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Move on from franking: Is tax-free retirement fair?

Superannuation funds receive franking credit refunds simply because their marginal tax rates are low, and for no other reason. This point seems to be lost on many people in the debate about whether franking credit refunds are fair. 

Franking credits are fair because they transfer all company profits (not just the dividend) to the personal tax system which are then subject to progressive marginal tax rates. Taxpayers with the highest income not only pay more tax, they pay a greater proportion of their income in tax.

The super fund is the taxpayer 

It is the super fund, not the member, that is the shareholder and taxpayer and the recipient of any franking credit refund. The fund member never owns the shares and never receives a franking credit refund, not in SMSFs, nor as members of industry funds even where they invest in a Direct Invest or Member Direct Option.

But many people question the fairness of a tax-free retirement, for which they blame Howard/Costello in 2007.

Before 2007, fund members paid some tax when they withdrew money in retirement. Costello made all member withdrawals from super for both pensions and lump sums, tax-exempt after the age of 60 but left the tax on superfunds unchanged. There is a pervasive view that Costello forfeited a lot of tax through that decision. I think that is a myth, as I explained in this earlier Firstlinks article.

In summary, that tax on withdrawals only applied to the taxable portion of the fund and the member was also entitled to a 15% tax rebate in compensation for the taxes applied earlier to contributions and investment earnings. That tax arrangement is still in place for taxes on death benefits. By definition, large funds had small taxable portions because they became large only from large non-concessional contributions. For smaller funds, the rebate eliminated most of the tax payable.

Restrictions on large contributions

Costello’s other change was more important than people realise. He stopped unlimited contributions of after-tax money into super. It is no longer possible for to accumulate several million dollars in super (barring an investment windfall).

Previously, these large accumulation funds became very large tax-free pension funds, entitled to very large associated franking credit refunds. Some of these large funds still exist. The Retirement Income Review identified 11,000 people with more than $5 million in their super and some funds are much larger than this. According to James Kirby, The Australian, 10 September 2021, we are now at a point where a tiny number of mega funds, linked with less than 100 people, control more than $10 billion. These funds are clearly not required for a comfortable retirement, but they do make a very favourable estate planning tool.

The changes introduced in 2017 closed that favourable tax treatment. Tax-free pension funds are now limited by the Transfer Balance Cap of $1.7 million, and the excess is moved to an accumulation fund which is subject to tax. It is also no longer possible to make after-tax contributions once you reach your Total Super Balance Cap.

All contributions are taxed

Super became compulsory in 1992 with the complex tax rules we now have. All contributions are now taxed before they are invested, and all investment earnings are taxed while in accumulation mode. A super fund paying a pension in retirement has been tax-free since 1992 and since 2007, those withdrawals from the fund are also tax-exempt.

The original plan was to allow all contributions and investment earnings to be tax-free inside super and then to tax retirement benefits at 30%. Aside from the fact that a 30% tax rate would mean no franking credit refunds, this method would have had two distinct advantages.

First, superannuants would accumulate larger nest eggs as compounding over 30-40 years would be applied to total investments rather than the after-tax (85%) portion.

Second, this would avoid the inter-generational envy caused by the favorable tax treatment for retirees. This method was not adopted because the government was not prepared to wait 30-40 years to collect any tax from super, but that system is difficult to change now.

There remain many critics of the tax-free status of pension funds. Let us consider this favourable tax treatment.

The main reason for the super tax concessions is to ease the pressure on the age pension as retirees live longer. Changes to the downsizer contributions and the work test have the same effect. Similarly, franking credit refunds extend the life of a super fund’s capacity to pay a pension and thereby delay a retiree’s dependence on the age pension.

For the government, the cost of tax concessions in retirement needs to be offset against age pension costs. Valid comparisons are difficult because super tax concessions represent tax foregone but the projected tax that might be collected if this money was invested elsewhere is only a guess because it would involve different costs and benefits for taxpayers. Moreover, the super system is not yet mature as retirees today did not benefit from super all their working lives and then only at low levels at the beginning.

