Superannuation Discussion + market volatility

[NM]

Cynical me says that a lot of those in Treasury are the WFH class not tradies

and members of Government Supper Funds, likely with Defined Benefits agreements. Things the workers can only dream about.

 

[CaptJCool]

and members of Government Supper Funds, likely with Defined Benefits agreements. Things the works can only dream about.

Until 2005

CSS closed in 1990



PSS closed in 2005



So the lifetime contributors (35-40 years) CAN be a hefty superannuation

the politicians (their DB scheme closed in 1994)

Average CSS is around $45,000 pa

PSS even less because there’s lots of people who quit after 10-15 years so they can’t get the “pot of gold” results that lifetime employment could produce

 

[Happy Dude]

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....

Really interesting post, thanks. As someone who has only had a brief view of the aged care system from the outside but is likely to be forced to engage soon, this info is utterly frightening. I'm sure a separate thread for aged care discussion would be useful and well patronised.

The thing that startles me the most is the mandate that has been given to AC providers to require large RADs (lets give a private company an interest free loan to do with as they wish!!), then to only have to give 90% of it back, all while charging profitable fees for services provided by notoriously underpaid workers. It's some business model.

 

[Brissy1]

and members of Government Supper Funds, likely with Defined Benefits agreements. Things the works can only dream about.

That gov super pension is not the money for nothing scheme that many people think. Bear in mind in this scheme:

- on pension payout it's taxable income to the recipient (unlike pension phase super coming from the 12%sgl), so not only pay tax but affects eligibility for other benefits which the $100,000pa tax free superannuants get;
- it's in lieu of the 12% sgl, gov doesn't contribute that;
- if you break the TBC because of an artificial deemed valuation, you MUST pay extra penalty tax, no transfer to accumulation account option;
- it reduces, or prevents, having a tax free pension phase super account even though it's a taxable income;
- the employee also contributes 5% (AFTER TAX! so maybe about 7½% of their net) from their salary for their entire career (making it even more difficult to purchase a home).

Many employees particularly younger ones with mortgages, when given the option as some were, elected to exit the scheme. Very telling.

Politicians define benefit scheme (closed/grandfathered) is different.

 

[OATEK]

I haven't seen any mention of the tax-free Transfer Balance Cap when in pension phase (now $2M) as part of the overall discussion here (perhaps I missed it). As I understand, the maximum amount you can have "tax free" in pension phase is the $2M, and then it gets taxed if you go over that figure or you have to take some out?

So we have different Caps, one at $2M for pension phase, one at $3M for accumulation phase (taxed at 15% up to $3M, 30% over that up to $10M when tax goes up to 40%).

So why doesn't the accrual phase match the pension phase? This seems to be where many younger people see a rort existing, in that people can build vast super balances, but only use $2M towards a pension. I have heard comments about older generations getting a major concession in the accrual phase, when only a (sometimes) small part can be used to provide a pension.

 

[Quickstatus]

and then it gets taxed if you go over that figure or you have to take some out?

Any funds in excess of the $2M TBC(indexed) remains in the accumulation account or you can take it out taxfree and put it in a back account, or under mattress etc.

The accumulation account is taxed at 15% currently which is more than pension account, less or more than bank account depending on marginal tax rates, and more than under mattress which remains tax free. The new changes will mean that the accumulation account is taxed at 30% for super amounts >$3M. Now, I dont know if the $3M threshold is pension + accumulation but only the accumulation account is taxed or just accumulation account > $3m

 

[CaptJCool]

I haven't seen any mention of the tax-free Transfer Balance Cap when in pension phase (now $2M) as part of the overall discussion here (perhaps I missed it). As I understand, the maximum amount you can have "tax free" in pension phase is the $2M, and then it gets taxed if you go over that figure or you have to take some out?

So we have different Caps, one at $2M for pension phase, one at $3M for accumulation phase (taxed at 15% up to $3M, 30% over that up to $10M when tax goes up to 40%).

So why doesn't the accrual phase match the pension phase? This seems to be where many younger people see a rort existing, in that people can build vast super balances, but only use $2M towards a pension. I have heard comments about older generations getting a major concession in the accrual phase, when only a (sometimes) small part can be used to provide a pension.

The cap is indexed
But not for people already in pension phase. At the date, you move to pension phase you are locked into the TBC that is in place on that date forever

https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/transfer-balance-cap

I would note with the DB income cap that is indexed AND you are given the extra tax concessions upon the update (unlike with the TBC).

Mainly to do with DBs being taxed from the get go

 

[andye]

One of the consequences of the proposed legislation (as I understand it) is that it will push people into growth rather than income assets.

Overseas stocks tend to have lower dividends than Australian but franking credits would mitigate some of this.
Property investment is often driven by capital growth too.
Bonds/term deposits would be heavily penalised

At least the dividends from US stocks would help the balance of payments if not Australian industry.

