Super changes to tax free income

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The Association of Superannuation Funds of Australia (ASFA) and Westpac are pushing for a limit of around $2.5 million to be set on the amount of tax-free money each Australian can use to fund their retirement.

This restriction would see the amount of tax-free income that can be earned each year in retirement capped at $120,000. This restriction would affect around 70,000 retirees who otherwise receive tax free earnings of over $120,000 from their superannuation.

The research presented in the submission has revealed that there are currently 475 Australians with superannuation balances of over $10 million earning, on average, $1.5 million a year tax free in retirement.

Prime Minister Tony Abbott has suggested his government won’t make any changes to the current superannuation rules, but the Labor party have proposed a policy which would see a $75,000 tax-free limit with any earnings thereafter taxed at the concessional rate of 15 per cent.

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Opinion: The rich get richer

Now is the time for Tony Abbott to stand up as a Prime Minister. The current superannuation system is flawed in how it rewards the rich in retirement with tax-free incomes, without a cap, and Mr Abbott needs to lead a sensible change to the current law.

A comparison of the current system could be drawn between superannuation contributions and multinationals profit-shifting to avoid tax. Both forms of action are currently legal in this country. Both benefit the top 10 per cent, but there is currently only a focus on the companies that operate from outside our shores.

The submission presented by ASFA and Westpac from the outside look to be reasonably thought out and sensible as a starting point. I would ask whether they actually go far enough when you consider the ASFA Retirement Standard states that a couple requires a retirement income of $58,444 per annum to live a comfortable lifestyle.

It’s clear to see that progress has to be made and a limit needs to be set. Mr Abbott, please, take a look at how unfair the current rules really are and take a stand on behalf of the Australian taxpayer.

What do you think? At what amount should the annual tax-free super income be capped? Is Tony Abbott failing Australians who voted for him by refusing to make changes to the current super rules?

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Written by Drew

Starting out as a week of work experience in 2005 while studying his Bachelor of Business at Swinburne University, Drew has never left his post and has been with the company ever since, working on the websites digital needs. Drew has a passion for all things technology which is only rivalled for his love of all things sport (watching, not playing).
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184 Comments

Total Comments: 184
  1. 0
    0

    I cannot understand why anyone would oppose a suggestion that once someone is EARNING over $75,000 tax free anything in excess of that $75,000 should be taxed at the minimal rate of 15%. This isn’t about how hard people have worked to get the funds to invest in Super or if it is THEIR money — it is about earnings on that money. If I was earning $75,000 from my Super I would be very happy to pay 15% tax on anything above that amount.

    • 0
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      I disagree in that one can earn more than $75,000 a year on a super balance of less than $400,000 a year which is not much in super.

    • 0
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      How, Bonny? I’m sure a lot of people would love to know how to achieve that much income from just $400,000. Very few with that balance would be achieving that return. I think many with twice that would struggle to get to $75,000 pa.

    • 0
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      Education is the key. The simple fact is that most financial advisors will not tell you about lots of ways of investing because they can’t make any money from it.

    • 0
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      I disagree . . . simply because the rules have always been that income from super’n after a certain age is tax free. Rules shouldn’t be changed part way through the game. Many many people have been going without so as that they can put as much into their super fund as possible so as to benefit when they retire. Should not suddenlt now change the game plan on them.

    • 0
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      The answer to your question Chat is that this government is one owned by wealthy Australians and their big business interests. That is why Abbott is pursuing lower company tax rates (the rich own companies) and refuses to touch the superannuation tax shelter (it disproportionally benefits the rich).

    • 0
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      Fliss, the rules change all the time. tax rules, pension rules, and I don’t think the rule has always been that super income is tax free, think it was a rule change to, a few years back.

    • 0
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      To get $75000 from $400000 you would need to get a return of 18.75% after fees invested in High Growth/High Risk investment products. Some years you will get that and more in high risk investments, but you will also have years when you will get a negative return. If you look at all of the Super sites you will find that over the last 10 years the best compound growth of their top product returned less than 10%. This type of investment is not recommended for retirees trying to preserve their capital.

