Superannuation Discussion + market volatility

[Quickstatus]

I suggest use of inert metal (Au)

Should be ok these days with polymer money but point taken

 

[andye]

I thought this was an interesting article

Tax concessions on super need a rethink. These proposals would bring much needed reform

The debate over taxing super balances above $3 million misses the point. Broader reforms are needed to make super sustainable in the long run.

theconversation.com

Major downside in my view is that a whole lot of people would be affected by the 10% (or 7.5%) taxation in pension mode. Not that I think it is necessarily wrong, just that it would create an even bigger storm than the current one that affects very few

It also doesn't take into account Division 293 tax on high earners which already partially deals with the second section of the article

 

[Quickstatus]

So simple to restrict TSB to $3M (indexed)
Ay any time the TSB is above $3M the excess needs to withdrawn from super.
An orderly transition can be instituted - say over 3 years
The mechanism is already there - for example with excess super contributions

 

[andye]

So simple to restrict TSB to $3M (indexed)
Ay any time the TSB is above $3M the excess needs to withdrawn from super.
An orderly transition can be instituted - say over 3 years
The mechanism is already there - for example with excess super contributions

But the farmers....
And the pollies/judges with Defined Benefits...
Also I'm sure there would be loud objections over concerns that there could be a sharp market crash immediately after withdrawing (though at least the benefits would have been crystallised at a high point in the market)

 

[Quickstatus]

But the farmers....
And the pollies/judges with Defined Benefits...

To the extent that super is used for retirement.
Real estate can be apportioned to be partially in Super up to $3M if the total value is >$3M
The first $3M can be concessionally taxed as per super.

Defined benefits are easy to sort out. Just freeze the pension amounts payable under super on a certain date using actuarial calculations so the amounts payable are nominally equal to a $3M non defined benefit.

 

[MARTINE]

But the farmers....
And the pollies/judges with Defined Benefits...
Also I'm sure there would be loud objections over concerns that there could be a sharp market crash immediately after withdrawing (though at least the benefits would have been crystallised at a high point in the market)

I suppose a judge (smart lawyer) with a DB could then argue .. if my super balance is 16x my annual benefit and continues to be (according to law) then when I die that is the amt my estate should inherit…
Either the balance is the residual of what has been left (possibly less than $3m) or considered 16x annual…in which case where is it?!
Just thinking

 

[tgh]

Folks are not silly and I suspect that the process is so well telegraphed that almost everyone under threat of the process has already acted.
Another soaking the rich headline dies (in this case) post gestation… awwwwwww….

 

[tgh]

An elderly local couple had everything buried in the back yard and only a nominal bank account to receive the pension.
One member has now passed and I often wonder what the oh has done with the dough ….

 

[Quickstatus]

Either the balance is the residual of what has been left (possibly less than $3m) or considered 16x annual…in which case where is it?!

The balance can be easily made to mirror the residual of a normal super

Judges have a constitutional protection that their remuneration cannot be reduced

 

[andye]

Apropos of me saying that investing is more favourably taxed than one's labour, I tried to work out the effective taxation rates (note that this is not to do with investing in one's own business, which as @tgh has expressed is a different game

(Investment Loan)	negative marginal​
(Investment Loan in Super)	-15%​
Capital gain on family home	0%​
Personal income up to $18.2K	0%​
Rent on neutrally/negatively geared property	0%​
Capital gains in Super Retirement Account	0%​
Rents/dividends in Super Retirement Account	0%​
Capital gains in Super Accumulation Account (current)	10% (0% if never realised)​
Rents/dividends in Super Accumulation Account (current)	15%​
Concessional Contributions to Super (income<$250k)	15%​
Residual Super at death to non-dependents (less non-concessional portion)	15%​
Portion of capital gains in Super Retirement Account with Balance>$3M (proposed) (I think)	15%​
Personal income $18.2-45K	16-18%​
Capital gains outside super	22.5% (0% if never realised)​
Business tax (turnover<$80M)	25%​
Capital gains in Super Accumulation Account for proportion TSB>$3M (proposed)	25%​ (15% if never realised)
Business tax (turnover >$80M)	30%​
Rents/dividends in Super Accumulation Account for proportion TSB>$3M (proposed)	30%​
Concessional Super Contributions (income>$250k)	30%​
Personal Income $45-135K	32%​
Personal Income $135-190K	39%​
Personal Income >$190K	47%​
Rental Income less expenses from positively geared property	Marginal​
Dividends outside Super	Marginal​

I may have made errors in this (happy to be corrected)

I fully agree that investment carries risk and deserves some concession to encourage it but I do think the current balance is skewed. Personally I don't feel investing in established housing offers much for the economy though investing in Australian businesses does

I also believe that being in a higher income tax-band is not in itself a bad thing as it means you have more money coming in

I do think the completely tax-free nature of the Retirement account seems very generous particularly for those with 7 figure Retirement account balances

I certainly wouldn't object to income and business tax coming down if such a shift were made (though I would probably personally be better off keeping things as they are)