Nevertheless, the Retirement Income Review shows that super in retirement is already reducing the cost of the age pension.


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For individuals, a tax-free pension is not cost free

By design, the more super you accumulate by retirement age, the less age pension you are entitled to. A couple will have their age pension reduced when their assets exceed $405,000. They become ineligible for any age pension once their assets exceed $891,500. Note that the family home is not assessed in this calculation. If they have $1 million in a super pension and earn $50,000 tax-free, they may cost the government $4,500 in forfeited income tax but they save the government $37,923 in age pension that they cannot claim.

Some age pensioners may question the wisdom of saving so diligently.

On the other hand, age pensioners enjoy a risk-free, tax-free, lifetime annuity that requires no personal effort. They could enjoy this annuity for more than 25 years, so the cost to the taxpayer can be very high.

A tax-free super pension is the incentive and reward for locking money away in a super fund for up to 40 years but it comes with a huge opportunity cost. Absent a pandemic, there is no access to this money for other purposes such as housing, education or travel. You must also trust successive governments to not change the rules. This explains why many young people do not contribute more than the minimum required. 

In addition to these constraints, super pensions also have mandatory cash withdrawals that increase with age. At age 90 the mandated withdrawal is 11%. Failure to meet this requirement means the loss of the fund’s tax-free status. The purpose and effect of this requirement is to progressively remove capital from super that it is then subject to normal tax. This reduces any concessional money left in the estate. Super balances at death may also be subject to a death tax.

A tax-free super pension represents a social contract. A breach of faith would cause alarm to those who have accepted these conditions for the last 30 years.

There are undoubted benefits associated with a tax-free retirement, which is available to all. The fact that the government needs to compel Australians to save for their own retirement through the Super Guarantee, though, suggests that many people remain unconvinced of those uncertain future benefits.

The zero-tax rate applies to all super pension funds. That tax rate could be changed by an act of parliament, but such a change would impact the retirement benefits of all Australians.

 

Jon Kalkman is a former director of the Australian Investors Association. This article is for general information purposes only and does not consider the circumstances of any investor.

 

40 Comments
Steven
October 08, 2021

I strongly disagree with the article founding premise that “ Franking credits are fair because they transfer all company profits (not just the dividend) to the personal tax system which are then subject to progressive marginal tax rates. Taxpayers with the highest income not only pay more tax, they pay a greater proportion of their income in tax.”
The statement comments by the writer in other articles indicates a view that company income should be taxed at the marginal rates of the recipient. Companies are separate legal entities from their shareholders, which generally protects the shareholders from direct responsibility for the company’s actions. As separate entities companies should pay their own income tax and that tax should stay paid, not be refunded to somebody on a lower tax rate. This is a case of shareholders wanting to have their cake and eat it too. They want the legal benefits of a corporate structure whilst not wanting the entity pay tax.
Companies are not trusts and we shouldn’t be trying to treat them in the same way when it comes to taxation.
The original imputation and franking arrangements introduced in the 80s stopped double taxation whilst ensuring tax remain paid. Current arrangements mean that some company income is not taxed at all once the imputation credit is refunded to an individual who doesn’t pay tax.
The partial refund of franking credits to super funds still means that the company profit is only taxed at 15% instead of the full corporate rate.

Warren Bird
October 08, 2021

Steven, that argument was lost decades ago.

Integration of the personal and company tax systems has been widely accepted policy since the early 1980s. The "separate legal entity'' argument is not correct - the corporate structure is just a veil. They ARE similar to trusts in that sense.

What this means is that company profits are taxed at 47% plus medicare when the shareholder is a higher income earner, and less than that when the shareholder is a lower earner or in a tax effective situation such as a super fund. Without the imputation system then a company's profits when the shareholder is on the top marginal rate would be taxed at 77% - 30% in the company's hands and then another 47% in the shareholder's hands.

No one wants that! No one has wanted that for 40 years!

