As reported on the ABC last night, when retired accountant Steve Elliott decided to examine the disparity between high-income earning retirees and the poor, he was shocked by what he found.
“I’ve always been impressed about how much I didn’t have to pay and what a lurk it was for me, and then I started to realise that the inequity was just very severe because I hadn’t even looked at the top end of the spectrum, because I am nowhere near that,” he said.
Mr Elliott decided to investigate how the current superannuation system works for high-income earning retirees and he was taken aback by his findings.
He did the maths and found that a high-income earning couple able to make maximum contributions to their super fund over a 43-year period, with a further 20 years of payments in retirement, would enjoy a tax saving of around 40 per cent on their total balance and payments – a whopping total of $65 million.
On the other hand, a couple earning a combined income of $100,000 saves only 18 per cent, with those earning $70,000 annually saving just 14 per cent.
Research by the Grattan Institute also shows that over half the annual superannuation tax savings (around $30 billion) goes to the wealthiest households.
One such example of how the current system benefits the super wealthy, is that of former BHP Billiton chairman, Don Argus, who is reported to have a super balance of around $15 million. Assuming he draws a pension of 6 per cent of that fund, he would earn $900,000 a year, tax free – potentially saving him up to $411,000 annually.
Although this is a convincing argument for how the current superannuation system mainly benefits the rich, there are opposing viewpoints, with SMSF Professionals Association Chief Executive Andrea Slattery saying that the benefits for self-managed super fund owners means fewer people receiving the Age Pension.
“We know for instance last year that superannuation saved the Government about $9 billion on the Age Pension, so our debate starts to change and we start to look at long term thinking,” said Ms Slattery.
All things considered, ending super tax breaks for the wealthy could cut the budget deficit by $10–15 billion a year.
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Past estimates show that, should the Government rein in super tax concessions, it could save upwards of $35 billion each year. Ms Slattery’s suggestions that SMSFs save the Government around $9 billion per year are, at best, questionable, especially since these top earners would never qualify for an Age Pension anyway. There is also little evidence this is a NET saving, but even accepting this number, our bottom line would still be better off by $25 billion per year if concessions were reduced or removed completely.
So how does keeping the current system in place benefit all Australians?
The short answer is: the current super system benefits the super rich.
We have said it before, and will say it again, when considering the ‘common good’, the current system is out of whack, with high-income earners the clear beneficiaries of super tax concessions. With the Government looking for ways to reduce our ever-expanding deficit, super tax concessions are the topic du jour – and rightly so.
The superannuation system, as it stands, clearly benefits the rich more than the poor. Now, there are those who would argue that the rich have earned their right to enjoy these benefits, but such benefits still come at the taxpayer’s expense.
There are also those who will argue that welfare recipients are sponging off the taxpayer.
It is clear that the current system disproportionately benefits the rich, and as it stands, according to Australia Institute research, it could actually cost the budget more in the future than leaving the Age Pension alone. One thing’s for sure: the Government has its work cut out trying to placate the business lobby and their conservative supporters whilst balancing the books.
What matters most, in our opinion, is that social equity does not get left behind in the retirement income debate. With a third of Australian pensioners living in poverty, something is very wrong with our system.
Given Tuesday’s thought bubble of making the pension a loan, how do you feel about his inequity in the super system? How can the Government cry poor when it comes to paying the Age Pension, but be able to afford to keep feeding the coffers of the super rich with tax benefits? What is your opinion of the current system? Given your experience of retirement and retirement planning, what changes would you recommend?