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That horse has bolted: super is not only for retirement

Over 30 years since 1992, both Liberal and Labor Governments have encouraged Australians to save large amounts in super with generous tax concessions as compensation for forgoing present-day consumption. In 1995, for example, the Labor Budget of Treasurer Ralph Willis announced the intention to lift the superannuation guarantee (SG) from 9% to 15% by 2002. In 2007, Liberal Peter Costello encouraged people to add up to $1 million to their super. As recently as 2017, a couple could put up to $1.08 million into super in one year using the bring-forward rule.

As Treasurer in 1991, Paul Keating was the main architect of Australia's compulsory superannuation system. He said recently:

“I wanted a system where the individual retained the capital and didn’t give it to the government. It was an account with your name on it. The capital is yours and it doesn’t belong to the government.”

Savers with enough money followed the rules - "the capital is yours" - over decades and watched their investments grow with compounding and good returns. No government should now demand they spend it all during their retirement. That was not the deal. Defining the purpose of super as only for providing income in retirement is rewriting history.

Whatever the future, that was not the past

Last week, at the annual Superannuation Lending Roundtable, Treasurer Jim Chalmers gave the old hobby horse another run around the track, when many thought the nag had gone to the knacker's yard. At the event, hosted by The Australian Financial Review and industrialist Anthony Pratt, Chalmers said:

“We see the lack of a legislated objective of super as a source of ambiguity which left the gate open for early access, and so we will legislate one.”

Way back in 2015, the previous Government announced it would enshrine the objective of superannuation in legislation, as recommended by the Financial System Inquiry (FSI). The Government even released a discussion paper entitled ‘Objective of Superannuation’ with background and questions, and received 118 submissions. The intention was to adopt the following:

"The objective of the superannuation system is to provide income in retirement to substitute or supplement the Age Pension."

Now, some seven years later, the Treasurer has made defining an objective a priority for his office. Already, a recommendation of the FSI that was adopted from 1 July 2022 requires all super funds to have a Retirement Income Covenant that includes a strategy that balances: 

• maximising retirement income
• managing risks to the sustainability and stability of retirement income
• having some flexible access to savings during retirement.

But however the proposed objective is drafted, a large cohort of investors will have no problem funding their retirement and they have no intention of spending their superannuation.

Evidence of intention not to spend super

Like it or not, hundreds of thousands of Australians use their superannuation as more of a tax-advantaged savings vehicle than a source of retirement income.

At a 2015 CSIRO and Monash University Superannuation Research Cluster, a study reported that 90% of the amount an average retiree enters retirement with (including the family home and non-super) remains unspent upon their death.

In a recent 2022 survey by National Seniors and Challenger of 3,345 members, more respondents reported they would 'maintain most or all of capital' than 'spend all capital to fund retirement', as shown below.

Intention to maintain capital in retirement (n=2713)

As expected, those with over $500,000 in retirement savings have a significantly higher intention of maintaining their capital.

Intention to maintain capital according to wealth (including super but not the home) (n=2361)

When asked why they are maintaining capital, 41% nominated 'for beneficiaries'. On whether retirement savings are a nest egg or income stream, the Report concludes:

"Super capital was not meant to accumulate and remain unused. In practice, however, many people only spend earnings from their super to preserve the capital or take the required minimum drawdown. This can reduce available spending money by as much as 30%. The results of this survey align with the observations made by the (Retirement Income) Review that many retirees do not want to consume their super as income. Only 1 in 3 people were intending to draw down their capital to generate income from super in retirement."

Is that first sentence correct? When in the first two decades of SG did Keating, Costello, other Treasurers and Treasury advocate that all super balances must be exhausted in retirement?

Diving deeper into SMSF and super balances

Consider the latest SMSF data, recently released by the Australian Taxation Office for June 2020. There is a significant lag due to delays in SMSF tax reporting, and the amount will be higher now. The ATO data reveals $854 billion (of the $3.3 trillion in super) was held in 605,000 SMSFs for 1.1 million members.