Effect of franking credits discounted (I'm not that bothered about this issue as I'm sure it encourages Australian investment)

I do work on the principle that anyone who works hard and achieves a high income (accepting that enormous numbers of people work very hard for modest incomes) should be able to do very well in life. At present, buying a decent house in a metro area is incredibly hard without parental or legacy support

 

[CaptJCool]

Should be ok these days with polymer money but point taken

Centrelink provisions don’t care that much about how you spend your super. The moment it exits the super fund, my understanding is it’s “counted as an asset for the next 5 years unless it’s clearly documented as being spent on your home and furnishings or substantial personal expenses like overseas holidays

What gifts we include in income and assets tests

We may include your gift if you give away, sell or transfer it for less than its market value.

www.servicesaustralia.gov.au

Superannuation

Superannuation is a long term savings structure to help fund your retirement.

www.servicesaustralia.gov.au

Unused super counts after age 67

Assets test for Age Pension

The assets test helps us work out if you can get paid Age Pension. It also affects how much you'll get.

www.servicesaustralia.gov.au

The big drop off is the surviving spouse issue where assets double and asset thresholds plummet = perfect storm to get booted off Age Pension

 

[Quickstatus]

perfect storm to get booted off Age Pension

Plus maybe cross threshold for Div 296

 

[Brissy1]

I thought this was an interesting article

Tax concessions on super need a rethink. These proposals would bring much needed reform

The debate over taxing super balances above $3 million misses the point. Broader reforms are needed to make super sustainable in the long run.

theconversation.com

Major downside in my view is that a whole lot of people would be affected by the 10% (or 7.5%) taxation in pension mode. Not that I think it is necessarily wrong, just that it would create an even bigger storm than the current one that affects very few

It also doesn't take into account Division 293 tax on high earners which already partially deals with the second section of the article

I like Henry's proposition "Pension mode should not be tax-free...".
I'm old but I nevertheless think that tax should be based on income, not age. Yes we've all "paid our taxes" but that doesn't mean one is then entitled not to continue to equitably pay taxes, and reap the benefits like Medicare.

 

[OATEK]

I like Henry's proposition "Pension mode should not be tax-free...".
I'm old but I nevertheless think that tax should be based on income, not age. Yes we've all "paid our taxes" but that doesn't mean one is then entitled not to continue to equitably pay taxes, and reap the benefits like Medicare.

I guess the other view could be that we were taxed twice, once on our income, and once by the compulsory SG contributions of x%, leaving us with lower disposable incomes during those crucial years when trying to buy a house and start a family.

No option to opt out and worry about creating our own "wealth" sufficient to support us in old age. The offset being that the $$ we gave up to the scheme over 40 or more years was treated favourably tax wise when we could finally get our hands on it at retirement age (itself a flexible concept within Government).

If the government wanted to tear up the pact with the people on giving a large slice of our income to super funds for favourable tax treatment, then more than just what is taxed when, should be on the table.

 

[SYD]

I like Henry's proposition "Pension mode should not be tax-free...".
I'm old but I nevertheless think that tax should be based on income, not age. Yes we've all "paid our taxes" but that doesn't mean one is then entitled not to continue to equitably pay taxes, and reap the benefits like Medicare.

The counter argument would have been that the OAP was tax free so self funded super ought to be also. Otherwise, why would people do it and why punish people via mandatory SGL contributions?

Also, the idea that the population is ageing therefore they need to keep paying tax is laughable. The point of compulsory super was that “the population was aging” and therefore future governments needed people to fund their own retirement to take the pressure off the OAP… It was also the same rational for shutting down all the legacy “unfunded” DBSs (which I’m a minor beneficiary of).

Yes, there were windows of opportunity to get a lot of money into super, but they’ve all been closed and a bunch of rules (and taxes) in place already to punish anyone exceeding concessional and non-concessional contributions, as well as the max you can now get into the tax free pension (ie the TBC).

This new wealth tax was originally a way to ensure the tax free benefit on “earnings” was capped. Fare enough but the crude and overly simplistic proposed implementation is problematic.

 

[andye]

I guess the other view could be that we were taxed twice, once on our income, and once by the compulsory SG contributions of x%, leaving us with lower disposable incomes during those crucial years when trying to buy a house...

Yes, but if you had received the "super" in your pay it would have been taxed at marginal rate not 15%. And the vast majority of thr super you draw down in retirement is due to capital growth on which you could have paid 0% (assuming you or your fund held onto that asset until retirement phase which you can definitely do in an SMSF, a bit more opaque in a external fund)

Even though I personally prefer the Henry version to Div 296, I do strongly believe that income from Super should be taxed more favourably than the Personal Income brackets

 

[Quickstatus]

Yes we've all "paid our taxes

Yes I could say I've paid my fair share off taxes at age 40.

 

[Flashback]

Yes I could say I've paid my fair share off taxes at age 40.

I resemble that remark.