Your final sentence is a statement of fact and the intended outcome of the imputation system. For which I'm grateful. It's one of the best pieces of policy reform ever undertaken in Australia, or anywhere for that matter.

Mark
October 04, 2021

What strikes me in this thread, and all other threads on this topic, is the unbridled jealousy and envy of those who, I believe, choose to ignore the sound logic of the concept of super as an efficient retirement vehicle and the tax implications inherent in this construct. Do you people honestly believe that government would just hand money back to the great unwashed if they could get away with not doing so? Because if you do, you are inhabiting a not so parallel universe. Kevin, your observation is 1000% correct.
For those who feel anyone who has had the temerity to save hard, take risks, get financially educated and do many many hours of unpaid work in order to save the rest of the community paying for their future living expenses, should be reigned in and penalised for those gross misdemeanours, then I for one would be happy to help them purchase a one-way ticket to a socialist paradise of their choice. I am told North Korea is lovely this time of year!

Ruth
October 07, 2021

Totally agree. This is what you get for trying to provide for your own old age, and they continually change the goal posts making planning impossible. When will they learn that the country's wealth creation is about self-responsibility and productivity, not robbing others in the community to the point where they will not bother to save for retirement/move to other non-socialist jurisdictions?

Geoff R
October 03, 2021

>The main reason for the super tax concessions is to ease the pressure on the age pension as retirees live longer.

In this case the zero tax rate on earnings in superannuation in pension mode should only apply to people who are not claiming any government aged pension.

Let's encourage people to provide for themselves, not claim government welfare and do away with "double dipping"!

Leigh
October 03, 2021

Jon..... the franking credit system is a different issue to the level of tax rates. The franking credit system was fair and is fair. The messaging by the political party wanting to change it was not accurate.

If additional revenue is needed by the government then they need to adjust it through the tax rates, of superannuation in accumulation phase, or pension phase, through personal tax rates or corporate tax rates.....a medium which is transparent.

Too often, the tinkering occurs in the background - where the full effect is intentionally hidden.

Warren Bird
October 06, 2021

Leigh, I think Jon knows the distinction. This article is the second in a pair he's written lately, the previous one being on the imputation system, here: https://www.firstlinks.com.au/lets-make-this-clear-again-franking-credits-fair

Jon and I have both written on these two topics quite a few times over the past few years. It's been one of our themes, that people need to treat franking credits and zero tax on pensions as separate policy issues, not conflating and confusing them. Both of us have defended both franking credit refunds AND the zero tax rate on a basic level of pension account income at various times. My two articles are here:
https://www.firstlinks.com.au/zero-tax-rate-pensions-right-fair
https://www.firstlinks.com.au/basics-franking-credit-refunds-fair

A selection of Jon's articles is:

https://www.firstlinks.com.au/franking-credits-taxable-income
https://www.firstlinks.com.au/stop-blaming-costello-super-changes
https://www.firstlinks.com.au/lets-make-this-clear-again-franking-credits-fair

On the subject covered in this article, viz the tax rate on superannuation pension account earnings, I'd just point out one of the main things I wrote in my article, is that high income earners during their accumulation phase HAVE already paid quite a bit of tax on their invested funds. Not only the 15% contributions tax that all pay, but also the extra 15% for high income earners. And they only have tax free earnings on a capped amount of pension account, not on all the super they can accumulate. It's really important to get emotional arguments about 'tax free super for the rich' out of the way and argue based on facts. Too many comments whenever this topic comes up do not bother to do any homework.

Anne
October 02, 2021

I am a self funded retiree with a SMSF. My father, aged 101 yrs (and still going strong) receives a full pension. If I live as long as he has, I am saving the Govt $880,000 in today's dollars.
Thanks for another excellent article Jon.

Dan
October 03, 2021

I am an employee on a high income. When I retire I just want to be left alone. No Centrelink. No ATO. Let’s talk about fair (ignoring the outrageous amount of income tax): Double Medicare Double super conts tax Flood levy/ budget repair levy etc Business losses not deductible (isolated) Stamp duty! I recent purchased a house that was 10x greater than a mate who purchased at the same time. Yet my stamp duty was 82x. Yep- 82x… I think Ive earned the right to be left alone in retirement.