As shown below, 17.1% of funds held over $2 million in assets, equal to about 103,400 funds for 188,100 people. This data focusses only on SMSFs as they are likely to hold the largest super balances, but in addition, total super data from the ATO shows 575,000 people with annual incomes above $180,000 hold an average of $575,000 in super each.

As most people enter retirement as a member of a couple, and it's likely if one partner dies, the entire balance will pass to the other, the data indicates there are at least 200,000 Australians with access to super balances of $2 million or more and far more with $1 million plus. 

Any way these numbers are cut, an enormous number of Australians have more money than they will use to finance their retirement. In the National Seniors data, 81% owned their homes outright with a further 11% owning with a mortgage. It is likely that their homes are worth more than their super, as well as owning considerable other assets. Given the tax efficiency of super, it is prudent to use non-super assets (other than the family home) before drawing on super.

Large balances can still accumulate

The caps imposed on contributing to super will go some way to eliminating the mega balances of $5 million or more, but they still allow significant wealth to be stored in super. For example, current rules allow:

  • $1.7 million in a pension account ($3.4 million for a couple) subject to no tax on income and withdrawals 
  • No limit to the size of accumulation accounts taxed at 15%
  • Non-concessional contribution cap of $110,000 a year
  • Concessional contribution cap of $27,500 a year

Plus various schemes such as carry forward concessions and downsizer payments (of $600,000 a couple) which do not count towards the contribution caps.

Well-paid executives using these amounts over a long career will accumulate multi-million superannuation accounts long into the future. For example, invest $100,000 at the start and add $120,000 a year for 20 years compounded at 5% gives a balance over $4 million.

In research from Investment Trends, 18% of people over 40 who have not yet retired expect to limit drawdowns for income to ensure most super can be left as an inheritance. Fully one quarter of retirees are already doing this. 

Copyright 2021 Investment Trends. November 2021 Retirement Income Report: Industry Analysis.

Cutting the data by super balances, even among retirees with less than $500,000 in super, 24% plan to leave most money as an inheritance. At larger balances, the proportion rises as high as 31%.

*Small sample, indicative only. Copyright 2021 Investment Trends. November 2021 Retirement Income Report: Industry Analysis.

Superannuation specifically acknowledges bequests

Superannuation legislation has specific features designed for appropriate bequeathing. Binding Death Nominations (BDNs) ensure superannuation is distributed according to the wishes of the deceased member, not at the whim of another trustee of the fund or executor of the estate. Superannuation is not an asset of the estate and a trustee is not obliged to follow directions in a will, even if super is specifically mentioned in the will. The instructions in the BDN define the money flow.

The superannuation rules facilitate bequests to non-dependants. There is no restriction on withdrawing money from superannuation for anyone who has reached preservation age and satisfied a condition of release (including retiring). However, on death, if it is given to anyone other than a spouse or a dependent child, there is a tax (on the taxable component) of 15% plus the Medicare levy (currently 2% for most people). The obvious approach is to gift it before death, if possible.

Again using Investment Trends research, large proportions of people in every wealth bracket intend to leave substantial parts of their estate to beneficiaries, and in some cases, the total value of all investments. 

Copyright 2021 Investment Trends. November 2021 Retirement Income Report: Industry Analysis. 

The system was designed to allow large balances

Treasurer Chalmers will define the objective of superannuation as 'providing income in retirement' or similar, ignoring the fact that both Labor and Liberal Governments designed a system which allowed people to accumulate more than they need. As stated above, the current chair of the Future Fund allowed $1 million into super in only one year, and more recently, a couple could put up to $1.08 million into super in only one year. 

Unless some much stricter legislation is passed such as requiring all balances over a certain amount to be removed from super, hundreds of thousands of Australians have no intention of running down their super to one dollar on the day they die. As Keating said, "I wanted a system where the individual retained the capital."

