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Proposed Changes to Superannution Laws


#1

Hi,
I’m concerned with the Government’s proposal to tax profits on transitional pensions funds at 15%. When compulsory superannuation was first introduced, it was said to be intended to take the burden of the welfare system, namely by having more self-funded retirees. Unfortunately it now looks like the cash pool held by pension funds is a very attractive source of income for the Government. Currently interests rates are at an all time low and retirees in the transitional range are forced into higher risk investments to grow their super. When we have a good year the government wants to take 15%. When we have a bad year it is on us. This is a short term fix, as all this proposal will do is force self-funded retirees on to a part pension earlier and so in the long term there seems to be no real gain.

This is just a comment on my part, and I’m wondering if people in a similar situation agree and if they so, is there anything we can do about it?


#2

Rules and laws should never be changed retrospectively. Any change should only be from “the day” forward.

However, super has become an estate planning tool for the wealthy. It is essentially a tax free ride for a portion of high income that otherwise attracts one’s highest marginal tax rate. Put it into super pre tax, pay 15% on growth instead of 47% at the highest rate, and never pay tax on it in retirement. If your non-spousal heirs get it, only 16% if I understand that right. Fair? Those who hit even the proposed tax free limit are not going to be visiting Centrelink for many years. A $1.6 million super balance (simplistically) delivers $80,000 p.a.tax free for 20 years. Retirees of means are still able to put money in taxable accounts so it is unlikely many would be visiting Centrelink just because of a bit of tax.

Disclaimer: I am well above the tests for anything Centrelink, and also have a foreign super-like income that is 100% taxed by the ATO, so there is no envy, and neither I nor my partner will ever be visiting Centrelink save for a global meltdown.


#3

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.


#4

Hi Fr, you make some very good points and you clearly have done your research well. My main frustration is that when Super laws are changed all your planning, or at least some of goes out the window. For example, a few years ago I had a cash flow analysis done. I knew what contributions were required, what benifts would accrue etc. Granted there are unlying assumptions about returns and the like but you can’t account for law changes. I guess I still hold the view that instead of the Goverment viewing it as a long term saving for them they now see as a vast sum of money available for the taxation purse. They won’t increase the GST, which I would be fine with, so in light of dwindling revenue, Super savings are up there for grabs. I don’t think this will be the last of the changes, especially if they can get this lot of changes through easily!


#5

I agree with Albie’s comments regarding planning. I was retrenched a number of years ago and was unable to get a full time job due to what was obviously age discrimination by employers. Eventually my retrenchment money started to run out and I took a part time job working for a charity which I happen to really enjoy. Our financial planner revised our plan and with a lower income, working longer and transition to retirement income we could still meet our long term financial retirement goals, all be it with a reduced current “lifestyle”. With the changes to the taxation of the transition to retirement income, I’m now forced to either look for another part time job for a day a week or go back into the job market for a full time job. Either way I will no longer be able to do the volunteering work I currently do on my non-work days. Yes, the government gets more money, but a charity will now miss out on valuable IT services I provide that they can’t afford to pay for. There are “unintended” consequences of this decision to tax transition to retirement incomes.


#6

Have you spoken to your financial planner and asked them to show you the difference in your income and balance if the tax goes through? I would be surprised if it is as bad as you think.

Not everything will be taxed at 15%. It depends on where your have your money invested, shares, property, balanced fund, growth fund, the amount the fund pays will depend on whether they have any tax deductions or tax credits and some funds only pay 6 or 7%.

This only affects you until you reach age pension age, either 5 or 5 1/2 years, when you can fully access your super.

Also if all your super is not in this account, the amount in your accumulation account is already being taxed.

And yes I do agree with both you and Albie that changes to super are frustrating, particularly the negative ones but, I am a bit older than you and the old RBL - reasonable benefit level was a problem too, back in the very early 2000’s and luckily ceased just before I had to make a decision that would have affected my retirement plans.

Personally I am grateful for the tax free drawings on my super. In lots of countries it is included in taxable income.
We have a lot to be thankful for in Australia.


#7

Can anyone tell me why there are limits on POST TAX contributions.
I would of thought that it would be in governments interests to have people putting as much money into super so they don’t have to depend on the pension.