Citizen tax payer
October 06, 2021

OK, Dan. We'll leave you alone. When someone breaks into your house, we won't send any police. When a fire breaks out at your place, we won't send the fire brigade. When you need an operation, we won't provide you a hospital bed.

Get real, mate. No one who wants to retire as a real, living member of the Australian society can expect to be 'left alone'. You have NOT paid enough tax during your working life to earn 30 years or more of tax free living!

Georgie
October 07, 2021

So, Citizen Tax Payer, does that mean you don’t believe the almost 50% of households who pay no net tax and then retire on a tax free, government provided, aged pension should also not have access to any community funded service such as police or health cate?

Ruth
October 01, 2021

We were asked to lock up savings for our future retirement. The deal eventually was 15% tax up front, 15% tax at the end. Most of the system retains that basic feature. In exchange for preferential tax treatment we were not permitted to touch the money until retirement. I was 20 at the time, and retirement was a long time away. If you keep changing the system, no-one will contribute, and you will soon see workers ask for their 10% in salary/wages not super. You are destroying it. What is more, people between 65-95 lose the ability to keep on top of these changes and the ability to lodge tax returns. I repeat, these actions will destroy the system and more will rely on an age pension.

Chris
October 01, 2021

"People between 65-95 lose the ability to keep on top of these changes". How so ? They've got all the time in the world, from what I observe and enough money to pay an adviser if they don't understand it ! So if I can do it as a full time worker, why not them ?

Ruth
October 07, 2021

When you get as old as me, you will understand what I mean. Remember that almost half a million people in this country have dementia. I am looking after my investments, not getting my nails done or playing golf.

Phillip
October 01, 2021

SMSF’s receive a tax credit on non assessable non exempt income. That’s just crazy. It’s a doubling of a benefit. Unfair and unsustainable.

Dudley.
October 01, 2021

"SMSF’s receive a tax credit on non assessable non exempt income. That’s just crazy. It’s a doubling of a benefit. Unfair and unsustainable.":

Employees receive the same tax credit - for assessable non exempt income less than the 'tax free threshold'.

SMSF Trustee
October 01, 2021

No, Phillip, non-assessable income is just that - not counted as income. No "tax credit" is paid.
And the kinds of payments that come under this category would not accrue in an SMSF - eg redundancy payments or disaster payments.
So your comment has no basis on fact.

John
October 01, 2021

Phillip
SMSF's (and all super funds) do no get NANE income. It is the members of the fund in pension phase that get that.
If its not fair that super funds get a refund, maybe we should increase the tax on super fund income rather than do away with franking credit refunds that I assume you are suggesting.

How about we increase the tax rate of all super funds to 30% that will solve the problem and I assume you will consider it fair and sustainable

Howard Coleman
September 30, 2021

Why some people accumulate millions of dollars in a SMSF:
Say you start with $100,000 in a SMSF at age 40 and invest (as opposed to trade) wisely in shares achieving an average compound annual net return of 15-20%. After 20 years (by age 60) your super will have a value of several million dollars.
Without monthly contributions from your working income, $100,000 compounded at 15-20% per year for 20 years becomes worth $3.8m (at 20% pa) and $1.6m (at 15% pa).
Add monthly contributions from your working income, and every person who invests wisely from age 40 should easily exceed the current $1.7m cap by age 60.
There's nothing 'unfair' about investing wisely for your retirement. It is unfair to be asked to give away some of this through tax to those who rather enjoyed spending their money when younger and chose not to learn to invest wisely.

Steve
October 01, 2021

15-20% average return over 20 years, with "wise investments"? To get this type of return over that timeframe would require a rather risky portfolio I suspect. Also allow 15% tax on any earnings over that time which makes the barrier a bit higher again. The actual total return of a 100% stock investment is closer to 10% or less over this timeframe. Still good, but nowhere near 15-20%.

