Superannuation: not all proposed changes makes sense

The Federal Government should hold firm on its $1.6 million pension phase cap.

Superannuation: not all proposed changes makes sense

The Federal Government should hold firm to its $1.6 million pension phase cap and proceed with caution on others, according to superannuation research group, SuperRatings.

The Government proposed three key changes in the Budget:

  • a $1.6 million pension phase cap
  • a $500,000 retrospective lifetime cap on non-concessional contributions
  • the concessional contribution to be reduced to an annual limit of $25,000.

SuperRatings believes that the best interests of Australians would be served by implementing the $1.6 million pension phase cap, removing the retrospective aspect of the $500,000 lifetime cap on non-concessional contributions and scrapping the change to the annual concessional contribution limit.

According to SuperRatings founder and chairman Jeff Bresnahan, the $1.6 million pension cap is the least controversial and most common sense change of the three proposed.

“Any politician who votes against implementing a $1.6 million superannuation cap would surely be committing political suicide. Even worse would be a Coalition member who would consider crossing the floor on this part of the legislation,” said Mr Bresnahan.

Mr Bresnahan believes the current rules are unfair and that only the extremely wealthy will be affected by the superannuation cap change.

“Even after the change, an Australian couple with $3 million in super and $2 million in cash will not be liable to pay one cent in tax. Similarly, an individual with $1.6 million in super and $1.1 million in cash will also not be liable for tax. When one considers that even savings in excess of these amounts will still only then be concessionally taxed, that’s one hell of a standard of living,” he said.

The $500,000 retrospective lifetime cap on non-concessional contributions is a change that SuperRatings believes requires a cautionary approach.

It makes sense to introduce the proposed changes to prevent a small minority of ultra-wealthy individuals from continuing to stash away money in a highly concessional taxed environment. But as SuperRatings points out, we need to be careful about introducing the first-ever retrospective legislative change into the superannuation industry, as it may mean that nothing is sacred going forward.

“It would be far more logical and palatable to voters for the cap to be introduced with effect from the Budget date. Any Government that sets a precedent of retrospectivity in superannuation is asking for trouble,” said Mr Bresnahan.

The changes limiting annual concessional contributions to just $25,000 is the least thought-out proposal, according to SuperRatings. For the average Australian, the ability to contribute extra amounts of superannuation only comes after the mortgage is paid and children have finished school and moved out of home. SuperRatings believes that this change would be counter-productive, inequitable and would ignore the fact that people who are now approaching retirement have only worked for half their lives.

“Compulsory superannuation was brought in to enable as many people as possible to be self-sufficient in retirement. To limit their ability to reach an acceptable level of savings is ludicrous. Those last 15 years of work are for many the only time they are able to fast track contributions to build up their nest egg and should be encouraged, not restricted. This is particularly relevant for those currently aged over 50, most of whom haven’t enjoyed the benefit of full superannuation throughout their working lives and are only now reaching a time in their lives when they can afford to make additional contributions. If the Government is going to set a limit, then at least enable everyone to get close to it, not just those starting out,” said Mr Bresnahan.

Do you agree with Mr Bresnahan's assessment of the proposed super changes?





    COMMENTS

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    mogo51
    28th Jul 2016
    10:09am
    Yes most definitely, seems very sensible. Now we can only hope that this sense passes onto the politicians who proposed 2 of 3 stupid rules. Get it right and then leave Super alone and encourage people to save for their retirement.
    wouldbe retiree apprentice
    28th Jul 2016
    11:38am
    Not every couple are a full working couple and in a lot of cases, there is only one wage/salary coming in, BUT, that person is expected to fund the retirement of their spouse..(If a spouse has no super, then they CANNOT claim a pension, even though there has only been ONE contributor to the partners super. Therefore, wouldn't it be fairer if the amount allowable to be put towards super each year was based on the TOTAL for the COUPLE, rather than on individual.? i.e at $25000 per individual, or the couple could pool the amount to allow a single income couple to put 2 x 25000 into super savings, just like any other working couple..
    Tom Tank
    28th Jul 2016
    12:04pm
    It is strange that Turnbull claims to have a mandate to implement his stated agenda but now is looking likely to ditch a policy he went to the election with and was duly elected.
    Surely this is contradictory!
    Anonymous
    28th Jul 2016
    12:34pm
    Turnbull only has a mandate to form government - he then has to have the skills or otherwise to negotiate good legislation through the lower and upper houses.