Labor badly misjudged the opposition to its policy on restricting franking credit refunds but would be on safer ground with most voters if superannuation were capped at a high amount, say $5 million per person. There is no knowing, however, how much extra tax this would generate as the very wealthy have other tax minimisation techniques.     

Go ahead, clarify the objective of superannuation, but don't expect those with large balances accumulated by the completely legitimate (and government sponsored) use of the system to change their plans. Their spending intentions extend beyond their lives and beyond their graves. For many, the objective will be flogging a dead horse.


Graham Hand is Editor-At-Large for Firstlinks. This article is general information and does not consider the circumstances of any person. 


September 06, 2022

We should be alarmed that Federal Labor is now casting envious eyes towards private superannuation as a means to fund social housing.
Federal Housing Minister Collins says the government wants to encourage super funds to invest in social and affordable housing as one part of the government's plan to improve access.
"This facility has been under-utilised and we want to work with the other tiers of government, social housing providers, but also to try and unlock private capital such as superannuation investment into more social and affordable housing across the country," she said.
So now our superannuation, made up of our savings and our sacrifices over a lifetime of our work is viewed by some academic researchers and politicians as a convenient slush fund to dip into whenever there is a need to cover government financial and economic mismanagement.

September 06, 2022

We should also be alarmed that "Big Super," as I saw it described this morning, is looking to extend its range and have an impact on the governance of companies in which it invests. The long game of industry super is starting to play out. I doubt the members are thinking much about this.

SMSF Trustee
September 06, 2022

David, this is nothing to do with some "industry fund" agenda. Investment funds the world over are using their capital to influence corporate behaviour to focus on longer term returns, rather than lining the pockets of current executives and board members by short term actions. This is capitalism at work, not socialism.
Nothing to be alarmed about at all.

September 11, 2022

David ! Yes.....You are "spot-on" with your assessment ! "Federal Housing Minister Collins says the government wants to encourage super funds to invest in social and affordable housing as one part of the government's plan to improve access. "This facility has been under-utilised and we want to work with the other tiers of government, social housing providers, but also to try and unlock private capital such as superannuation investment into more social and affordable housing across the country," They want your private capital to be used for social housing. ( ] Definition of AFFORDABLE HOUSING: individual dwellings that are sold or rented to a low to moderate income household at a rate that they can afford. Usually "the managers are mostly not for profit community housing providers." So "one" is bound to receive a "good return" on this investment..... I don't think! 

September 04, 2022

A question to the readers which is not relevant to the article. Are you expecting the government, in their "budget" in October 2022, to reintroduce the 15% tax on the taxed element of superannuation balances when allocated pensions (and the like) are drawn?

September 03, 2022

“Defining the purpose of super as only for providing income in retirement is rewriting history.” For historical accuracy, the original architects of Australia’s compulsory superannuation system envisaged that retirees would use their capital to generate an income to complement and, for some, eventually replace the Age Pension.

In a speech titled “A Retirement Incomes Policy” delivered at the Australian Graduate School of Management on 25 July 1991, Paul Keating announced “the creation of a comprehensive National Retirement Income Scheme”.;fileType=application/pdf. This speech includes 18 references to retirement income/s.
For example:

“Such a scheme would maintain the Age and Service Pensions as the foundation of equity and adequacy in retirement income arrangements, but be complemented by the income of private superannuation with the dual systems integrated through to tax and social security systems.” (p8)

“A sympathetic interface constructed around the social security (and veterans) income test and the tax system can provide a real incentive to save and generate private income additional to pension, or for somebody with private income beyond the income test, to save in the context of an effective marginal tax rate which encourages that private provision.” (p8)

While private retirement income would in the short and medium term supplement the Age Pension, Keating did acknowledge that the income generated from superannuation balances may for some in time replace the Age Pension.