    • 0
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      Well Chat I oppose it because it is stupid. It is akin to the Labor 15% contribution tax and the 15% income tax we now have. it defeats the purpose of the exercise. This is another one of those ‘great moral dilemmas of our generation’ which was introduced in the 1980’s and now its being reversed. it achieves nothing.

    • 0
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      The sort of reply we normally see from you Frank. As normal the word ‘Labor’ appears in your post.
      Not “wasted” at all. The way to get people into superannuation was to offer them a carrot. The carrot in this instance was a tax deduction. Personally I would have thought just paying the old age pension like nearly all other western countries do should have stayed as it was. In the end only the rich have benefited because the superannuation scheme was intentionally set up to benefit this end of society. The schemes change but the dishonest rorting never does.

    • 0
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      Spot on, mick – the entire scheme was deliberately built with those huge gaping holes that the well-heeled could drive a truck through – so as to benefit politicians themselves and their cronies.

    • 0
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      Bonny, why would it matter how much savings someone has? If they are getting more than $75,000 a year in retirement they are well off and can comfortably afford to contribute a tiny amount (and it would be a tiny amount unless their income was VERY high indeed) to the cost of running the country. We are talking about 15% of the income OVER $75,000 a year for a single person. Someone getting $100,000 a year in retirement would pay a measly $3750. Some people thought it acceptable to slug someone receiving only $22,500 a year with a whopping $13,000 a year loss, just because they had some savings. Someone earning $75,000 a year (for a single) would be quickly able to build their savings further.

      A couple can apparently live comfortably in retirement on about $58,000 a year (My husband and I live very well on less than that!) but can earn $150,000 a year tax free, giving them tax free $92,000 a year to add to savings. Anyone complaining about paying 15% on the amount over $150,000 (or $75000 for a single) would be obscenely greedy.

      It might be reasonable to allow losses to be carried forward in the same way businesses are permitted to carry losses forward.

    • 0
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      You are quite correct Knowall. No super fund has paid that money when it is averaged out over ten years. I would be quite happy to get 10%+ on my superannuation.
      To get a big return you have to be in a highly volatile growth fund I would imagine. Not for me.

    • 0
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      Radish, I know how to get 20%. If you can get 10% you can get 20%. However the issue is not the return on the funds it is the yearly draw down pension amount, and the level at which it is taxed. This level is determined by the balance in a members account and the percentile range.

  2. 0
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    I agree Chat, that seems a reason figure and gives retirees a good standard of living and the tax rate still encourages savings.

  3. 0
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    I agree with the $2.5 Million limit but not the $120,000 tax free income. I know of super funds that earn more than than on a $500,000 balance a year.

    To me earning 120,000 on $2.5 million is not a very good return.

    • 0
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      Bonny the amount someone has in Super is not the issue. The only relevant issue is Income someone is receiving from the Super and if that exceeds $75,000 per year then I think it is very reasonable for them to then have to pay 15% tax on any income above that amount.

    • 0
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      Anyone earning $120,000 a year should be delighted to pay tax, Bonny, unless they are unbelievably selfish, self-serving, and lacking in compassion for the disadvantaged.

    • 0
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      Bonny, the figures you’re quoting equate to around 24% interest (earnings) on your investment principle, and that’s without compounding. This is better than loan shark interest. You are doing VERY well, if this is indeed the case.

    • 0
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      Loan sharks earn 25% on each transaction not per year.

    • 0
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      I’d like to know which super fund earns more than $12 000 on a $500 000 investment Bonny. The return you mention is 5%. Pretty good when you can only get < 4% on bank deposits these days. Only way to improve on that is to take rick and speculate and that has concerns when things go against the script.

    • 0
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      Mick, this guy/gal Bonny states a return of $120,000 on a $500,000 balance in his/her comment at 10:11 AM above. You believe that?!

    • 0
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      Mistake methinks Eddie.

