Edit: New readers to this topic can join this discussion at post 3, 18 March 22.
Last night, we joined the newly formed Super Consumers Australia at their launch party. The Super Consumers aims are to advance and protect the interests of low and middle income people in Australia’s superannuation system.
A bit outside the stated mission of Super Consumers Australia, but with about 30% of Australians over 65 born overseas, our super system (that is meant and is evolving to replace pensions) is not recognised as a pension system by many other countries.
One example is that if a non-US citizen receives $75,000 pa in super they have $75,000 income while a US citizen living in Australia (dual national or not) is expected to pay about $11,000 to the US IRS so has $64,000 left. Since there is no Australian tax on super there is no offset.
There are other countries that consciously treat their expats poorly. The UK seems convoluted in disadvantaging their pensioners who are retired here, apparently ‘aided and abetted’ by our own ATO.
Better or worse performing funds are interesting, but nobody wants to delve into the international inequities that will affect more and more of us as time passes. Perhaps it is because it is political and thus outside the scope of what a consumer organisation can affect but as more and more of us ‘born elsewhere but migrated after years working elsewhere’ retirees are affected I hope it bubbles up to be addressed in tax treaties as well as our own tax laws.
Even before retirement one country’s retirement savings plans are not always recognised by another’s tax system resulting in further inequities. Foreign incomes of all types are also affected by exchange rate fluctuations that can translate a modest tax from one country to a large tax in another, for the same incomes. Planning ahead?
A bit OT but on the way home from the US a few days ago I was seated next to an(other) American citizen living here who was paying about 2.5% of gross income to a US-tax literate accountant to file taxes it is so complex for any but those with few assets.
I found the table to be poorly set out and hard to comprehend. However, the variance is most likely due to the amount of living expenses that would be covered by the age pension.
The current maximum pension for a single is $25,155 p.a. This means that only a small amount of total expenses needs to come from investment earnings and capital. As the amount of living expenses increases the proportion that comes from non-pension sources increases and the amount of pension will reduce once the income and/or asset test thresholds are reached.
The table reflects a twist that hits self funded retirees who don’t quite qualify for any support. A step change in super savings is required once thresh-holds are reached. This affects many of the not so wealthy super savers. Does it encourage a large group who might be good super savers to cash out or use other strategies to ensure they slip under the thresholds?
The table as published suggests a retired couple to lift retirement income from $55k by just $18k to $73k annually need to increase super savings from $369k to $1.021Million. The savings premium required, $652k for the extra $18k annually seems a poor return. Likely worse given the loss of access to support offered to those of full and part pensions.
For those with several million in super it may not be an argument given SMSFs and the efficient use of trusts to manage tax affairs.
In a one liner it appears better as a couple to have slightly less than $369k. The expert Choice assessment is on the money when it says you don’t need $1M to retire comfortably. You likely need $2M as a couple to be justifiably better off. The incentive for those at retirement age (pre Covid) for those caught between $369k and $1M plus. Gold class rail and first class 5 star while your health holds out, most likely spent OS pre March 2020.
I wonder if there is a better way, not to takeaway from those with lesser or no super, but to better encourage those trapped in the middle.
This is mainly due to the taper rate for the pension assets test. For each $1,000 of assets over the threshold, the pension is reduced by $3 per fortnight ($78 per year). This equates to a return of -7.8% p.a. The rate of return used in most modelling would not be sufficient to cover the loss in pension as well as cost of living increases.
The most direct way to help those trapped in the middle is to reduce the taper rate.