Really?
October 01, 2021

Absolutely Steve... 15-20% compounding for 25 years?!

Patrick Kissane
September 30, 2021

Partnerships and Trusts pay no tax on their income. All the income is streamed to the partners/beneficiaries who pay all the tax. In the U.S., the income of S corporations is streamed to the shareholders.

Allan Gardyne
September 30, 2021

A "social contract" over 30 years is a very powerful argument. Major changes would be grossly unfair unless grandfathered in. Here's my suggested major change: Do much more to encourage people to invest in super, lessening the Government's pensions burden. How? Impose no taxes on money going in. Tax money coming out.

Martin
September 30, 2021

John, If a person earns $50,000 tax free they would be getting a tax benefit of more than $4,500. This would obviously be different for a couple who split the $50,000 evenly. If the $50,000 was due to fully franked dividends they would collect a "pension", not an age pension, of $15,000 from the government. All the tax benefits of attained over the many years of making super contributions should also be calculated. We hope to live pension free and have little or no super left at the end of our retirement but I cannot understand why the government is hell bent of making people more wealthy, during their retirement, so that they pass away with more than what they started retirement with. Spend the money on those who really need support.

Jon Kalkman
October 02, 2021

Martin, a franking credit is never a "pension" paid by the government. It is the company tax paid by the company to the ATO before the dividend is distributed. The ATO holds it until the taxpayer/shareholder completes their tax return and it then becomes a tax credit that can be used to reduce or eliminate their personal tax. For taxpayers such as unions, churches, universities, charities and all superfunds that pay a pension, their tax rate is zero. Therefore, this credit is returned to them as additional income because no tax is payable on it. Taxpayers make no contribution to this "refund". Compare that to the age pension which is paid by the taxpayer in all circumstances, regardless of the economy.

If the company did not make a profit, AND pay tax on that profit in Australia, AND the taxpayer did not have a personal tax rate lower than. the company tax rate, there would be no franking credit. More details of this process is available in my Firstlinks article on 25 August 2021.

With respect to tax concessions provided to super over the years, it is fair to say that supernatants at least make a personal contribution to their retirement with a significant portion of their own money Age pensioners make no personal contribution to their retirement income, apart from their normal taxes which are paid by everyone, including supernatants. That is why the government encourages/compels people to contribute to super.

Bill
September 30, 2021

Good article Jon. With regard to the question of payment of tax on withdrawal of pensions, perhaps there would be value in Grandfathering the current system and providing a new scheme whereby contributions into and earnings on a fund could be tax free, whilst drawing from the fund would be taxed? This would give the benefit of the fund-holder of building a larger balance, but still providing tax, (albeit delayed) to the government.

John
September 30, 2021

Bill your idea "...providing a new scheme whereby contributions into and earnings on a fund could be tax free, whilst drawing from the fund would be taxed..."
Believe it or not this was the original super scheme. Then the government changed things:
1. Keating decided that the government was foregoing too much in tax (in the short term, the old system picked it up eventually, but by then the other party is in power), so he put a 15% contributions and earnings tax on super BUT when you withdrew your super, you got taxed on it (just like you are proposing) with a 15% rebate (for the tax that was paid when you put the money in and on the earnings)
2. Costello changed things again (to get a good vote catching headline) when he made all withdrawals from super (after you turned 60) tax free.

So what you are really suggesting is either a return to the pre-keating system, or (because the government couldn't afford to be that generous) the Keating system - at least it was logical, pay tax when you put it in, and get that tax back when you withdraw it, but pay tax at your tax rate when you withdraw the money (which is what you are suggesting Bill)

Wayne
October 01, 2021

With lower yields the ability to fund your own retirement requires a much larger super balance (invested in high risk - not a bank term deposit). A couple will need to invest say $800k to $1 mil to get an income equal to a pension (if they want to preserve their capital).