    • 0
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      That’s why the rich have SMSFs not invest in ordinary super funds where the investor gets back the scraps after everyone else has been paid. Bank deposits are one of the most risky investments one can have in a super fund. With inflation and tax you get a negative real return nearly every year. I’d rather invest in things that appreciate over time myself and use those investment to make further gains.

    • 0
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      Risk/reward Bonny. The ‘investments’ you mention are firstly unethical and secondly very risky.
      If you want to invest in things which grow in time then you are on a banana skin these days. Property is close to the most expensive in the world. Share market has run a fair way but may still have a few legs. What do you suggest?

    • 0
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      According to the figures only 70,000 people will be affected anyway.

      I would have no problem in paying tax on my superannuation earning if over $75,000 …not at all.

    • 0
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      It’s a lousy return Bonny. Most super funds have returned more than double that in the last year or two.

    • 0
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      The only thing that counts Frank is the long term return and how it compares to things like real estate, shares and bank interest. Using the last 2 years is like issuing a forecast about winter using the last 2 days after you have 2 warm days. Illogical argument!

    • 0
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      So if you are happy with a long term 4.8% return on a long term investment that ok with me.

    • 0
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      Or using the last 50 years of a billion years of climate change?

  4. 0
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    I’ve been advocating ever since the budget that retirement incomes in excess of a given income level should be taxed. It’s about fairness and decency. Everything so far proposed takes from the lower or middle-level, and leaves the rich untouched. Anyone earning $75,000 a year in retirement and unwilling to pay a modest tax on the earnings over that amount is just plain obscenely and disgustingly greedy.

    Actually, I think $75,000 a year for a couple is adequate, and maybe $60,000 for singles.

    • 0
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      I totally agree. So would most Australians. We live on a heck of a lot less than that and travel extensively. So how is $75 000 pa, which is more than the average wageof $58 000, not enough?

    • 0
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      Who are you, or any one else for that matter, to decide how much of a persons hard earned money is to be taken out of their super balance.
      Why not mind your own business, and let the rich mind theirs.

      You jealous guys obviously do not understand that it is the Govt who makes a person over 70 take out 5% each year even if they do not need, or want that much.

      Stupidgalah is absolutely correct

    • 0
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      Rainey and mick, you do understand that we are discussing the earnings of a super fund? Which obviously is a separate entity and has nothing to do with personal income? Whether personal exertion income or not?
      Your eagerness to attack those who have worked hard and saved has led you to cloud the issue here I think.

    • 0
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      Wrong, Frank. That’s precisely the point. We ARE discussing the earnings. Superfunds were set up to fund retirement. Why shouldn’t they be used for just that? But not by forcing people to draw savings out to live (as Morrison’s recent proposal to tighten the means test will do to some), but rather by taxing that portion of income that is in excess of reasonable needs. Nobody is attacking those who worked hard and saved. Morrison’s proposal does precisely that! This proposal simply requires those who are earning more than they reasonably need to live comfortably to contribute to the cost of running the country. And of course they should – regardless of how that income is derived.

    • 0
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      You have no idea do you?

    • 0
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      retroy: your rant is missing the point: THE RICH HAVE USED THE SUPERANNUATION TAX SHELTER to avoid the real tax system which the rest of society is forced to use. As an Australian IT IS MY BUSINESS and the business of every other Australian.
      Your arrogance is offensive given that you have managed to accumulate a large superannuation only because it is heavily subsidised BY TAXPAYERS.

    • 0
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      mick there is no need to chide retroy because you feel he has more than you!

    • 0
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      Can his ass be chewed if Mick thinks he has less? that OK?

      (just joking)

      Super funds as current were set up so as to ensure that a many as possible would not NEED a pension. Therefore there should always have been an upper limit on any concessions involved. That there was not and is not indicates the culpability (with mens rea) of government in deliberately setting this system up so as to benefit the rich.

      Only now is that becoming clear in Tony’s magnum opus :- The End Of The Age Of Entitlement.

    • 0
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      Seems Frank is only concerned with protecting the rorts for the rich, and to hell with the country and the majority of citizens. It’s called GREED.

