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Results from superannuation changes survey

In last week’s Cuffelinks Newsletter, a Reader Survey asked about potential changes to superannuation rules. Showing the passion and engagement of our readers, it has attracted over 700 responses so far. We will leave it open for another week.

It was impressive how many people wanted the system to be sustainable and eliminate inequities, even if they were personally disadvantaged. But most people are tired of changes which compromise retirement planning and outcome certainty.

The full survey results are linked here.

Highlights include:

  • Two-thirds of responses were in favour of reducing the earnings level where the extra 15% tax on concessional contributions (‘Division 293’) kicks in. Many comments argued high income earners can afford to pay more tax, concessions should go to lower paid, and some support taxing at a Marginal Tax Rate less 15%. Super is not meant to be about tax minimisation.

BUDGET OUTCOME: Adopted at the $250,000 level.

  • A high 85% of people do not support changing the annual concessional caps, as it allows people to top up super through salary sacrifice without the current level being excessively high. But it falls to 62% for non-concessional, as the level is deemed too generous and allows balances to build to unsustainable amounts.

BUDGET OUTCOME: Concessional caps reduced to $25,000 a year, non-concessional $500,000 lifetime cap. The survey results indicate this is a highly unpopular change.

  • 77% supported retaining the ‘bring forward’ rule, and those in favour said it allows retirees to put affairs in order around retirement.

BUDGET OUTCOME: Lifetime cap of $500,000 on non-concessional contributions.

  • Likewise, 77% did not want a tax on pension income introduced, as retirees had already been taxed along the way, and it would become a disincentive to save. Many concede it is generous.

BUDGET OUTCOME: Need to move balances over $1.6 million out of pension account.

  • Fairly equal on the merit of lifetime concessional caps (46%/54%) and non-concessional caps (47/53), although sounds like the old RBLs. Need to be at a high level, though.

BUDGET OUTCOME: Lifetime cap of $500,000 on non-concessional contributions.

  • 45% support abolishing Transition to Retirement pensions, with a mix of people saying they play an important role versus those who say being misused.

BUDGET OUTCOME: Earnings on assets supporting TTR pension to be taxed at 15%.

  • Strong support at 77% for retaining the Low Income Super Contribution (LISC) scheme, as proposal is not fair on low income earners.

BUDGET OUTCOME: LISC to be retained.

  • A high 77% say leave super alone for at least 3 years to stop it being a political football.
  • Many general comments about the family home exemption, eg person with a $3 million home can draw a full pension.

 

Thanks to all the people who responded. We have opened the full text of the responses because the comments are at least as valuable as the statistics.

We will run another survey on the actual budget changes soon, to give you time to absorb them and form an opinion.

 

Graham Hand is Editor of Cuffelinks. The Survey is released for general information and no responsibility is accepted for any of the opinions.

 

8 Comments
Bruce
May 16, 2016

The level of self-interest in the comments made about the changes to superannuation regulations, in all forums not just Cuffeflinks, is generally breathtaking. The super regime changes introduced by the Howard/Costello government were clearly unsustainable: they were, at the time, a cynical grey vote buying exercise that purported to fund what should be permanent tax law changes with a temporary resources boom windfall.

People seem to forget that tax is the price you pay for living in a modern capitalist democracy. To say that retirees have paid their fair share of tax up to retirement and shouldn't have to pay any more ignores the fact that those same retirees continue to draw on those benefits potentially for decades after retirement. Emergency services, health, education for their children and grandchildren, roads and infrastructure - the myriad of government services everybody continues to use and benefit from on a day to day basis have to be paid for.

Or perhaps those retirees simply expect their children to shoulder the funding burden, having already lived through the greatest intergenerational wealth transfer through the real estate market, making it even less likely those children will be able to save enough for the same comfortable retirement they are set to enjoy.

Whilst I agree that a $500,000 non-concessional limit is too low and has wreaked havoc with retirement planning for many, to say that a $1.6m limit on the tax free pension portion of a super fund is also too low is ridiculous. If you make just a 6% return on that $1.6m that's $96,000 p.a. of tax free income. In the context of an economy that is labouring under sharply growing government debt, that's a lot of money. And if you are lucky enough to have two members of a SMSF that can sock away $1.6m each and they both make the same return, they'd have to spend almost $3,700 PER WEEK not to end up with accumulated savings.

