Superannuation Discussion + market volatility

[Quickstatus]

healthcare and aged care support is expensive

Yet the medicare levy remains at 2%....

There is a hidden tax on "self funding retirees" of up to $1500/week when they need aged care.
Nursing home: : the people who pay the most at the ones who are not supported by government. My mother paid $900,000 for nursing home accommodation (refundable accomodation deposit) . - that's is an interest free loan to the facility. At the current commercial interest rates of 6% she is effectively paying approximately $1000 per week. She also pays an additional $403 per day until the annual cap of $35238 and a lifetime cap of $84571 (means test fee). Then there is a daily fee equivalent of 85% of the aged pension which she does not get which is approx $26k/year or $500 per week. All up its about $1500 per week not including means test fee.

If someone does not have the full accomodation deposit then the govt says they can pay the equivalent of 7.6% of accomodation deposit not paid divided by 365.

From October the refundable portion of the accomodation deposit is reduced from 100% to 90%. So if $900,000 was paid, her estate will only get 90% when she dies.

For someone who has zero assets and only has the aged pension, all they have to pay is 85% of the aged pension. Which is provided by the government. Thats fine but we can't say "rich" retirees don't pay....

 

[andye]

For funds in pension phase which is governed by the TBC which has just indexed up to $2m, so it isn't necessarily a blanket statement that wealthy retirees pay no tax.

Fair call. In the last few years though, the bulk of increase in balances has come from capital growth rather than dividends/rents.

Lets assume 3% dividends/net rents, 7% capital growth Effective taxation rate of 4.5% on the portion not in pension (which with capital growth can be a lot higher than the TBC).

So on a super balance of $10M ($3M in pension, $7M accumulation) taxation is <3.2% of overall growth**

Of course the capital gains may be realised at some point, but with a withdrawal after age 60 and before death maybe never taxed* (happy to be corrected on that if wrong)

*from purchase if in an smsf

**its 6.3% with Chalmer's proposed tweak

 

[Quickstatus]

Fair call. In the last few years though, the bulk of increase in balances has come from capital growth rather than dividends/rents.

In the end that does not matter how the balance increases in value because when it is in pension phase, regular minimum withdrawals have to be made - at this time capital gains/losses are realised and are added to dividends etc to form the annuity.

 

[andye]

In the end that does not matter how the balance increases in value because when it is in pension phase, regular minimum withdrawals have to be made - at this time capital gains/losses are realised and are added to dividends etc to form the annuity.

I was under the impression that when you sell a bunch of CBA shares to fund the pension withdrawal after age 60, no CGT payable (unless other smsf members are not retired when its proportional to their relative TSBs)

 

[Brissy1]

Yet the medicare levy remains at 2%....

There is a hidden tax on "self funding retirees" of up to $1500/week when they need aged care.
Nursing home: : the people who pay the most at the ones who are not supported by government. My mother paid $900,000 for nursing home accommodation (refundable accomodation deposit) . - that's is an interest free loan to the facility. At the current commercial interest rates of 6% she is effectively paying approximately $1000 per week. She also pays an additional $403 per day until the annual cap of $35238 and a lifetime cap of $84571 (means test fee). Then there is a daily fee equivalent of 85% of the aged pension which she does not get which is approx $26k/year or $500 per week. All up its about $1500 per week not including means test fee.

If someone does not have the full accomodation deposit then the govt says they can pay the equivalent of 7.6% of accomodation deposit not paid divided by 365.

From October the refundable portion of the accomodation deposit is reduced from 100% to 90%. So if $900,000 was paid, her estate will only get 90% when she dies.

For someone who has zero assets and only has the aged pension, all they have to pay is 85% of the aged pension. Which is provided by the government. Thats fine but we can't say "rich" retirees don't pay....

