Superannuation Discussion + market volatility

[CaptJCool]

What debt?

Why? Should we remove family rebates so they pay their fair share?

But 4 or 5 decades paying heaps…

Think about it, pre Super retirees went on the tax free Government funded OAP (with pension card). Now, as intended most of us are doing the heavy lifting paying for our own retirement but don’t get a pension card nor subsidised health care.

Not sure how that’s somehow gaming the system?

Anyone who owns a family home - they don’t have to be “rich” will be passing down a lot.

Since the comm seniors health care card is based on taxable income Which EXCLUDES superannuation income, vast majority of Australians are eligible at 67

The OAP is based on all income (less 10%) regardless of if it is taxable hence why only 35% of newly turned 67yo folk are going onto it.

 

[andye]

The problem is actually a more fundamental issue called housing supply. Taxing retirees wont increase housing supply.

Probably shouldn't have brought housing into it as its not particuarly related to super but it is an intergenerational issue like relative tax contributions. And housing is not just supply, its also preferential tax-settings for property investment

Against that the super will have to last 3 decades so that there is no need to make a call on the OAP.
There is also as I said a hidden and significant contribution to future aged care plus transfer of wealth to children and grandchildren to assist with housing prices. I expect the Aged care refundable accomodaton deposit to progressively reduce from 100% refundable to now 90% refundable to less and it wont be long before the RAD will exceed $1M.

So take out $1M for aged care and then about $0.5M that covers the aged pension. You end up with a more realistic $1.5M of "excess" income producing assets before we start using some of that to assist the kids with a house or 3. These self retirees also contribute by not clogging up the public health system as they will be the ones holding private health insurance.

$2M funds a $100k per year pension. Thats triple the state pension (which you don't get so thats a tax saving) and you probably still have most of the capital left or increased. I personally dont think its unreasonable to have a bit of wind-back of tax benefits above that level.

Residential aged care is expensive but some never need it and those that do rarely live more than 5 years more (usually <2)

The most important thing about super is that the value depends on economic performance. I dont think anyone can guarantee over 30 years timeframe that the value of Super will never implode.
Maybe take all the money out hide it under the mattress and then get the OAP

I think its highly unlikely that super with some allocation to equities will underperform inflation over decades barring a major societal breakdown.
There should still be the state pension safety net if it dipped for a while.

Appreciate likely TIC but I don't think hiding under the mattress works as they still know you have the money and are then pension ineligible. As well as inflation eroding the value

 

[Pushka]

The tax free status of of super pensions also means self funded retirees don’t contribute Medicare levies on their super income.
I know that for many people these age benefits help to ease into retirement but for people close to or above maximum super levels ,they could be considered a rort.

but really, how many people are we talking about here? It won't solve the housing crisis. It won't contribute much to the future trillion dollar debt crisis.

And all it will do will make others worry that what will be next and maybe withdraw all their money from Super and that would create a huge financial crisis. All this tinkering with super is a really bad idea.

 

[tgh]

This very interesting conversation (thanks everyone) completely ignores the reality of us all living way beyond sustainable means
and facing a very painful day of reckoning.
Folks continue to elect guvmn'ts who spend tomorrow's earnings like drunken sailors with no likelihood of ever balancing the books.
There must be a day of reckoning ; the longer we idly bask in the sun, the more painful the eventual ending must be.
Most folks have enjoyed these dog days , some have saved and some have spent, however all will suffer for the collective sins of the past.
Fiddling with the tax rates when the edifice is destined to collapse is all a bit pointless, I opine.
As the system implodes , guvm't may undertake some draconian revenue raising ; some may be outright theft (like the unrealised gains wet dream) but it will all be in vain.
Eat drink and be merry friends, the die is cast and the good times are ending...

Herewith endeth the sermon...

 

[Pushka]

This very interesting conversation (thanks everyone) completely ignores the reality of us all living way beyond sustainable means
and facing a very painful day of reckoning.
Folks continue to elect guvmn'ts who spend tomorrow's earnings like drunken sailors with no likelihood of ever balancing the books.
There must be a day of reckoning ; the longer we idly bask in the sun, the more painful the eventual ending must be.
Most folks have enjoyed these dog days , some have saved and some have spent, however all will suffer for the collective sins of the past.
Fiddling with the tax rates when the edifice is destined to collapse is all a bit pointless, I opine.
As the system implodes , guvm't may undertake some draconian revenue raising ; some may be outright theft (like the unrealised gains wet dream) but it will all be in vain.
Eat drink and be merry friends, the die is cast and the good times are ending...

Herewith endeth the sermon...

Which Government will do that because they know they will get kicked out at the next election.

Agree. The mentality these days is borrow as much as you can. Banks do it now as opposed to the intense crunch after the 2009 mortgage crisis. I still don't get where all this money is coming from

 

[lakeman]

but really, how many people are we talking about here?
“Compressed comment”
. All this tinkering with super is a really bad idea.