It never sits comfortably with me that people are expected to fund their own retirement while others get government pensions. How many grey nomads are out there spending their cash on 4wds and caravans to get their assets down so they qualify for a pension???

One issue of trying to self fund your retirement - is death. We all think we will live forever - and then in your fifties suddenly an event can bring your life expectancy into question. I am sure plenty of people start to think - geez do i want to be the the richest person in the cemetery?

Given the yields today I think the age pension threshold for pensions should be increased. Perhaps this could be funded through some capital gain tax on prestige homes, and including the family home in the age pension asset test.

Just sayin

Philip
September 30, 2021

Jon Your statement that franking credits are fair because they transfer all company profits to the personal tax system does not seem logical or is an over simplification. Surely companies pay tax in the first instance. To prevent double taxation of the profits when they are subsequently transferred to shareholders as dividends, the tax system awards franking credits. Dividends paid to superfunds in pension phase are not taxed therefore there is no double taxation and franking credits are not required. That’s what I think is fair.

An extension of your argument would suggest that companies should not be taxed as the profits are ultimately taxed at marginal rates when they are paid to the shareholders. There are multiple reasons why this won’t float.

Kevin
September 30, 2021

It isn't a difficult system.Jon is correct ,
I go to work I earn $100,000.Tax due on that is approx $25K.The tax is deducted from my wages weekly.

I earn $100K in dividends from CBA.Paid twice a year,the last payment was yesterday.The registry deducts $30K tax from that and sends it to the ATO.
I do my tax at the end of the year and get a $5K rebate.

$100K has been earned,$25K tax has been paid on it by both parties.
If I was Jon,I would be giving up on this.I could split hairs and find slight faults in his good article,but this would be from my point of view .His article is correct
Money is earned,tax is paid on it.Try to pay more tax,it means you have earned more money and have more money in your pocket .
I pay tax as a self funded retiree.They take $38K off me in the pension we do not get.More if you include the seniors cards.
My investment income is then taxed exactly as he said,at my marginal rates .
Until people work out I am better off if I pay more tax this will go on for ever.
The time spent looking everywhere else and at imagined rorts would be far more productive if they spent that time trying to work out how to improve their own lot in life.

Kevin
September 30, 2021

I should add the limits on how much can be put into super are well thought out.Most people are not going to reach those caps.
When the system matures in say 2051 they may have $1.7 million in super,but wages will be higher.I have always thought that once super matures then the pot would be anywhere between 4 and 7 times average annual income.Depending on growth rates.
As much as I dislike the system because of the high costs,it works,I can't dispute that.
Govts have been saying for a long time now that the individual will need to shoulder more of the burden for retirement They can make themselves far better off.
The figures are arrived at by SGC being at 9% in 2001 and a 50 year working life.I expect retirement age to be 70 or older by 2051 if life expectancy keeps increasing.

Lisaaaaa
September 30, 2021

"If they have $1 million in a super pension and earn $50,000 tax-free, they may cost the government $4,500 in forfeited income tax but they save the government $37,923 in age pension that they cannot claim." A fairer comparison of cost to government would be to add in all the tax lost on having only a low tax rate on contributions and earnings all the years along the way to get to the $1,000,000 accumulated as well (as if the person had to pay their MTR on their SG and MTR on earnings by saving that much in their own name, there would be a LOT more in foregone tax to add.

SMSF Trustee
September 30, 2021

Lisaaa, no tax has been 'lost' along the way. The tax rates have been set according to government policy to achieve various ends. The same as the GST is set at 10%, and all other tax rates are set at what there are set at.

Of course you can do the maths of 'what if' a different tax rate had been levied on a certain income. But you can and should do that for EVERY tax in the system, and weigh that against the policy objectives. The policy objective of setting the earnings on income in super at 15% after taking 15% out of capital upfront was to provide a modest tax incentive to people to save for their own retirement.

Mission accomplished.

And you really do need to remember that the average rate of tax that people would have paid isn't a lot more than the 15% that has been paid already. It's not a 'low tax rate'. It's lower, but not 15% is still a fairly hefty amount.