“I suggest that by the year 2000 we reach a national benchmark where each and every employee has a contribution to superannuation equal to 12 per cent of wage and salary income paid into his or her superannuation account. This will provide a level of benefit exceeding even the most optimistic expectation of the future level of the age pension. For those workers who stay on to age 65 the level of benefit will reach towards 50 per cent of pre-retirement income on an annuity basis, with full indexation to inflation, and 70 per cent reversion to the surviving spouse.” (p9)

“There are two great advantages in this scheme. The first is that over time it will replace more of the increasingly onerous tax burden of age pensions with privately funded annuity incomes. It will do so with a retirement income much higher than that today provided by the pension. And it will do so in a way that allows the aged to be more financially independent of the government.” (p12)

In June 1992, then Treasurer John Dawkins released a detailed 'security in retirement' policy, including the following statement:
"The Government sees the age pension not just as a security net for future retirees but as the keystone of its superannuation policies. It expects that most future retirees will continue to be eligible for the age pension (for example through a part pension) which, with self-provided and tax assisted superannuation, will allow a higher retirement income than is now generally available."

The Retirement Income Review (p433) received feedback that a number of retirees with modest retirement savings may be depriving themselves of a comfortable retirement because they believed they should only withdraw funds at the minimum mandated rate or income generated from their super savings rather than draw down on the capital similar to what occurs with an annuity. This has led to the perception that those on the indexed full Age Pension are better-off than self-funded retirees whose investment income is less than the pension. As you have pointed out, this is not case. $1 million is never worth less than $500,000 ( As noted in the Review (p415) - ”People are less likely to consume savings that are framed as assets as they have been primed during working life to save this ‘nest egg’. Expressing superannuation balances in terms of retirement income, in a similar way to working life income, may encourage people to draw down from their savings in retirement.”

I assume that the intent by both the previous and current government to define a purpose for superannuation is to officially acknowledge that the fundamental purpose of superannuation for the majority of Australians is to provide a retirement income which, for many of modest means, may require them to draw down capital over time which you recognise in the above-linked $1 million is never worth less than $500,000 article “superannuation involves a calculated drawdown of capital for most people.”

The current government also appears to want to legislate a definition in order to deter or prevent future attempts to facilitate early access for non-retirement purposes such as housing or pandemics (excepting existing hardship provisions).

If, some 30 years later, a cohort of retirees have had the opportunity to accumulate sufficient superannuation capital (with the assistance of generous tax concessions on contributions and earnings) and/or choose to maintain a lifestyle in retirement that allows them to leave a substantial proportion of unused superannuation as an inheritance, that is their legal right. To paraphrase Bill Gates when questioned by a Sydney high school student on Q + A in 2015 in relation to companies engaging in tax minimisation arrangements: if governments are not happy with current arrangements, it is up to them to change the tax laws.

September 04, 2022

"envisaged that retirees would use their capital to generate an income":
... which is not saying spend their capital, just use saying use their capital to yield an income.

"provide a real incentive to save and generate private income additional to pension, or for somebody with private income beyond the income test, to save in the context of an effective marginal tax rate which encourages that private provision.":
... beyond the Asset Test, $419,000, the Asset Test Taper Rate of -7.8% results in less income - the 'real incentive' is to not save more - the most negative incentive being at least at $915,500.

"This will provide a level of benefit exceeding even the most optimistic expectation of the future level of the age pension.":
For Minimum wage deemed earning on savings:
= 2.25% * FV(1%, (65 - 18), -(12% * 52 * 812.6), 0)
= $6,802.71 / y
Single Age Pension = 26 * 987.6 = $25,677.60 / y
Need a real return rate of ~6% during accumulation for yield to equal Age Pension.

"replace more of the increasingly onerous tax burden of age pensions with privately funded annuity incomes":
Has reduced tax collections while Asset Test has reduced government expenditure and reduced part pensioner income. A taxed non-means tested Age Pension could increase tax collection more then it increases government expenditure.