Don’t know how many people but there were 80000 who had more than 3 million in super.
Has to be a lot more people with assets in super pensions also>1 million
Between 2.5-3 million people qualify for Sapto so it is not an insignificant amount.
Tinkering with super is not a bad idea though it is unappealing if you have structured decisions based on the current rules.
The government and many commentators have called out using super as a rort.
The Medicare concessions also affect a lot of people and though it goes into consolidated revenue it helps to pay for all the largesses with health and NDIS that we all have come to expect.

 

[Mr_Tee]

Some of these comments here seem to be suggesting that people are supportive of taxation on the transfer of capital from a super fund to a super fund member as a pension payment. That is just absurd. More absurd than the original concept of the Div296 laws.

 

[muppet]

Australians now (all generations) - “I should pay no tax, and the government should provide my healthcare, childcare, aged care, education, roads, trains, and electricity for free. I will cover my holidays and beer.”

 

[Pushka]

The Medicare concessions also affect a lot of people and though it goes into consolidated revenue it helps to pay for all the largesses with health and NDIS that we all have come to expect.

I have no issues with excess funds going into medical improvements. As far as NDIS, well, if people think super is a rort then it's a junior compared with all facets, from those providing diagnoses through to service provision through NDIS. And which is sad for those people with disabilities who are very much dependent on absolute government support.

 

[andye]

Some of these comments here seem to be suggesting that people are supportive of taxation on the transfer of capital from a super fund to a super fund member as a pension payment. That is just absurd. More absurd than the original concept of the Div296 laws.

If I understand you correctly, you are referring to taxing the accrued capital gains when liquidating capital to fund a pension payment.
Different to currently but not absurd in itself and only suggested for people with large TSBs.
Liquidation of an asset from accumulation for a lump sum post-retirement makes even less sense (to me) to be taxed at 0% CGT
If you liquidate an asset pre-retirement in super, you pay 10% CGT (15% if held <1y) so its not a massive impost

 

[Mr_Tee]

If I understand you correctly, you are referring to taxing the accrued capital gains when liquidating capital to fund a pension payment.
Different to currently but not absurd in itself and only suggested for people with large TSBs.
Liquidation of an asset from accumulation for a lump sum post-retirement makes even less sense (to me) to be taxed at 0% CGT
If you liquidate an asset pre-retirement in super, you pay 10% CGT (15% if held <1y) so its not a massive impost

No, I am not meaning that at all.

I just mean the transfer of capital. Not Capital Gains (a completely different concept). Capital - pure and simple.

A very simple example (and it's a very simple to illustrate the point):

• A person has $1M in their SMSF and it is wholly invested in a bank account that earns zero interest.
• The person is of retirement age and the SMSF is in pension phase.
• The person requires $100kpa to live on.
• Therefore, the SMSF pays to the member each year a lump sum amount of $100k from the funds held in the bank account as the pension payment.
• This payment is a transfer of capital from the SMSF to the member. It is not earnings of the SMSF or member, it is not capital gains in the SMSF. It is not income earned by the member. It is 100% capital. This is what I am referring to. the SMSF has earnt nothing - no income and no capital gains (realised or not).

People mistakenly confuse and conflate payments of capital from a superannuation fund as some form of income earnt by the member that should then be taxed in the hands of the member- when in fact it isn't.

 

[tgh]

I suggest that the cash value of most pension paying funds comprises fund contributions, earnings, and capital gain.
I opine that capital gain likely forms a major component thereof.
Am additional new tax on the capital gains over time seems just another theft option...

 

[CaptJCool]

People mistakenly confuse and conflate payments of capital from a superannuation fund as some form of income earnt by the member that should then be taxed in the hands of the member- when in fact it isn't.

There’s the bank account style capital where there’s no tax paid on an existing capital amount in the account

Then there’s the unrealised capital gains (on shares or property) that’s not taxed until it’s realised by sale and that’s concessionally taxed in the SMSF and not taxed after pension phase (subject to TBC)

Then there’s the ongoing earnings income (interest or dividends) which are concessionally taxed and not taxed in pension phase (subject to TBC)

And then there’s franking credits, the excess which is refunded in cash since the super tax is 0 or 15% and the credit is 30%

And then there’s the double dip on the tax-free thresholds in the income tax world

Result
A couple can extract around $300,000 per annum through super and taxable income before one cent of income tax is paid. And where Franking credits are available in that situation fully refunded as cash

If the couple have $4 million in the super pot earning 7-8%, those earnings are taxed in the pension phase at 0%! And excluded from taxable income
Enabling this huge bucket of cash to be extracted income tax-free

 

[Brissy1]

What we pay doesn’t go directly to Healthcare - it goes straight into to “Consolidated Revenue”.

You can just hear the slushy slush fund sound if you press an ear to the Treasury Building!

In reporting Chalmers backdown, ABC reported that the money, no longer being raised , "was for schools and hospitals". So there!
(My fav eg of excess ,how much is spent on maintaining MULTIPLE residences for the PM and MULTIPLE residences for the GG).

I hardly listen to the ABC at all nowadays, reporting like above to frequently having an ideological undercurrent.

 

[andye]

No, I am not meaning that at all.

I just mean the transfer of capital. Not Capital Gains (a completely different concept). Capital - pure and simple.

