Whilst I am not in your situation, I have a more than healthy interest in super. Until recently super pension accounts were all tax free, but other super accounts were taxed exactly the same as the transitional pensions are going to be. It is the income they make that is taxed and the difference is not enough for me to put the majority of my super into a pension account. I only have 15% in a pension account because you are forced to withdraw a certain percentage every year, in my case currently 5%. In the past some people may have taken advantage of the no tax on pensions to save money and then put back any excess that they had to draw down, but now with the new lifetime limit of $500,000 they may have already reached this. So now they have a problem of what to do with the excess. If they keep it out of the super system, they may well end up paying substantially more tax, so should they reduce the amount of their pension account to what they actually want each year and put the remainder in an ordinary super account that pays 15% tax?
I do agree with you on one point and it is something I have considered quite a few times and that is that there is no provision, at this time that I know of, for the scenario of your super making a loss. Whenever the idea is thrown around about actually taxing our super earnings I think it is easy enough to tax us on a profit but how do you offset a loss, particularly one like the massive drops after the GFC? You might have to consider some kind of 5 year averaging to make it fair if it were to exceed a certain amount.
It is very hard to comment generally because there are so many differentials. Why do people go onto the transition pension? There’s basically only two reasons, one to increase your super by putting money into super and saving income tax and drawing a pension to offset the difference in take home pay, the other to reduce work hours but still have the same income. In the first case one would expect that you are saving a lot in tax otherwise why bother and therefore the 15% tax on earnings is still much more advantageous. and in the second case then yes your super balance would reduce faster.
When the superannuation guarantee was first brought in, the idea was fantastic. If employers put in a percentage of your wage and your put in some too and sometimes your employer would put in extra and at times the government has contributed, it all would add up to us all (the working people) having plenty to retire on. Not many people put in anything and employers in the main decided to simply put in the guarantee as it increased towards 9% and in a lot of cases the amount did not end up being what was expected. I note that we have not really reached the full time period, in fact we are quite a bit off, but the current amounts people retire on in their super is not as much as many of us thought.
The whole idea was to reduce the amount that the government had to pay for aged pensions. Two years ago the average amount a man retired on was $292,500 and $138,150 for women. The amounts continue to increase but it will be a while before retirees will not qualify for a pension. And these are working people. All the people who have not worked a 40 year working life and some have not worked at all will have less and even none. All the people on disability pensions will transition to aged pensions when they reach retirement age. So the government will have a substantial amount of people on full or part age pension.
There is a juggling act here with getting some tax out of super pensions and trying to keep people from needing to go on the pension. To be able to continue paying all our pensioners the government has to get money from somewhere. Usually this is in the form of a tax and therefore someone will have to pay and no-one wants to pay more tax.