    It is voters expectations that if it is not good legislation - he won't get it through the senate - regardless of what he took to the election.
    retroy
    28th Jul 2016
    12:45pm
    Sounds pretty fair to me, and the lefties have not filled this forum with their jealous comments, so it must be OK with them too...................for a change!
    Mad as Hell
    28th Jul 2016
    12:46pm
    My Super is now in the pension phase, how are the legislated changes to come into affect from January 2017 not classed retrospective?
    Rae
    28th Jul 2016
    6:13pm
    Good question. As far as I can see the changes made are retrospective and so that horse has already bolted.

    It is a bit rich for people who thought the cancelling of part pensions and the stripping of income for self funded retirees was okay to start bitching when changes affect them.
    Anonymous
    28th Jul 2016
    8:26pm
    A lot of hypocrites around among the well-to-do and privileged. It's always okay to attack the less well off, but don't touch their gold!
    Old Geezer
    28th Jul 2016
    8:37pm
    Well if you have more the $1,6 million in super then you have had it too good for too long. Anyone with any sense would have realised that this was unsustainable in it's present form.
    Retired Knowall
    29th Jul 2016
    8:20am
    To say I've had it too good for too long is a bit naive, you have no idea what we had to go through and do without to accumulate our nest egg. I've always said that Super balances above $1.5M should be taxed or the earnings above $80K taxed. The only problem for the Govt is that the capital in Super funds will decrease as those with considerable excess will move their investments to other tax friendly investments e.g Franked Shares.
    Rae
    29th Jul 2016
    8:31am
    Less than 4% of the top income earners and wealthy actually have 1.6million saved Geezer. I was talking about ordinary nurses, police, teachers, bank tellers slammed for saving around $400 000 but that was after tax savings wasn't it.

    It is a bit harder to accumulate savings when you are one of the few paying their full taxation.

    And yes it is unsustainable now, entirely due to government policy by the way, which is why the changes have been suggested and make sense.

    That doesn't alter the fact that retrospective legislation has already been passed back in the budget of 2015 with not much media attention so I imagine it is open slather now.
    PAYEdmydues
    28th Jul 2016
    12:55pm
    So where does the in excess of $500K come from? I can see those who invested in property and used negative gearing and would like to sell with existing capital gains tax advantage and then move it into low tax regime of superannuation. Win win win:(
    Doesn't get my vote.
    Fliss
    28th Jul 2016
    1:25pm
    Why shouldn't some one who has invested & then at retirement or just prior to, be able to put the capital gain into super? Isn't that why they took a gamble & invested? To assist themselves in retirement?
    Fliss
    28th Jul 2016
    1:35pm
    Re the $500K cap . . . . . Good point made here -
    "we need to be careful about introducing the first-ever retrospective legislative change into the superannuation industry, as it may mean that nothing is sacred going forward.
    “It would be far more logical and palatable to voters for the cap to be introduced with effect from the Budget date. Any Government that sets a precedent of retrospectivity in superannuation is asking for trouble,”
    Rae
    28th Jul 2016
    6:16pm
    They have already done so Fliss. To savers who are unable to change anything as the money has already been surrendered to pay for the annuity.
    Alexii
    28th Jul 2016
    1:44pm
    It's a shame Mr Bresnahan doesn't include the changes to the assets test coming in from 1/1/2017 as one of the things government should review.Like Mas as Hell said, "how are the legislated changes to come into affect from January 2017 not classed retrospective?" This is a really unfair thing that has been done to people who are not wealthy and yet the government has falsely claimed are wealthy.
    Old Geezer
    28th Jul 2016
    2:01pm
    They don't come in until January 2017 so people have been given lots of notice and there is no retrospectivity in that.

    I agree with these changes but it's a pity they have added the house to the assets test to stop people already on the pension buying a more expensive house to soak up the excess assets. Just been talking to a couple who have bought a $2 million house and have been spending the last 12 months fulfilling their holiday bucket list so they keep the pension. It is just stupid someone with a $2 million house still gets the pension.
    Rae
    28th Jul 2016
    6:21pm
    It was retrospective for people who already surrendered their lump sum to buy an annuity and then the rules were changed retrospectively leaving no option to change plans.

    It's also pretty stupid that a terrace in Rozelle is valued at $2 million but this is the nonsense that governments and bankers can create when they have no idea about the consequences of their actions and really don't give a damn anyway as long as they get the bonus everything is alright.
    Anonymous
    28th Jul 2016
    8:34pm
    It most certainly IS retrospective, Old Geezer, for anyone already in pension phase of close to retirement, because the rules DO NOT provide any scope for changing one's plans on short notice. Many would need 5+ years' notice to adjust to the changes without massive disadvantage.