A very simple example (and it's a very simple to illustrate the point):

• A person has $1M in their SMSF and it is wholly invested in a bank account that earns zero interest.
• The person is of retirement age and the SMSF is in pension phase.
• The person requires $100kpa to live on.
• Therefore, the SMSF pays to the member each year a lump sum amount of $100k from the funds held in the bank account as the pension payment.
• This payment is a transfer of capital from the SMSF to the member. It is not earnings of the SMSF or member, it is not capital gains in the SMSF. It is not income earned by the member. It is 100% capital. This is what I am referring to. the SMSF has earnt nothing - no income and no capital gains (realised or not).

People mistakenly confuse and conflate payments of capital from a superannuation fund as some form of income earnt by the member that should then be taxed in the hands of the member- when in fact it isn't.

I dont think anyone on the thread was suggesting taxing capital and agree its absurd (unless one is a proponent of a wealth tax). I dont think even the binned division 296 could have had that effect

 

[Jacques Vert]

I disagree completely. The younger generation has a much tougher time with HECS debts and housing costs through the roof. At the same time us oldies are drawing super tax-free. It is unfair and unsustainable.

To be fair, you need to acknowledge that those oldies who are self-funding their retirement are saving the government(s) significant sums each year. A couple drawing the maximum Age Pension ($46,202) plus rent assistance ($5,278) is drawing over $51k from the Federal budget; add in various discounts, including rebates on council rates and water/sewer charges, reduced vehicle registration, discounted public transport fares in some areas, free driving licences, cheaper medicines and visits to the doctor, etc., etc. and it quickly adds up to $55k or more.

Yes, self-funded retirees get tax concessions but if they hadn't saved to fund their own retirement then taxes on everyone (including the younger generation) would need to be higher (or increase the deficit). Just saying...

 

[andye]

Seems taxation of capital gains may be included in the legislation after all

Super tax overhaul leads to capital gains confusion

Tax advisers are calling for Jim Chalmers to explain what rates will apply to capital gains accrued on assets such as shares and property before July 2026.

www.afr.com

Not clear from article if talking about post-retirement or not. Some discussion on whether CGT in super would increase and whether tax would apply from purchase or from start of legislation.

Will dig some more

The examples on the Treasury factsheet Better Targeted Superannuation Concessions changes | Treasury.gov.au are for people under 60

Edit: the fact sheet mentions adjustment for pension income which implies that the additional 15% for portion of balance above $3M and 25% for above $10M will apply to realised capital gains in retirement

 

[JohnM]

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.

Since the comm seniors health care card is based on taxable income Which EXCLUDES superannuation income, vast majority of Australians are eligible at 67

The OAP is based on all income (less 10%) regardless of if it is taxable hence why only 35% of newly turned 67yo folk are going onto it.

Going by what @Brissy1 says above, eligibility for the CSHCC would not exclude superannuation income from a gov't DB scheme because that is taxable. Depending on the amount of such a super pension, that could further erode the perceived, in @Brissy1's words, "money for nothing scheme that many people think" - especially if the recipient was excluded from the CSHC by a few $$ of income and had significant medical issues requiring costly pharmaceuticals.

 

[JohnK]

I disagree completely. The younger generation has a much tougher time with HECS debts and housing costs through the roof. At the same time us oldies are drawing super tax-free. It is unfair and unsustainable.

So I've been paying 15% on the super that's been accumulating and the funds have also been paying tax on earnings.

I think extremely unfair for me to be paying any sort of tax on superannuation income in retirement.

By the time I retire I've been paying tax for 50 years. Time for someone else's turn.

@andye we won't have much at all. Currently around $500K and I'd be ecstatic if that reached $750K by the time we retire. My calculations are extremely rough but hoping somewhere between $50K-$70K. If I had to pay any sort of tax then we are not going have a comfortable lifestyle. In fact we will struggle.

And @Quickstatus if we're forced into a corner then I may just take lump sum payout and apply for old age pension.

I strongly believe that if you force people to save for their retirement then leave those retirement funds alone.

 

[andye]

So I've been paying 15% on the super that's been accumulating and the funds have also been paying tax on earnings.

I think extremely unfair for me to be paying any sort of tax on superannuation.

By the time I retire I've been paying tax for 50 years. Time for someone else's turn.

@andye we won't have much at all. Currently around $500K and I'd be ecstatic if that reached $750K by the time we retire. My calculations are extremely rough but hoping somewhere between $50K-$70K. If I had to pay any sort of tax then we are not going have a comfortable lifestyle. In fact we will struggle.

I strongly believe that if you force people to save for their retirement then leave those funds alone.

I agree that you should be left alone
(You will have paid 15% tax on contributions, 15% tax on dividends but 0% on capital growth)

You have saved for your retirement and the current policy settings are fine for you by me.

However, many of the people with balances >$3M and most of those with balances >$10M are using super not for their retirement needs but as a low-tax environment for wealth creation.

Even if their perceived retirement needs are for a tax-free annual income of over $150k, I don't think that needs such a generous subsidy