And don't forget that for those on higher incomes, the deduction is actually 30%, introduced to better align the modest benefit someone on 47% tax bracket receives with the benefit that those paying around 25-30% receive.

Denial
October 06, 2021

Nice that you and Phillip are trying to add some balance to the echo chamber, however, should the Government not also account for the savings of not having to pay ~$38k ($880k lifetime) age pension?

The end of the day the tax base is narrowing and the aging population is projected to have 3 workers per retiree. A simple recipe ripe for social justice warriors of the current generation.

Jon Kalkman
September 30, 2021

I should have added that James Kirby also pointed out that according to the ATO, the median value of SMSFs (based on tax returns) is $733,000. In other words, 50% of these funds are smaller than this. And yet there is the common view that anyone with a SMSF belongs to the top end of town.

Kevin
September 30, 2021

Jon,after a working lifetime on the tools,or associated with tools the consensus of opinion is,
You decide to look after yourself and learn about financial matters,then you are greedy,rorting the system,a tax cheat,you name it .

Buy a lottery ticket every week and dream,virtually no chance of winning.Worked hard for that,I deserve it,how dare anybody suggest lottery winnings be taxed.

You can lead a horse to water.........

Anne Casey
September 30, 2021

Actually Jon, that doesn't prove that SMSFs aren't only for the 'top end of town' - remember, almost all superannuation accounts start out small, no matter what your income. What is the median value at retirement of SMSFs? Do the taxpayers have other super accounts? Anyone with a Defined Benefits account usually hangs onto it, even well after leaving that employer.

You would need to provide much more information to prove that point.

Tom Taylor
September 30, 2021

Good article Jon. That 4 lettered word fair that is bandied around by Treasury, the ATO and the politicians is anything but fair. Australia is the only country that I am aware of that taxes you when you contribute to super, taxes you on the earnings for decades and then puts a 1.7 million dollar cap on the tax free component. The government aged Pension is worth about a million dollars so why would most people want to bother putting todays dollars into super rather than paying off the family home much earlier. You make the observation that the Super Guarantee leaves most people unconvinced. I would add it definitely leaves fiscally literate people unconvinced. Have a look at the obscene pensions our politicians and high end ATO and treasury bureaucrats collect when they retire. The animal farm phenomena is alive and well with our ruling class.

Jo
October 03, 2021

I agree and want to add the continuing pushing out of the preservation age for us mere worker bees. I have advised my 20yo son to contribute to super, save some cash for a rainy day/house deposit and invest in the stock market even if it is only with an ETF or index tracking fund and even if it is $50 per week through a free brokerage. The reason being he is saving for his first home, but he doesn’t want to have to work until 70 or whatever the preservation age will be when he gets there.

If he’s lucky we will be in a position to leave some behind for him.

Ruth
October 07, 2021

Jo, I think your son is better off trying to get his own home first. By the time your son reaches the unknown age at which he will be able to access his superannuation, the system will have been taxed to the point of where it will have been destroyed.

 

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There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Financial planning

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.

Strategy

Many people misunderstand what life expectancy means

Life expectancy numbers are often interpreted as the likely maximum age of a person but that is incorrect. Here are three reasons why the odds are in favor of people outliving life expectancy estimates.

Investment strategies

Slowing global trade not the threat investors fear

Investors ask whether global supply chains were stretched too far and too complex, and following COVID, is globalisation dead? New research suggests the impact on investment returns will not be as great as feared.

Investment strategies

Wealth doesn’t equal wisdom for 'sophisticated' investors

'Sophisticated' investors can be offered securities without the usual disclosure requirements given to everyday investors, but far more people now qualify than was ever intended. Many are far from sophisticated.

Investment strategies

Is the golden era for active fund managers ending?

Most active fund managers are the beneficiaries of a confluence of favourable events. As future strong returns look challenging, passive is rising and new investors do their own thing, a golden age may be closing.

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