      And I’m NOT attacking people who worked and saved, Frank. YOU ARE. I’m saying people who have done extremely well and have way more income than they need should make a fair contribution to the costs of running the nation and not load the entire burden onto people who have less (despite probably working a lot harder!). The have-nots have propped up the greedy haves for far too long and it’s time to introduce some fairness into the system.

      $30 billion GIFTED TO THE RICH every year, and Morrison wants to slug the real hard workers and savers who saved a modest amount, but not enough to be self-sufficient, while continuing to obscenely indulge the rich – asking them to contribute NOTHING, but letting them continue to enjoy all the benefits of living in this country without paying their fair dues. It’s YOU who has NO IDEA. Or perhaps you are among the greedy, selfish privileged who have this weird notion that it’s somehow your right to have it all at no cost and to demand that others – who are less privileged – pay for it?

  5. 0
    0

    Darn…..That little green man is out of his cage again.

  6. 0
    0

    The Labor party proposal sounds very fair to me. Anyone with a Super Fund like that should be more than well set up for retirement and well able to afford to pay tax on income above the $75,000.

  7. 0
    0

    Super is one of the current strategies used by the wealthy at present. Take it away and they will take their money out and the government then has no control over this money. That is why the current government does not want to touch it.

    • 0
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      ???? They can take it out but above $150 000 they will incur tax on lump sum withdrawals.
      So why should governments have control over YOUR super? They are at present trying to take over control of this large pool of capital but lets hope it never happens as they will simply replace the pension with your money whilst they nibble away at the edges. Not pretty.

    • 0
      0

      Under this proposal if there is an upper limit put on a super balance they will be told to take it out or incur penalties just like if one puts too much in.

  8. 0
    0

    The rich always get richer – that’s why I want to be rich!

    • 0
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      If they’ve worked for it then so be it! 🙂

    • 0
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      That is because the rich own the political debate and so own the game. If there is any reason for only occasionally voting Liberal then the continual pandering to the needs of rich election funding contributors (money!!) is it. See the game for what it is!

    • 0
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      Those Unions who support labor through the contributions from their members would make the so called rich contributors look like paupers.

    • 0
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      There is a difference Sum1 (Frank?). Money contributed from unions is not meant to pervert the system and does not involve payola. On the other hand money provided by the mining industry for, example, is for one reason only: to change legislation so that they can increase their bank accounts and/or establish monopolies.
      It is different Frank.

    • 0
      0

      I agree Sum1.

    • 0
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      I don’t give you enough credit mick. I hadn’t realised you could answer a question before it is asked.

    • 0
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      Work has nothing to do with being rich.. many work to be poor. Generalisation.. generalisation..

    • 0
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      What makes a person rich is not the amount you earn it is how you manage it.
      There are plenty of people who earn good money who, at the end of the day, have nothing to show for it.
      Their expenditure rises to meet their income.
      I know of plenty of examples of this.

    • 0
      0

      Radish, it’s a dual equation. It doesn’t matter how you manage your money, you’ll never be rich if you can’t earn a decent income to start with.

      Most of the rich are NOT rich because of either hard work or careful management. They are there because of privilege – plain and simple. They inherit money, or property, or their parents are able to give them a very good education and introduce them to the right connections. In some cases it’s just a matter of parents who teach kids the attitudes needed to succeed. The poor grow up with low self-esteem, no connections, no understanding of how to impress the right people – often without even basic education in the kind of grooming, speaking and behavior needed for success. Many of the poor work far harder and are far better money managers than the rich, but just don’t get the breaks in life.

      It’s time the rich stopped beating their chests and pretending superiority and claiming entitlement and recognized that they have an obligation to pay their fair share towards the cost of running the nation. They are taking the benefits. They should pay for them!

      Any retiree who objects to paying 15% of earnings above $75,000 (for an individual) in retirement is SICK with greed and selfishness. There is no excuse. If doesn’t matter if you got tax breaks or not (nearly all who have substantial money in super did). What matters is that you now have more than you need and the country needs someone to contribute more than they currently do. It SHOULD NOT be those who can least afford to make sacrifices – and it shouldn’t be those who saved but now have less income than is reasonably needed and want, sensibly, to preserve those savings for future heavy expenses.