"most future retirees will continue to be eligible for the age pension (for example through a part pension) which, with self-provided and tax assisted superannuation, will allow a higher retirement income than is now generally available.":
Not for those with assets $419,000 to ~$1,200,000, due to changes in the Asset Test Taper Rate.

"$1 million is never worth less than $500,000":
The Asset Test Taper Rate makes $1,000,000 worth less than $500,000; or more precisely $915,500 worth less than $419,000:
Income with $419,000 = 2.25% * 419000 + 26 * 1488.80 = 48136.30 / y
Income with $915,500 = 2.25% * 915000 = $20,598.75 / y (Ratio: 43%)
$915,000 is worth $27,537.55 / y less than $419,000.

Nev Brown
November 14, 2022

Just on that Dudley, I would sooner have $1,000,000 at 60 and be able to use that, than still be working till 67 and only have $419,000.

November 14, 2022

"sooner have $1,000,000 at 60 and be able to use that, than still be working till 67 and only have $419,000".

Seems reasonable if retiring at 60: = PMT(0%, (67 - 60), -1000000, 419000) = $83,000 / y (real) Before gaining access to the tax and capital free and CPI indexed Age Pension of $40,000 / y, plus tax free earnings on $419,000 plus tax free capita gains on home.

Retiring at 60 gives opportunity to concentrate on capital efficiently feathering said nest at reduced tax rates whittling down the $1,000,000 to $419,000 to avoid loss of Age Pension payments after age 67.

November 17, 2022

"I would sooner have $1,000,000 at 60 and be able to use that, than still be working till 67 and only have $419,000": With investable capital of $1,000,000 and not working at 60, to have $419,000 at 67 to claim the full CPI indexed Age Pension, plus earnings on $419,000, plus ~7% / y capital gains on home and pay no income tax, spend and / or invest $581,000 on home improvement between 60 and 67 ($83,000 / y).

September 04, 2022

I agree with Paul.

September 03, 2022

For all the noise and bluster, the simple point is that Australians have the right to plan their retirement according to the rules, in the certainty that the goalposts will not move. If you want to trash the integrity of the Superannuation structure, tinker every election cycle and all that will do, is further distort "investment" in the tax free Primary Residence - just what we need!!

September 03, 2022

I think that brings the conversation to a close Rob.There could be endless splitting of hairs on primary residence,what a waste of time that would be.

You've nailed it,short and sharp

Former Treasury policy maker
September 04, 2022

Why do we have a right to experience no changes?

Sure, they can be inconvenient, but if a policy error was made (as arguably was made when unlimited tax free pensions were permitted) then correcting that (with the $1.6 mn cap introduced) is perfectly acceptable. Or, the simple fact that things in the broader economy change requiring fiscal adjustments means that the super rules can / should change.

Lots of people who get government payments, subsidies, tax breaks , tariff protection etc would love nothing to change. But that's not the world any of us lives in.

In other words, get real.

My long term savings
September 06, 2022

It isn't the policy change that bothers me so much as the the short term thinking, the dishonesty and the layers of duplicity.

i.e. Let us restate the policy change. It is along the lines of: Frame in and and assume an "individual healthy retiree with no family and a high super balance from a lifetime of saving" - now, think short term and assume aged care costs do not increase, assume health care costs do not increase, assume longevity doesn't increase significantly, assume no more pandemics, no wars, no raging inflation, pension payments continue at current levels; let us ignore spouses, parents, children and family members who you might feel that extending a helping financial hand to is a reasonable thing to do.

Let us assume the future is just more of "today" and that there are no personal/family risks that might eventuate. Then policy change advocates can tell a story "justifying" government policy changes to solve short term problems by burning other folk's long term savings".

As a new/young retiree, it isn't the next 3 years to the next election that concerns me. It is the long term lumpy financial nature of my (unknown) time left on the planet, future (possible) health issues, (large and increasing ) nursing home fees that concerns me, along with (unquantified) energy crises, (likely) decreases in social security benefits, (likely) more pandemic events, (happening) inflation, (possible) global recession.