So the total cost over 2 years (which is about the av length of stay I believe) is :
$108,000 - loss of income on the RAD
$70, 476 - additional per day fee
$52,000 - daily 85% pension equivalent fee
$90,000 - non-refundable RAD portion

So about $3,000 pw out of pocket more than someone on the full pension. Wow.

 

[tgh]

about $3,000 pw out of pocket more than someone on the full pension.

The new ski club !
No easy answers and folks are fleeced whichever way they move..

 

[33kft]

It's likely a topic you could discuss ad nauseum and never reach a conclusion that everyone agrees with - there are a bevy of taxes out there whether it be GST (which I'd expect to see increase in future as consumption taxes are quite a good proxy for correcting this exact imbalance) or fuel excise or land taxes or rates. Your point that there was likely capital growth leading to the > $2m figure is true but a counterpoint is that the majority was likely contributed and compounded in the 4+ decades preceding pension phase.

But when I read most opinions on this I find myself having to mentally insert the word income into the opinion piece for it to make sense to me. It's not that you don't pay CGT on the investment or input tax on the contribution - yes there are discounts (a la the CGT discounts found in other areas of taxation) but at the same time there's also strict limits, such as the preservation age and cincessional caps. When people talk about the tax discounts on super they talk in relative terms - compared to income tax rates. But income tax rates are set relative to the revenue required. If we were collecting pensions and not self funded via super we'd be much worse off.

I've seen people state the fact (and it is a fact) that the tax "discount" (vis a vis income tax) on superannuation exceeds the pension costs, and therefore a drag on revenue. But the income tax on the pension is zero, versus that collected on super beyond the TBC sitting in accumulation. If we didn't have the superannuation system, we'd be collecting much less tax revenue, let alone the reduction in ancillary taxation revenue such as GST, as many retirees are simply much wealthier under the superannuaton system (sounds a bit trickle down economics-like but it's undeniable, we're some of the wealthiest retirees globally).

The comparison of taxation on superannuation to income taxes skews the discussion. It assumes that the alternative(s) deliver greater taxation revenue, where they often deliver none at all. It assumes that people would invest in income streams and not assets and other vehicles just as they do today to avoid that exact outcome. The need to set income taxes to a level within which the required revenue is extracted during the working years of an individual and not their retirement years has always existed and real revenue loss would require income taxes to be reduced on the expectation of ongoing income tax during retirement for an actual loss to be realised.

There are definitely some inequity issues and I expect we'll see more and more tinkering around the edges, but anyone silly enough to pursue significant taxation on retirement drawdown on the basis that it's discounted in comparison to income tax is going to either encourage poor behaviour or never get within spitting distance of governing in the first place.

 

[andye]

My own solution would be to make CGT (at 10%) payable on realised assets over age 60 (in pension and accumulation) if TSB>TBC (indexed and maybe increased).
I'd never get elected though

 

[Quickstatus]

$70, 476 - additional per day fee

I think you mean the means test fee

no CGT payable

Correct, but that's when capital gains is realised - when withdrawals are made.

People think the super balance is real money. It is not. It is only real when it is withdrawn from the account.

 

[Brissy1]

My own solution would be to make CGT (at 10%) payable on realised assets over age 60 (in pension and accumulation) if TSB>TBC (indexed and maybe increased).
I'd never get elected though

Agree it's not equitable to be able to delay selling say an investment property held for 20 years, and pay no cgt at 60. There are already proportional tax adjustments in the tax system for changing circumstances, eg moving into an investment home, or estate cgt calculations.
So simply if you buy in accumulation and sell in pension phase, pay cgt on the proportion of time in accumulation phase.

 

[Brissy1]

People think the super balance is real money. It is not. It is only real when it is withdrawn from the account.

Yes it is real. The $ in the bank account are just as real regardless of whether the account name is Mr. Brissy or Brissy Superfund P/L.

 

[Quickstatus]

The $ in the bank account are just as real regardless of whether the account name is Mr. Brissy or Brissy Superfund P/L.

Nothing is real unless it is cash