    You really are sickening with your arrogance, selfishness, and lack of respect for hard-working battlers who tried very hard to be self-sufficient, but weren't as privileged as the greedy mongrels who are now whining about superannuation changes but support stripping the less well off of up to 35% of their income.

    The reality is that the AVERAGE superannuation fund is valued at over $1 million, so a couple with $820,000 is way below average, yet they lose a third or more of their income while those with more than the average lose NOTHING. That's criminally UNFAIR, and anyone who doesn't protest that unfairness is to be condemned for their selfishness.
    Old Geezer
    28th Jul 2016
    9:03pm
    Lack of time is just another excuse Rainey. I would have plenty of time to adjust my affairs as it doesn't come in until July 2017.

    What about all those hard working battlers paying tax to support pensioners who have plenty of capital to live on without the pension. $820,000 is plenty of capital to live on. Anyone getting a pension with this much is being greedy. If people are not reducing their capital they don't need the pension. All they are doing is a form of inheritance keeping instead. Yes it is criminally unfair to the taxpayers who are the hard working battlers spending their time working to support these wealthy pensioners.
    Retired Knowall
    29th Jul 2016
    8:25am
    Superannuation balances at retirement
    With average superannuation balances at the time of retirement (assumed to be between
    60 to 64 years of age) in 2013/2014 of $292,500 for men and $138,150 for women, many
    recent retirees will need to substantially rely on the Age Pension in their retirement.
    However, with a maturing compulsory superannuation system and good investment returns,
    these figures are well up on 2011/2012, when the averages at for those 60 to 64 years of age
    were of the order of $197,000 for men and only $105,000 for women.
    Never let the FACTS get in the way of your moronic rants RAINEY.
    Old Geezer
    28th Jul 2016
    1:45pm
    If you can have $1.6 million in super you should be able to put $1.6 million into super so the $500,000 cap has to go and the $25,000 should also go. Once you get to $1.6 million you just have to stop putting money in. Simple.
    Rodent
    28th Jul 2016
    3:11pm
    Dear Old Geezer

    I see you are still banging away with your views re Assets Test/Home ownership.

    To change the subject perhaps you might look deeper into this information. Note the non discriminatory use of the word Retirees. Worth a read?

    ...............................................................................................................

    As many as 10% of all retirees could be forced to fall back onto the aged pension, according to new research from The Actuaries Institute.

    Two new studies released today, one by the CSIRO and one by a private research firm show that Australia’s retirement system is not sustainable for people living longer than the average life expectancy. The studies also show that some retirees are drawing down their super at unsustainable rates and will run out of super.

    “Between the ages of 75 and 85, about one-fifth of balances are being drawn down at more than 10% of their balances, which is not sustainable for those who live longer than average,” the Institute says.

    Those retirees will be forced to rely even more on government funding and the age pension.

    The good news, according to Anthony Asher from the Actuaries Institute retirement income working group, is that at least half of all pensioners take a very financially conservative approach in retirement – only drawing down the minimum required balance.

    If you don’t want to end up having to rely on the pension, then you also need to make sure you have enough funds in superannuation to start with.
    Old Geezer
    28th Jul 2016
    4:47pm
    This is meaningless to me because if their super drawn is 10% and their fund is earning 10% or better they will never run out of money. Even if their fund is earning 5% it will take about 20 years to run out of money. So people between 75 and 85 will be over 95 before they run out of money. Let's face it if it is not earning 5% it is not very well invested.

    Don't forget if you have an account based pension you must draw a certain minimum every year or your fund gets taxed.
    See https://www.moneysmart.gov.au/superannuation-and-retirement/income-sources-in-retirement/income-from-super/account-based-pensions

    I draw the minimum out of my account based fund every year and it just keeps growing as it earns more than I draw out each year.
    Anonymous
    28th Jul 2016
    8:28pm
    Ask most financial advisers and they will tell you very few investors are getting anywhere near 10% p.a The expected average for this year is 1%. Anecdotal evidence (or lies) are not helpful, Old Geezer, except to push a disgustingly selfish agenda.
    Old Geezer
    28th Jul 2016
    8:56pm
    These advisors are not telling the truth then.

    http://www.superguide.com.au/comparing-super-funds/super-funds-gain-2015-2016-financial-year

    Return for last financial year 3%. Average over 7 years 8.75%.

    So my 5% to 10% return was spot on.
    Retired Knowall
    29th Jul 2016
    8:28am
    Old Geezer you will have to stop publishing FACTS, it just upsets the hysterical drama queens.
    Rae
    29th Jul 2016
    9:01am
    Correct Geezer.