#8

Post tax contributions avoid dividend and capital gains taxes on those dollars, another of the governments considerations.


#9

Sandie, last year ASFA said there were 475 Australians with super balances over $10 million and drawing a pension of $1.5million and of them 84 were drawing $3.26 million per year in pension. None of that is taxable when they receive it.

With SMSFs in 2015 there were 102,000 with balances between $1-2 million, 61,000 with balances between $2-5 million, 12000 with balances between $5-10 million and 2631 have balances of more than $10 million. But most SMSFs have more than 1 person. (I am quoting from Super Guide.)

So the problem with putting in after tax dollars is that you can build up a very large balance and when you draw it out pay no tax on it. This obviously only applies when you are retired or in transition. Even if their fund pays tax of up to 15% it is substantially less than what people would pay if the money was out of the super system.

It is a very clever way to protect your assets and anyone with lots of money would most probably get top financial advice and it would have been to put as much as you could into super.

By limiting the amount you can put in, both in before and after tax dollars, you will no longer be able to build up these massive balances. There are still ways that you can grow your super, but it will be restricted.

I am sure you believe and I would agree that the intention of the tax breaks was to fund people’s retirement and to save the Government having to pay them a pension, but it has been distorted or manipulated by the rich and the clever.

If your employer puts in say 10% of your salary and even if you only put in a little bit more and then you put in the proposed $500,000, you would have a tidy balance when you reached retirement age.

And one question I have asked people who have questioned this like you is where will you get a spare $500,000 to put in?


#10

They don’t want you to put your after tax money into super they want to tax the interest you get if you invest it or bank it. At the moment this government is looking for tax dollars anywhere they can find them.


#11

It does not appear “anywhere” is the most appropriate word, it appears “anywhere they can find a soft target” are the words :expressionless:


#12

Proposed changes to superannuation that workers should be aware of.


#13

Many of us will now be out of the post Christmas euphoria. One of the hottest topics for the current Federal Government by it’s own initiative is more change (reform is a poor choice of words to some) of the system.

The target is to ensure the future role of the retail funds and undo the current arrangements for industry based super funds, as a way to improve outcomes. It may be appropriate to consider that there are two very different areas of change involved.

One is about which funds fall into favour and the choices available. This may lead to less competition and a major changes to which funds survive? That industry funds may be most at risk and that the government is interfering inappropriately in the market are two common concerns.

The changes are being packaged with a serious of changes to reduce wastage through multiple accounts and poor packaging of add ons such as insurance. There is also discussion of changes to a number of areas around fees, including trailing commissions to financial advisors. A mixing the good with the perhaps not so good slight of hand strategy?

It may be worthwhile for many consumers to have an informed view of how the changes proposed could affect super in the future.

It’s no surprise the Industry would prefer a “pay rise”, apologies, increase in super contribution rate from 9.5% to 12%, a 26% increase without any review.

https://thenewdaily.com.au/money/superannuation/2019/01/11/no-need-for-super-review/?utm_source=Adestra&utm_medium=email&utm_campaign=Saturday%20News%20-%2020190112

It would seem we are in a very poor situation where for something so fundamental to our future there is so much ill informed debate, lack of patience and definitely no clear consensus on the solutions?


#14

One has to remember that the super increase will be in lieu of a pay increase to the same employee. Rather than the pay increase going into the pocket of the employee, it is diverted to the employee’s super fund.

I expect that if wage increase is less than the incremental increase in superannuation, then there is potential that the employee’s pay packet may go backwards by a small amount as a result of the increase in contributions.

Unfortunately there are many that think that businesses pay for the increase…this is a myth as it is the employee who does directly.

I expect that the industry knows this and would like the extra cash in employees pockets to stimulate the economy, rather than lost into the super system. The additional cash in the economy benefits industry, as well as employees indirectly.

The multiple accounts are a huge problems as the fees quickly chew into super balances and reduce the super at retirement.

As outlined eslewhere, a very simple solution would be that each employee has a unique superannuation account number (like a tax file numbe) that is transferable between jobs. When one changes employees, they provide this unique super accout number to their employer who then can deposit to this account directly. The policy should be if one has a tax file number, they also have a unique super account number. The employee can then also chose whether they rollover to the employee recommended super or keep their previous super provider.