I still think the implications of the 0% CGT on realised gains in accumulation as well as pension components after 60 are not widely understood by the general population and, it seems the press/financial commentators (but this may be feigned ignorance with the latter).

 

[tgh]

you move to pension phase you are locked into the TBC that is in place on that date forever

This is incorrect, we have been in pension phase for a long time and our tbc increases.
There seems to be some maths involved however related to the highest ever fund balance and I know not how it works

 

[andye]

you move to pension phase you are locked into the TBC that is in place on that date forever

This is incorrect, we have been in pension phase for a long time and our tbc increases.
There seems to be some maths involved however related to the highest ever fund balance and I know not how it works

You get an uplift when the TBC increases
=Unused from old TBC÷Old TBC×TBC increase

 

[SydneySwan]

you move to pension phase you are locked into the TBC that is in place on that date forever

This is incorrect, we have been in pension phase for a long time and our tbc increases.
There seems to be some maths involved however related to the highest ever fund balance and I know not how it works

If you didn't utilise fully the TBC, the unutilised part is indexed.

 

[CaptJCool]

If you didn't utilise fully the TBC, the unutilised part is indexed.

From the reading on this
What you said makes sense

https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/retirement-withdrawal-lump-sum-or-income-stream/transfer-balance-account

My impression was once fully used, there was no “indexed extra” on offer however I appreciate the alternate interpretation.

The other point to make is that as it’s drawn down the size may remain steady or in fact reduce so you fall below the cap sometime in future years making the taxing irrelevant

 

[andye]

If you didn't utilise fully the TBC, the unutilised part is indexed.

Good reason not to max out.

Note that if the balance exceeds the TBV due to growth it doesnt matter.

And if you make a lump sum withdrawal from.pension accpunt it reduces the Transferred Balance. Potenially useful

 

[SydneySwan]

From the reading on this
What you said makes sense

https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/retirement-withdrawal-lump-sum-or-income-stream/transfer-balance-account

My impression was once fully used, there was no “indexed extra” on offer however I appreciate the alternate interpretation.

The other point to make is that as it’s drawn down the size may remain steady or in fact reduce so you fall below the cap sometime in future years making the taxing irrelevant

Once fully utilised there is no extra indexation available. So for example if you fully utilised your TBC when the cap was $1.6million, then you got no indexation when the cap moved to $1.7million as you had already fully used your cap.

Indexation only applies to the unutilised portion (if any) of your cap so if you has used $1.55million of your cap when it was $1.6million, when the cap moved to $1.7million only your unused $50k would have been indexed.

This would have increased your TBC from $1,600,000 to $1,603,125 as only the 50,000 would have been increased by the (1,700,000 / 1,600,000) = 6.25% increase = 50,000 * 6.25% = 53,125.

 

[Quickstatus]

And if you make a lump sum withdrawal from.pension accpunt it reduces the Transferred Balance. Potenially useful

Why would it be useful?

 

[andye]

Why would it be useful?

E.g
You put $1.4M into pension when TBC $1.6m
3 years later balance is $1.7M. TBC now $1.8M
if you then want to add more, you can add up to $225k ($200k unused TBC+2/16×$2000) directly
But
If you withdraw $200k as lump sum, you can add $450k ($400k unused TBC+4/16×$2000) overall getting another $25k into the zero tax environment

 

[Quickstatus]

If you withdraw $200k as lump sum, you can add $450k ($400k unused TBC+4/16×$2000) overall getting another $25k into the zero tax environment

Yes but that's of very marginal benefit if at all because a lump sum withdrawal makes that lump sum now taxable - say it goes into an interest earning account outside of super or it can be commuted back to an allocation account. Additionally by deliberately withholding transferring up to the TBC just keeps that balance in accumulation which is taxed at 15-30% depending on total super balance.

 

[RB]

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....

I think it is important to note that there are grandfathering rules in place for the refundable deposit?

 

[Quickstatus]

I think it is important to note that there are grandfathering rules in place for the refundable deposit?

Correct. Existing residents with 100% refundable RAD are grandfathered to 100% . The 90% ones will be grandfathered to that % as well.

 

[andye]

Yes but that's of very marginal benefit if at all because a lump sum withdrawal makes that lump sum now taxable - say it goes into an interest earning account outside of super or it can be commuted back to an allocation account. Additionally by deliberately withholding transferring up to the TBC just keeps that balance in accumulation which is taxed at 15-30% depending on total super balance.

Intention would be to recontribute immediately (the maximum benefit is limited by contribution caps and rules).

You might want to or have to limit transfers to pension e.g to avoid mandatory withdrawals or if you are still working after a condition of release