The uncertainty in the world says having a healthy personal balance sheet is important to help navigate your way to end of life and perhaps help your loved ones at the same time.

September 03, 2022

Take from the people who have worked hard to accumulate capital so they don’t put their hand out for a Government pension. Sounds great. Just make Australia a state of China. Problem solved.

Lyn Lam
September 03, 2022

One gets the impression governments are itching to claw back super in some way shape or form. It would be rich pickings indeed. Left wing economists love the idea of stopping the next generation from inheriting. Also mutterings to make punitive financial penalties to people in their 50s onwards if they have more bedrooms than inhabitants in their household to tip them out of their homes to force a downsize when they have barely paid off their mortgage to achieve ownership. They also want to bring in financial penalties if you own a holiday house and don't long term rent it out which kind of defeats the purpose of owning a holiday house you can't use. It needs to be recognised that people are living longer and need to hang on to their capital for the unforeseen. A joint replacement in the private hospital system has a 20-30k gap. For a couple that might need several knee and hip replacements is a big chunk of cash. Cancer treatments privately similar costs. Also bonds to go into nursing homes are upwards of 1 million. So many ways money could be sucked up and future unknowns as economists plan ways to clean out us out .So no, we are not going to blow our capital.

Peter Jones
September 03, 2022

Superannuation shouldn't be seen as a mechanism that is only about retirement.
It plays an important role in increasing the volume of savings and investment in our economy.
Creating jobs, higher income, greater job security etc.
With a higher multiplier effect than if those funds had simply been taken as income and spent on consumption, including overseas holidays, imported cars etc.
This needs to be considered in any discussion about super.
Even the portion of super funds that is invested overseas generates an income stream that can, and often is, reinvested in our economy. And helps to ensure a more balanced return on investment.

September 02, 2022

One should avoid the 'all or nothing extremities' in discussing 'the purpose of Superannuation.' Like many we live on the income from superannuation and, per our SMSF investment strategy of record, our primary purpose is ' generate sufficient income to live comfortably.' There is a rider to this however, again documented, ' preserve the capital in as much as that is possible, having regard for 1.'. So a residual will be the likely outcome in my lifetime but not the PRIMARY objective. However, that isn't the end of the discussion. There's something else in play. The majority of big balance superannuation account holders are Boomers. The children of a wartime generation who, out of necessity, were taught frugality, thrift, economy and self reliance by their parents. Old habits die hard. They won't zero their balances, it's in their DNA.

September 15, 2022

Agreed with Cornucopia.

September 01, 2022

Inflation will soon make those $5m funds worth less and less.

September 01, 2022 last! For once, I feel that you and I are "batting on the same team" and for the same reasons. "When in the first two decades of SG did Keating, Costello, other Treasurers and Treasury advocate that all super balances must be exhausted in retirement?... Never!."...recently Paul Keating, the architect of the scheme, said "“I wanted a system where the individual retained the capital and didn’t give it to the government. It was an account with your name on it. The capital is yours and it doesn’t belong to the government.” Savers with enough money followed the rules - "the capital is yours" - over decades and watched their investments grow with compounding and good returns. No government should now demand they spend it all during their retirement. That was not the deal. Defining the purpose of super as only for providing income in retirement is rewriting history."

Repeat. That was not the deal. 

Yes, they are rewriting history. The socialists don't love the poor, they hate the rich ... except when "they" are the "deservedly rich". 

As for a "covenant" : Defined as "A covenant is a relationship between two partners who make binding promises to each other and work together to reach a common goal. They're often accompanied by oaths, signs, and ceremonies. Covenants define obligations and commitments, but they are different from a contract because they are relational and personal."

When were we asked to enter a covenant on our super? It is just another change of the rules! The use of the term "covenant" in this manner is both offensive and perverted! It comes with no benefits or assurances. 


