In the latest #CHOICEPodcast episode, we reveal why Australians are losing up to $1.96 billion in superannuation each year. Plus, we explore our lust for luxury goods and put advertising claims to the test.
Download the latest episode, or ask us a question you’d like answered in the comments below.
Just as aside @BrendanMays, one thing that I have never seen mentioned is that if you receive your superannuation as a pension and a government pension, Centrelink subtracts the superannuation payment from the pension, so all you receive is the pension amount.
Essentially, this makes the superannuation valueless; unless of course your aim is to save the government money. So to make it worthwhile, one’s superannuation pension needs to be sufficiently great to be able to live off it without any government assistance. This of course means that one doesn’t have access to a Health Care Card with consequential free ambulance, discounted prescription medicine, bulk billing at doctors (when available), free hospital, etc.
Thanks @meltam, you are right the aged pension is means tested based on your assets. For some retirees, along with the family home, superannuation is their major asset. If you have assets over a certain level you won’t receive an aged pension.
The aged pension works on a sliding scale, so you receive progressively less up until as asset cap, above which you won’t receive any aged pension payments. For a single homeowner this cap is $542,500.
From 1 January the Government has also changed how access to concession cards work. If due to the January 1 changes you lost pension payments you may now be eligible to receive a Health Care Card and for those over the age pension age there is a Commonwealth Seniors Health Card with no income requirements. There are more details in this article by CHOICE journalist @AndyKollmorgen.
The system is designed to provide support to those most in need - although with some of the highest rates of income poverty among Australian pensioners when compared to the OECD, where those cut offs are set is a contentious issue.
I believe that pensions should only be considered a safety net and as a first world country with generaly intellegent individuals, we should be saving for our own retirement to the maximum practicable extent.
Unfortunately there is a beleif within the community that the pension is a right as…one has paid taxes all ones life so one is therefore entitled to a pension irrespective of ones wealth.
This belief has arisen from the government’s mixed messages about the purpose of super and the pension.
I personally would rather contribute as much to my superannuation so that I can reduce my impost on the goverment purse strings when I retire. I would rather such money being provided to the services that I will need during old age rather than having a pension which supplements my wealth and inheritance…
It is a shame that many in the community believe that pensions are a right and are willing to ‘abuse’ or work the system to maximise one’s pension and wealth. Doing so not only reduces servives or expensiture to other parts of the community but also borrows money from our children’s and countries future.
Many may not care about this as they will be long and truly gone before the impacts of their ‘selfish’ decisions are realised and impact on others.
I am personally concerned about super and beleive that the never ending changes to the system, the highly regulated environment and unionisation of the system has lead to less productive or prosperous system. The costs of managing a super fund is staggering and is lost money (other to those who benefit from the fees or managing the regulatory side).
Also, individuals need to manage their own financial affairs, including tracking if they have multiple super funds which woukd result in paying additional fees and/or doubling up on insurance. There has been extensive advertising both in the media and by super funds in relation to the impact of multiple funds and how this may impact on final super balanaces, and the benefits of combining funds to reduce omgoing costs. My own super fund has even gone to the extent to send out an authorisation to carry out searches on my behalf and if additional funds are found, to combine it into their fund. Whilst I didn’t accept this offer…as I have done my own homework and know that I only have one.
I also beleive that many in the community don’t treat super as their own money during the accummulation phase (as it generally can’t be accessed and is ‘paper wealth’) and why many don’t focus on how super can provide or assist in an independent retirement financial future…and it needs to be managed during ones working life.
This possibly comes down to the factor outlined above, where it is seen as a right to get the pension…but also that many think super has been imposed on them by government to save the government money. Both these factors are incorrect and will lead to a culture where reaponsibikity for ones financial future is lacking and that the government should be responsible for such.
In the end, it is one’s own responsibility to manage their affairs to dreatet a better future for them, and this includes managing super fund(s) one may have. Super funds offer basic education and super services a member can utilise to better understand and manage their affairs. I suspect many don’t use or aware of such information.
Hi @XavierOHalloran.
The superannuation payments are apparently treated differently and independently of the assets cap. If you go over the assets cap “For each $1000 worth of assets you have above the full pension threshold, your fortnightly pension payment will be cut by $3 – the taper rate.” (from @AndyKollmorgen’s article)
We come in under the cap, so we would be entitled to receive the full pension amount. Yet, the superannuation payment I receive is treated as a dollar for dollar deduction. This is what I think is not clearly understood.
[When I paid into my superannuation (quite some time ago now) there was no option to pay more than the proscribed amount. That only came in later.]
Hi @meltam,
There is an asset test and an income test which can impact aged pension cut offs. Taking your superannuation in either a lump sum or as an income can also impact how the cut off is calculated. It is worth talking to Centrelink to ask about your individual situation.