    Those property securities saved the day this year.

    Unfortunately as you have stated all those sitting in bank term deposits are losing capital year after year. There are a lot of people doing just that though through fear and ignorance.

    We need better education for seniors on investment options and financial planning. I can't understand with compulsory super and forced self funded retirement as government policy why educational programs are not available.

    You can go find out about Centrelink but other investment seminars charge like wounded bulls and are usually selling expensive books and products.
    Macca
    28th Jul 2016
    9:42pm
    I'm a baby boomer who has worked from the age of 10 onwards.Why should us or those who have worked hard be treated any differently from those who have not or squandered their money or those who have lost through misfortune? There's a lot of envious people out there who rather us come down to their level and begrudge us our rights.In saying that I'll am quite happy to continue working and maintain my style of work without drawing a pension from the Australian public.Macca
    justsay'n
    28th Jul 2016
    10:11pm
    The unfairness in making contributions to Super retrospective is double barelled. Prior to 2015 any contributions to Supetannuation were Grandfathered. That is, the Capitol was not counted as an asset only the annual income from it. However following January 2015' if you changed an investment product ( eg withdrew lump sum from Super to place in bank or a different Super Fund the principle would than be classed by Centrelenk as an asset. Prior to the 2015 budget handed down by Joe Hockey, we were encouraged to put as much money as was allowed in our later years of employment into Super Funds to assist funding our retirement. It is absolutely immoral to than change the rules retrospectively for doing what previous Governments advised us to do. It appears the Abbott/Hockey followed by Turnbull/Morrision Liberal Government could not keep their corrupt greedy hands of the huge Superannuation pool and changed the rules so they could get their snouts in the trough. Hockey the King of living a "Life of "Entitlement" in his 2015 Budget nationally ridiculed the Baby Boomer generation as a "Generation of Leaners who were living a life of Entitlement" at Taxpayers expense. "How dare we be taking overseas holidays in our retirement, if collecting a pension or part pension."
    I would like to point out.
    Baby Boomers never received First Home Owners Grants
    Baby Boomers never received Maternity/Paterninty paid leave
    Baby Boomers never received Childcare relief, From the mid 1970's perhaps for some even before both parents worked and paid full price for any Childcare provided from their wages.
    Baby Boomers never received family income supplement, although I do recall receiving 50cents a week child endowment for my first child (haha)
    While I do not begrudge today's younger generation receiving these Government supplements my own children included.
    A very small minority of Baby Boomers spent years travelling overseas in their early 20's and 30's. We were flat out raising a family and buying a home at interest rates young people of today can not imagine in their world.
    Our first homes were simple 3 bedroom bungalo's not Brick Veneer MacMansions. Like myself many Baby Boomers often started with 2nd hand furniture when they bought their first home, not the Harvey Norman new full house furnishings and Suoer Dooper Entertainment Unit Television.
    Most Baby Boomers had only 1 car for many years.
    If we budgeted, a simple backyard swimming pool, Caravan, Family Holiday or Air Conditioner (not ducted) came when our kids were boardering on teenage years not ar the beginning of our married lives.
    I have only been retired for 18months, working up until 65yrs of age, My husband a Teacher and myself a Admin Clerk never received huge incomes. Yet since my retirement I have felt under attack from the Liberal Coalation Government for no other reason than the era I was born while refusing to acknowledge the sacrifices made to own our home and save to have a "comfortable" amount of security in our retirement Sadly enough I do not believe a Labour Govenment would be any fairer.
    Meanwhile Australian taxpayers have absolutely no right of reply when Politicians award themselves pay increases that would take the normal Australian 10 years or more to receive and an absolutely immoral Superannuation Pension plus additional increments that they are entitled to till the day they die. Not not only immoral but no other Politician in any other country in the world would receives his a Pension unless they were a Dictator. Pensioners have become a lone voice in the wilderness, we no longer even have a Minister for Ageing, Tonly Abbot recinded this Portfolio not long after he was in Govenment, I very much doubt that useless King Millionaire Malcolm will re instate this Portfolio.
    Gerg
    29th Jul 2016
    9:16am
    I haven't seen any acknowledgment of the FACT that to obtain the age pension a couple would require over $1 million capital. The income from that nominal capital is provided gratis and the recipient doesn't have to worry about the capital running out. Of course the value of pensioner concessions, health card etc are all on top of that and not available to the self funded retirees this forum is denigrating. Oh, and all of the pension and benefits are fully government funded, not recipient funded, albeit with some tax concessions.
    justsay'n
    29th Jul 2016
    4:25pm
    NB. Spelling and typo errors when on a role due to absolute frustration with our Politicians.
    Anonymous
    31st Jul 2016
    2:38pm
    You are correct Gerg. I understand what you mean. Yes, self funded people are denigrated on this site. They do not get the pension, they still pay tax, they still pay the medicare levy as well and they get no concessions.

