrictive and doesn’t take account of the swings in income from year to year with growth investments.

      I won’t be effected by either policy but the LNP one does allow me to add more to my super so I can make more income without paying more tax.

    • 0
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      I said over ten years ago to our local newsagent that he would need $2m in the bank (or whatever) to ensure a comfortable retirement considering his business income etc. He thought then I was joking. Now he knows differently.

      That $1.6m needs to be indexed, otherwise the costs of rates, and all other costs will soon strip it as bare as a chicken carcasse at a Sunday dinner…

    • 0
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      The $1.6m is to be indexed. Problem is no one knows how that $1.6m is going to be applied as the devil is in the detail.

    • 0
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      Hmm – yes – $1.6m in accumulated funds… how does one contribute more if one is retired? Including assets is a cunning move, since a home will obviously increase in value over time, and may well outstrip the deemed rate of indexation, leaving the superannuant worse and worse off… being cooked slowly like a frog in a pot of water…

      Always beware of governments bearing gifts…

    • 0
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      KSS, if $1.6 million doesn’t make you ”rich”, then how is it that less than $1 million makes you ”wealthy” and ”not in need of a pension”. Seems like a double standard going on here. A pension is only a negative tax after all – a tax concession for folk who don’t earn enough to get tax concessions. The net tax you pay over a lifetime is the sum of all the tax your paid, less the rebates and benefits you received. So taking the pension away from people who saved is taxing them. And taxing their income at up to 320% (which the new means test does) is something no Australian would tolerate if it was honestly labelled ”taxing”. No would they tolerate double-taxation – taxing savings from earnings that were already taxed.

      But the well-off are happy to see the not-so-well-off suffer unfairness and double standards. And the green-eyed battlers are happy to swallow slick lies about ”millionaires getting pensions”, with no regard for the true facts of the situation.

      Ultimately, the people who are suffering gross unfairness are not those with more than $1.6 million – who have enjoyed unfair benefits to date – but those with between $500,000 and $850,000, who struggled for a lifetime hoping to be self-sufficient in old age but had the rug pulled from under them by falling investment returns, and then were persecuted by a government whose unfair conduct the selfish ”I’m okay bugger you” brigade quite happily condone – merrily branding people with less than half what they have ”greedy” for wanting a small share of the pie that they, themselves, are feasting on.

  8. 0
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    The proposal that is fair to all is to pay everyone single pension at age 65, then treat all other income above pension according to the tax scales. That way most superannuants would lose nothing, and many would gain, the the primary impact would be at the ‘top end’ – into which I arbitrarily toss politicians and all others who’ve had the big benefits, since they would be paying the tax they’ve previously avoided by over-using super as a haven.

    The arguments go round and round – but in simple terms – anyone who has had the opportunity to shovel away mega superannuation has had every opportunity to get set up in life – and therefore there never was a need for them to stash massive super. Many at the lowest end have mortgages on HOMES – not investments, into their retiring years. In any case, superannuation should have been capped at a reasonable level, then treated as savings from there on, ever since it became the law of the land.

    That applies to everyone, including those covered by the offshore futures fund.

    Just how many bites at the tax cherry do these fat cat super hoarders want?

    • 0
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      This scheme also means that ‘retirees’ who continue to work will not have Pension cut, as currently occurs, nor will they have pension included as taxable income – something not endured by superannuants in any way.

      Working in retirement often IS THAT PERSON’S SUPERANNUATION, since they have not had the opportunity or have lost mightily along the way, for any number of reasons. Life is not as simple as some imagine it to be. My cousin and her husband have been public servants all their working lives – they have simply no idea how a person can be earning more than they do, and then be plunged into unemployment etc almost overnight, as happened to me.

      I say again – every working pensioner should have income treated the same as superannuants get it – Pension has garnered NO tax dodges along the way – why should it be taxed because the recipient works for extra since they don’t have lovely super?

    • 0
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      I agree Trebor this is the only fair and reasonable way to manage retirement incomes but it does not seem to have crossed the minds of any of our politicians, yet this is what was originally envisioned by Chifley and Menzies when a pension scheme was set up. It takes the stress and acrimony out of the system.