For those with significant retirement savings it may also be worth talking to a financial advisor. Again, @AndyKollmorgen has a great article on how to pick the right one.
Hi @meltam
If you receive your Superannuation as an income stream it is treated as income not as a 1 for 1 deduction against your Centrelink pension. This means that once over the free income threshold you will lose $0.50 of Centrelink pension for every $1 of Superannuation pension you receive if a single. If a couple you will each lose $0.25 for every $1. There previously were some different rules about how the income was calculated for your Super fund by Centrelink (this used the value of your contributions to reduce the assessed income) and I am not sure if this is still used. Annuities benefited (and may still do so) in particular under this assessment as the asset value was generally disregarded for asset test purposes.
The asset value of your Super fund may now have more impact than the income stream you receive from it due to the recent changes to the Centrelink asset test.
Which ever of the two tests (income or assets) produces the least amount of Centrelink pension payable will be the test used to pay your rate of Centrelink pension.
There is however a different approach to some overseas pensions that are paid from a Reciprocal Agreement country such as the UK in that every $1 you receive loses $1 of your Centrelink pension.
You are best advised to talk to a FIS (Financial Information Service) officer at Centrelink (a free service) and a reputable Financial Adviser to get the advice you need to maximise your income.
Congratulations PHB, you have demonstrated that you are an intelligent person with savvy views of finances, combined with a cynical streak as to the effectiveness of G policies. We are brothers, although a minority in the wider community.
My latest life guru is a cartoonist/ turned author, Tim Kreider. Although providing a caveat that he was not a neurosurgeon et al, he revealed that some research determined that conservative voters had enlarged Amygdala, while liberal thinking folk had more developed anterior cingulate cortex.
I have previously provided input to Choice on the subject of over the counter codeine analgesics that morphed into a debate on most/many products in pharmacies, being sold for profit, were snake oil. Furthermore, that sale breached an ethical standard - established by these high minded folk. My tertiary studies were pharmacy, accounting/finance and law, plus dabbling in data mining/AI. In that contribution I revealed the issue of "standing to comment’ by reference to a legal standard to be able to provide evidence in a courtroom. Of course, the right to comment is a universal right in a free and liberal society. The real question is whether that commentary is sage, of any worth or just diatribe from the poorly informed majority. I referred to the Hanson/Lambie factor, and can confidently state that the IQ in their electorates viz others would mirror the comparison to other Senators. I have tasted the hypocrisy of a Federal Health Minister and G decision making first hand.
So now to G policy in the Superannuation arena. At first blush not a bad idea. First order issue - reduce inter-generational reliance on the social security budget. Second order issue - attempt to encourage a dissolute and wasteful majority of comfortably off Aussies to rein in their spending and increase their savings towards retirement and/or exit from the workforce. Third order issue - determine the right balance of carrot and stick ‘rules’ to achieve the previous two.
Now to determine, without political biases, my input to a realistic scorecard of the top three order issues, while recognizing that many others also exist. Evaluation, or In AI jargon - back end propagation. Issue 1. Overall 3/10. Upper income earners that would not access pensions have enough Super. The middle 66.7% of the bell shaped curve have enough Super for some period, but not enough for all or most of a longer life expectancy. The age when Super savings commenced is germane. Partial reliance on a pension will continue to be required. At least 20% or more of the population will continue to rely on social security, irrespective of any Super policy. Issue 2 overall 6+/10. The middle 66.7% were forced into saving and di achieve something which varies with commencement age, income, whether the tax advantages of voluntary additional contributions were accessed. Low income earners, even with additional G uploads, had their savings disproportionately eaten away by fees and a plethora of charges. The leakage to agents with trailing commissions, and finders fees et al, was morally reprehensible and should have been criminal. Higher income earners obtained the lions share of benefits, through access to tax minimisation from maximizing voluntary contributions. I repeat these folk, including me, would never access social security, so the policy was a huge yet unnecessary winner. Issue 3 overall 3+/10. Super contributions to at least 25% of low income earners makes no sense and seriously/negatively impacts their lives, while putting only a small break on consumption. This group is likely to be caught in debt trap from credit cards to pay day lenders. They are not financially savvy enough to avoid this likely foreseeable issue. The carrot to high income folk was vastly excessive and unnecessary simpliciter. The middle cohort split between the previous evaluation, and probably a pass.
What is the nett effect? I submit that former cabinet ministers, or high ranking Lab/Lib party appartchniks, have a chance of obtaining well paid jobs on Super company boards. There is always the possibility/probability of corruption, including contributions to a political party, specific social issues, and personal funds. Politicians do require a range of skills. You have a greater chance of succeeding if you can master a perception of sincerity and empathy with a group on individual’s concerns. Emotional intelligence is an asset, particularly an ability to take credit for a plethora of ideas and actions from multiple minions and other sources. Narcissism is essential. The ability to look forward to likely consequences of policy is rare.