  9. 0
    0

    Thank you Drew. I have been jumping up and down about this tax shelter for the rich for years whilst governments of both persuasion have let the game proceed.
    Whilst saving for retirement certainly needs to be encouraged superannuation needs to at some stage NOT subsidise the rich….who will survive wonderfully even without any superannuation.
    Superannuation above a certain income is little more than a means of escaping the 49 cent in the dollar tax rate and replacing it with the 15 cents in the dollar superannuation rate. For average people it provides the ability to save a few dollars for retirement and average citizens do not have the spare cash to use the system as a tax shelter. The rich do…and use it to perfection. THIS IS WRONG and it needs to be fixed….sooner rather than later.

    • 0
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      Most rich people would not pay any more than the company rate of tax. It’s only the highly paid wage slaves that have lots in super that this will effect.

    • 0
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      Not really the case Bonny. Paying the company tax rate means the money belongs to THE COMPANY. Although individuals do use company funds for private intent there is a stage where the ATO will hold them to account and ask for a please explain. Also, company tax rate still double that of the superannuation system where the rich get control of their pension and only pay 15% tax. A great deal if you can get it, but only the rich can.

    • 0
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      mick Bonny is right. Lets say a company makes a regular modest profit and pays the company tax. Less assume that the company uses said taxed profits to grow, eg hire more staff, move to larger premises etc which increases the cash flow. A few years later the company has strong cash flow but no big bank balance. Let’s say the company wants to reward key employees? Namely the 4 directors who have been salary sacrificing to minimise or maximise ATO assistance, which ever way you look at it. The company notices $400k of unappropriated profits so asks the bank for a loan. Now what would you do with the $400k that has already had tax paid on it? Of course the loan needs to be repaid and the company can handle that with its strong cash flow.
      mick it is not a case as you say of employees “using company funds for private intent.”

    • 0
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      In many cases ‘companies’ are family companies…as well as Family Trusts. The game plan is to distribute income so as to minimise tax. That means payments into superannuation accounts.
      Your example avoids the facts:

      1. Those at the top always get their rewards irrespective of whether the company is growing or not or in fact doing well or not. Its called the market place.
      2. Companies borrow money to grow or issue more shares.
      3. Companies treat employee benefits as a business expense and this is a part of how successful companies are run.
      You are playing a shell game above Frank.
      Also, my discussion above is more directly aimed at private companies. Having said that those at the top benefit from the SUPERANNUATION TAX SHELTER SET UP FOR THEM in any case.

    • 0
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      I’m just saying that Bonny is correct. Related or key employees very rarely pay anything above the company rate. Your assertion that ” Paying the company tax rate means the money belongs to THE COMPANY.” is incorrect and misleading. If the money belonged to the company in the first place and assuming we are talking about profit, having paid the tax is not going to change that fact. And the company is then free to do what ever it wants with the after tax profit. Just as it was free to do what ever it wants prior to those funds being taxed.

  10. 0
    0

    the two and a half million dollar maximum seems quite fair however I do think no tax up to 100000 dollars is appropriateper year you must remember superannuation returns are a bit of game sometimes you win sometimes you lose its not a guaranteed return positive every year.and don’t forget $120,000 return on two and a half million is under 5 percent not a great rate at present returns for Suppa just something to think about Jack

    • 0
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      Really?
      I think that the long term appreciation of super has been quite acceptable.
      As for a $100 000 cap maybe fair. I bet you will not get an agreement from those who earn much more from their super though.

    • 0
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      I think super funds overall have had mediocre returns where most fail to even meet the market return.

    • 0
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      I have to disagee with your comment Bonny. I have been quite happy with the returns in my industry super fund.

    • 0
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      My son is in the best performing industry fund and he is not very happy with it at all. He can’t wait to get enough money to set up his own SMSF.

    • 0
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      I do not feel I have the expertise or want the worry of my own SMSF Bonny.
      I wish your son good luck with his.

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