    • 0
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      Three things our politicians do not understand, Alex:

      Fair, reasonable, economically sustainable.

      Hmmm. Add common sense, logic, mathematically correct.

      We have a bunch of greedy, self-serving, overpaid fat cats stuffing the nation, and sadly we have a lot of greedy, self-serving, ”I’m okay bugger you” privileged supporting them to stuff the nation.

  9. 0
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    I may be wrong but I thought the budget had to be passed before any changes happened.
    As I see it the budget was announced then the election was called without debate in either house therefore it has not been even before the upper house for review. So it could be called a non identy.

  10. 0
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    Faye..You make reference to the non-grandfathering’ of changes to superannuation etc as being a breach of our rights.
    Well this government has done just that with the changes they made to the pension assets in the 2015 budget, noting Abbots denigrating comment that he wasn’t paying the pension to “liquid asset millionaires”.
    No one, not even YourlifesChoices has kicked up a stink about this injustice.
    Even the CPSA couldn’t give two hoots about the changes, because they supported the the government and the (Judas) Greens in making the changes, yet the CPSA is supposed to be looking after the interests of seniors and retirees. Thet had no mandate to speak on behalf of retirees.
    It would be good if you and your publication could speak up about it on behalf of those several thousand retirees who will be adversely affected by this disgraceful change, especially those who will lose their part-age pension altogether as from 1.1.17.
    thank you

    • 0
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      Thomas,

      Because of the new rules to come in from 01/01/2017, there will not be several thousand retirees who miss out but rather more than 330,000 and as the threshold is not indexed for the first 4 years, it is estimated another 250,000 will miss out.

      By the way my wife and I (both over 65) do not qualify for a pension and after 01/01/2017 will never qualify, but that does not stop me from railing against the changes on behalf of others.

    • 0
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      Yes Thommo there is real hypocrisy in the response to the cuts made to the incomes of low income self funded retirees last year and the changes that will affect people at the top end of the super scale this year. Low income Self funded retirees were denigrated and called grasping by people like Ross Gittins who has considerable superannuation from his comfortable seat warming job.
      Labor voted to cut part pensions for self funded retirees on small super pensions yet they are ‘grandfathering’ the proposed cuts for high income people and calling them unfair.
      Some aspects of these changes probably are unfair as they appear to favour those who have high incomes all their lives over those who accumulate saving only towards the end of their working lives.
      It has never been more evident that people on modest incomes have no effective voice other than a vote in an election. Lets use that vote as effectively as we can. People who are not retired such as the people who run this web site have no idea of what it is like for seniors and have repeatedly shown they could not care less. They think they will either be able to work forever or be very well off in retirement.
      Like you Captain I have not been affected by the changes so far but I can see the problems and insecurity they have caused those who are and I feel it is most important to voice our outrage about them. They leave people who were adequately provided for unable to cover their basic needs.

    • 0
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      To the Captain.. that was a typo… I meant ‘several thousand” retirees, and I agree with you..

      And to Alex.. thank you for your support..

    • 0
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      Thank goodness, Alex, for someone fair-minded standing up for people who were dealt a cruel and unfair hand in the previous budget.

      It disgusts me to see the privileged slagging those with much less and demanding it be taken from them, while screaming ”unfair” when they are asked to make a much lesser sacrifice.

      Part-pensioners are being deprived of the benefit of years of sacrificing lifestyle to try to be as self-sufficient as possible. But worse, taxpayers are burdened because the system now punishes anyone who isn’t wealthy but tries hard to save, so people will give up and many more will put their hands out for pensions. As the impact of the stupid taper rate change is felt, there will be more pressure to reduce pensions and ALL retirees will suffer.

      Any retiree with a brain should be screaming loudly UNFAIR UNFAIR and DEMANDING the taper rate change be reversed and the system completely overhauled to make it fairer and more sustainable.

      But of course the ”I’m okay Jack, bugger you” selfish brigade will only ever scream when someone suggests taking just a little bit away from them.

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