Chess, bridge, mah-jong and goh players would make better politicians. In reality society has the sort of politicians we deserve, and that mirror our bell shaped level of wide attributes and weaknesses. That is why their obtuse and vague utterances can be understood as well as any biblical parable - you hear what you want to hear and it means whatever you want it to mean. We obtain politicians to mimick the bell shaped curve of intellect.
Financial competence is the preserve of about 20+% of the population. About that percentage pay off their credit cards every month to a zero balance. What muppet would pay 22+% interest, when other financial instruments exist. Answer, those will no ability and/or no other options. The abuse of politician’s entitlements, including what is legal yet immoral, mirrors common and equity law. Narscisssm, narrow vision to their voting group and self interest of politicians is paramount to success in that field. It has little to do with good policy. Please reflect on my scorecard for the Super issue and previously on the worthiness of health related policy. Cheers Geoff
Hi geofff,
Congratulation! Impressive, complex, as straight a response/analysis as it gets; coherent and objectively indisputable. Of course you know you have no chance to be preselected by anyone.
Being old enough I remember PM Billy Mc’s “I’m too rich to get the age pension” introduction of pension means test. It seemed fair enough then. Now, after some 45 years, I’m going to cop it too and get a haircut myself - because I’m lucky enough to be in the 60s of the bell curve.
Yet, consider this twist: I’m also luckier than most: the old country I came from keeps buying me (an equivalent of) a slab a week because I studied there (5 yrs) and worked too (3 yrs). Thanks, Centrelink, for forcing me to apply for that. I know that this is irrelevant to most, but let’s just see how long it will take to curb these kinds of ‘Entitlements’ in Europe.
Finally: no, I cannot possibly disagree with PHB. I wish that both contributions should be made a compulsory reading for pupils of the right age (that’s those that can read) and a compulsory, explanation/interpretation by teachers (that’s those that can bring themselves to be objective) in all schools.
I have linked to an article about an emerging threat to Super balances:
https://www.yourlifechoices.com.au/news/100-billion-nixed-from-nest-eggs
The pdf of the full report that the article discusses can be found here:
https://d3n8a8pro7vhmx.cloudfront.net/theausinstitute/pages/2536/attachments/original/1505421396/Wage_Suppression_and_Superannuation_Final.pdf
A timely warning regarding ensuring that you organise a binding nomination for your super so as to prevent fraudlent claims for it.
…and always update it timely every time your personal situation changes, be it getting married, divorced, in a relationship, out of a relationship, children, whatever.
There are two types of binding nominations. It may depend on your fund as to what they offer. Eg REST Super offers a ‘non-lapsing beneficiary nomination’ only to pension members.
Typically ‘binding beneficiary nominations‘ lapse every three years.
As an example only the options per REST:
https://rest.com.au/member/manage/super-online/beneficiary-nomination
Experience with two different super funds and deceased estates. Both funds required a certified copy of the wills, one required a certified copy of probate. Both required certified ID’s from the executor and signed undertaking from the executor re the agreed payment direct to the members of the family. The funds were not directed by the wills. They were keen to ensure they were doing what was reasonable by making themselves fully aware of the circumstances.
There are a number of super-related topics. This seems as appropriate one to add to as any of them.
Some reasons wage earners should worry about their super contributions.
One could think the purpose of the super legislation and ATO oversight is to eliminate red tape for businesses, accept a mea culpa if a business is caught out, and the wage earner needs to fight for anything they can get when the business does the wrong thing.
In this day there is no reason* business should not be required to make super contributions every pay, and for those that do not there should be a government insurance fund to cover the missing amounts, paid within 3 months of discovery. Why government? They are supposed to be watching and assuring their preferred retirement system intended to replace age pensions is sound and works for all wage earners. Culpable employers might be given time to pay back what was owed, but then should have jail time to get their attention. Reality - if only as culpable as Crown the party will continue.
* keeping and catering to a traditional voter base might play into a reason
Everyone should already know this, but everybody does not, or at least does not check regularly if at all.
Another article.
As super contributions are effectively part of employees’ wages, there is no legitimate reason why they should not also be paid on payday and stop this theft.
It would be interesting to hear the reasons our elected representatives might give for not making employers pay super more frequently than quarterly.
Whilst the fault in these cases rests with the employer, it is the apathy of employees that makes the problem worse and in some cases unsolvable.
Many employees would complain straight away if their pay was $20 less than it should be or arrives in their bank account a day late. However, because super is not immediate dollars in their hand, they don’t even bother to read the periodic statements and warning letters about pending insurance cancellation sent by their super fund.
The headline for the ABC article published on 27 October could easily have read “I made the mistake of believing we lived in a perfect world”.