Easy solution and very easy to implement.


#15

On the surface easy.
But what if the fund you are in is great and the employers preferred scheme is a dud? Don’t change!
What if every new employee had a different super provider and did not want to change with the employer having to work with 100 different funds?

There was a long discussion with experts and callers on ABC radio earlier this week. Across all of the issues raised and all of the solutions discussed there was often divergence. There was agreement the system cannot stay the way it is now.

One of many suggestions was that the ATO should collect and keep all super and provide a return equal to the Govt bond rate? One fund, one place, one big brother?

Another notion that assigning default funds based on which ones were best last year is equally challenged. We keep being told past performance is not a guide to future performance? The assumption most employees are financially disinterested and cannot make good decisions, was offered as justifying a government panel deciding for us.

Of Note, the Federal Govt already has the future fund. Perhaps all our super including the SMSF sector could be rolled over into it. Zero fees and no longer any need to join a super fund? :worried:

Just kidding!

Guess we will all need to wait for a report to come out that agrees with the Govt of the day?


#16

They have no choice. See…

They already deal with 100s of individual babking details for pay, super would be just as easy.

Which is likely to be significantly less than long term average super returns of 7.6%.

Not a good option for retirees, but good for government.

The horse has bolted. It will be difficult to nationalise the current super system and the cost of compensation to those currently involved would be economy breaking.

Maybe the Future Fund could offer a commercial type super fund to compete in the existing market place? This fund could be highly competitive and may place pressure on industry and non-industry super funds to reduce costs and improve overall performance.

The Future Fund super could also be one that is offered to new employees at the commencement of employment as one option for them to join…say similar to MySuper.…or it could become the MySuper fund replacing all existing ones.


#17

Hi Fr, in my working life I have always been interested in Superannuation. I was elected as a Super representative by the fellow employees and through the company newsletter I tried my utmost to make people aware of the possibilities and pitfalls surrounding the then super laws. Unfortunately my attempts mainly fell on deaf ears and I see that as one of the main problems with Superannuation. Many (most?) people only show interest when they near retirement age which is too late.
Superannuation laws change all the time and nothing can be taken for granted, especially when governments change. The proposed changes are no different: good for some but not so good for others. The missing element is Education, Education, Education. If all people would know what is involved and how every action or inaction affects their income in retirement, they would certainly see their Superannuation in a more manageable way.

I’ll start a new thread regarding changing from one allocated pension fund to another as everyone talks about changing Super funds without considering the problems when you want to change pension funds.


#18

Yes, there is a choice of fund for one group of employees, but not all. I did not intend to suggest that there was no choice!

My experience suggests not all employers encourage or welcome the option,. Having been both sides of a business
Edit (it was not not a trivial mater for payroll to arrange super contributions to go to more than one fund.) End Edit

@TheBBG has alerted me to the fact this should no longer be an issue due to the implementation of SuperStream by the ATO. Apologies

I’ve also run the gauntlet of HR frowns and delay and counter persuasiveness by choosing to stay with my fund option.

The ATO realises payment of contributions is a burden on business. It allows payment of contributions by employers to funds to be delayed for many months. While super may be with-held from salary and wages, the contributions are often held by the employer and remitted only once every three months. It is not uncommon for these payments to be held back further for months after the due date.

Generally the ATO will not respond to complaints about delays in the transfer of contributions until they are 3-6 months past due. There is plenty of evidence the ATO has been asleep on this one for many years. The ATO places the responsibility with the individual to seek remedy where payments have not been made. Only as a last resort will the ATO seek remedy by requiring payment by employers to a fund of outstanding contributions, with interest. Think in terms of a year late?

Perhaps the public service is different, and perhaps some employers are diligent most notably when it is an employer sponsored or industry fund? I can say some private employers were most diligent on transferring contributions once a month, the same as for billing. Others were up to 6 months in arrears. I directly know of one instance that took nearly a year to catch up, no interest added!

As @dieterfb has said


#19

Since Superstream came into effect a few years ago I doubt that is the case any more. It should be no more difficult than paying one’s accounts. For automated payroll systems it should be trivial, and for manual ones no longer as complex. Gone are the days where each fund had bpay, eft, or cheque deposits, each to a different address.