And if you've still got funds left over after that, you can get 6% on $300,000 in your own name and still not pay any tax on it. That adds up to $1.9m for an individual or $3.8m for a couple and (potentially) paying no tax. And remember, if you invest the $1.6m wisely and live within your means, that amount is free to grow to whatever level you can achieve.

It's a pity the purpose of superannuation was not made more explicit to start with: it was never intended to be a tax shelter but rather to provide an income in retirement. Perhaps if our politicians had the fortitude to make the meaningful changes to our tax system that our circumstances require then we could leave retirement planning alone. Until then, we can't criticize a government of any stripe for not addressing budget deficits and then squeal when they raise the taxes to do just that.

Ian Newell
May 05, 2016

When amendments are made to taxation law, a well practised convention ensures that the existing law is typically grandfathered for taxpayers who have acted in good faith in applying and relying on the law in order that they are not disadvantaged.

Hard working, self-funded retirees have been busily providing for their retirements on the premise that the current superannuation and taxation legislation means something - if it does not, then why was it introduced?

Mr Morrison has implicitly endorsed and supported this understanding and on numerous occasions during the last 6 months and more recently, explicitly confirmed those understandings.

The ($1.6m) cap on pension phase transfers so far as they relate to transfers already made, can only logically be viewed as being retrospective in operation, reprehensible in nature, and a shameful betrayal of trust.

Weasel words by Mr Morrison that the taxation legislation will not change but that (presumably) the superannuation legislation will be amended to reverse that which has already occurred, changes nothing.

Doubtlessly, unprincipled politicians find it convenient to find politically expedient solutions to sell the fairness argument, even if fairness is itself a casualty in the process.

Ramani
May 05, 2016

For all those who decry the latest significant changes, let us remember that tax-free benefits post 60, abolition of RBLs, overly generous contribution caps,TTR pensions that allowed working full time, salary sacrificing and drawing a pension supported by taxfree earnings were all past changes too. Except that they seemed to be in members' favour!

The concessions are funded by the taxpayer groaning under the age pension burden, which super was allowed to alleviate.

No criticism of the system that allows asset-rich, income-poor citizens to feed off the taxpayer, only to leave the bequest to kids missing in action re: parental care?

If the changes had not been made, it would be a lot tougher in future. The system cannot cater for outliers.

Marcia
May 07, 2016

I agree with Ramani. I also find it amazing to hear people implying that superannuation is the only way to save for retirement. I did so without the benefit of superannuation, paying full tax on the earnings of my investment & savings portfolio. As a self-funded retiree I'm still paying tax on my investment earnings & do not have a health care card.. Consequently, I resent being taxed to provide benefits to those drawing a tax free income from superannuation.

There is nothing stopping people saving for retirement outside of superannuation. It is just that they will be taxed on the earnings.

We have arrived at an unsustainable position where everyone wants to collect from Government coffers, with no one willing to contribute. All this while wanting to enjoy 1st world services provided by Governments while screaming about the budget deficit.
It does not compute!

Marcia Moseley

Ron Burns
May 05, 2016

Perhaps we should ask the electorate to suggest changes to the parliamentary pension scheme to enable members to share in the economic recovery needed to put nation back on track.

What about applying the preservation rules that apply to non parliamentary superannuation for a start.

Alan Ud
May 05, 2016

So much for the promise that super would not have any adverse changes before the next election! Whilst agreeing with most of the changes as bringing a fairer system the retrospectivity was unexpected and screws up my plans (don't have 1.6M and without being able to put in the undeducteds).
Shame not everyone was able to do salary sacrifice along the way.

John McLennan
May 05, 2016

Taking the calculation of non-concessional deductions back to 2007 for the $500,000 non-concessional cap is surely a retrospective approach.

Graham Hand
May 05, 2016

Hi John, I was acknowledging that at least you don't have to take it out if you are over $500,000, so treatment is not retrospective in that way.

 

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