    That is why so many rearrange their finances to get access to at least one dollar in pension.

    The government by reducing the assets test will stop the wealthy from doing that and give more to those who really need it.
    Anonymous
    31st Jul 2016
    2:58pm
    I would also like to say that the average taxpayer during their working life would never have paid enough tax to generate the yearly pension they get.

    The taxes we all paid went into roads, infrastructure, health, education etc..

    $1 million dollars would be required to get an income of $33,000 a year (roughly the married pension amount).
    Gerg
    29th Jul 2016
    9:16am
    I haven't seen any acknowledgment of the FACT that to obtain the age pension a couple would require over $1 million capital. The income from that nominal capital is provided gratis and the recipient doesn't have to worry about the capital running out. Of course the value of pensioner concessions, health card etc are all on top of that and not available to the self funded retirees this forum is denigrating. Oh, and all of the pension and benefits are fully government funded, not recipient funded, albeit with some tax concessions.
    Rodent
    29th Jul 2016
    12:21pm
    Greg

    Sorry I am confused by your Fact -$1mil reference - what do you mean please.

    or to use a Pauline Hanson statement - please explain
    Rodent
    29th Jul 2016
    3:04pm
    Gerg ops sorry about incorrect name


    Sorry I am confused by your Fact -$1mil reference - what do you mean please.

    or to use a Pauline Hanson statement - please explain
    Gerg
    1st Aug 2016
    6:10pm
    Rodent,
    The reference to $1m is my guesstimate of what it would cost to get an annuity of around $35k, payable from age 65 for life and indexed for CPI. Last time I checked with an annuity provider that was near the mark. Also, current bank interest would generate about $35k on $1m. but more would be needed over time to take inflation into account. Remember, the "capital" is to remain sufficient to generate the pension income, it cannot be used or whittled away as self funded retirees are forced to do with their super.

    31st Jul 2016
    2:35pm
    Financial Planner and author Nick Bruining stated in today's paper:
    "Superannuation was intended to provide a capital nest egg for our retirement".

    It was never intended to be a nest egg to be passed down to your beneficiaries as an inheritance when you die. It is there to be used by you in retirement. If the money runs out the Aged Pension is there as a safety net.
    justsay'n
    31st Jul 2016
    3:18pm
    Revisit this article, it opens up the truth regarding the aged Pension

    http://www.yourlifechoices.com.au/the-great-retiree-blame-game
    AverageJoe
    19th Aug 2016
    10:48pm
    I'm not a smart person when it comes to investment. I rely on advice and what I can learn by reading and listening. I see many posts on the your life choices site and am impressed by the knowledge and research that posters have or have done but I am disappointed that many posts are politically pointed. I am 60 years old and would love to retire soon but everything that I read seems to tell me that I need millions of dollars invested in super or elsewhere to be able to live a comfortable life. What exactly is a comfortable lifestyle? If I was to believe all that I read a comfortable lifestyle may just be a pipe dream! Also many of the posts seem to be focused on getting the pension or part thereof. If you fit within the parameters well then you are entitled. When I read the posts on this site I am hoping to learn the finer points and be able to understand the super system and the rules that govern us but more than often the posts seem to be overcome by a plethora of comments degrading other posters and/or the major political parties. I wish I had the time & brain cells to become more conversant with the political aspects but as previously mentioned, I'm more interested in learning... how to invest in the super system to benefit me and my family (this is about playing the game within the rules as set at the time of playing).
    As an 'average Joe' who wants to learn from you... many of the posts just sound like sour grapes - it would be really nice to see more unpolluted information on the primary subjects and less bitching (green eyed monsters) about people trying to get the best returns on their money.
    TMac
    20th Sep 2016
    4:21pm
    Some really complex ideas here for raising tax.... lets throw out a KISS (keep it simple stupid) idea....

    15% GST (no exemptions).
    15% tax on wages (starting from the first dollar and no tax deductions allowed).
    15% tax on all super earnings above (say) $75k.
    25% company tax.
    Get rid of as many inefficient taxes as possible (eg payroll, stamp duty)

    Anyone interest in doing the maths to see how this stacks up from a revenue perspective ?