Graham Hand
September 01, 2022

Oh no. As Groucho Marx said, “I don't want to belong to any club that would accept me as one of its members.”

September 01, 2022

Graham Hand :
“I don't want to belong to any club that would accept me as one of its members.”
Sorry Graham......but YOU are "guilty by association"...."we" both understood and endorsed Keating's initial intentions !
What-is-more , "we" both acted on them , "delayed our gratification ' and saved for the future.....OUR DISTANT FUTURE !
"We" envisioned an affluent and comfortable retirement ; independent , self-funded and self sufficient , stress-less ,
pulling-our-own-weight , guilt-free and beholden to no-one and , most importantly , NOT living off the "public purse" !
However.......Well edited ! Thanks for allowing most of MY COMMENT through your ..........."filter" ..........though !
Grouch Marx also said:
"1.The secret of life is honesty and fair dealing. If you can fake that, you've got it made.' ........and
"2.Those are my principles, and if you don't like them... well, I have others."
May I add that I appreciate the opportunity to make my comments , read other people's comments and stand corrected occasionally....but rarely !.......Usually though , to be honest , if that happens , I don't stand , I sit down !!
Regards , Trevor.

Hop D.
September 01, 2022

Let's split hair!
Dividend (+capital gain) this year reinvested is capital next year. And in super, it is only the original capital contribution that is yours. Dividend + capital gain in super is taxed concessionally. This concessionality is the collective reason for the totality to be spent in retirement. This is equality and is the inducement for contributing to super without biasing toward those who can contribute more with the expressed aim to leave the loot to next generation.

September 01, 2022

There is so much low hanging fruit to reform the Australian tax system; the challenges are political. Superannuation balances well in excess of what might conceivably be spent in retirement are just one example. Then there are generous capital gains concessions, the small business capital gains concessions, franking credits, negative gearing, the lack of a mining tax, the treatment of the family home for social security. With the budget in deficit, the demands for greater expenditure on defence, health and aged care, all of which are urgent, these concessions and omissions will inevitably have to be wound back. The argument that merely because it was once legal to place money into superannuation it should be shielded from tax forever more does not apply to funds in any other structure. Rates of tax and measures to counter tax strategies are frequently legislated. The public discussion on tax has developed in the last decade and there is now a greater understanding of the inequity of current settings. I expect the October Budget will address some overly generous tax concessions. I also expect that after the usual bleating from vested interests these changes will be well received.

September 01, 2022

"capital gains concessions":
and taxes on the imaginary (inflationary) earnings.

"franking credits":
and employee income tax credits.

"negative gearing":
and business expense deductions.

"lack of a mining tax":
and mining royalties.

"treatment of the family home for social security":
and rental assistance.

... and means testing of Age Pension.

Bruce Swanson
September 01, 2022

The simplest approach to excessive super balances is to tax income on balances above some figure at the 30% company tax rate.
Maybe above $5m or $3.4 or even $1.7m
This is both simple to implement and minimises distortions with respect to other investment vehicles outside super

john Flynne
September 03, 2022

that would be to simple not enough complication for the pollies and the bureaucrats

September 03, 2022

But not before they refund these "high income earners" who have paid up to 50% income tax on their earnings over the years, all that excess tax they paid during their working life (with interest), while companies were paying only 30%, and reduce the maximum personal tax rate to 30%

David C
September 01, 2022

In matters of personal finances there are "savers" and there are "spenders". Ok there is a spectrum but to simplify the issue let's make it binary. The savers work industriously and have careful, even frugal habits, pay off their motgages as soon as they can and ensure that they invest a portion of their income, more when children leave home. They take full advantage of the superannuation tax advantages and if they are baby boomers these advantages were initially very generous. So by the time they retire they are comfortably off.But in retirement their spending habits are not lavish - their financial discipline is ingrained (possibly learned in tertiary student years) and so inevitably a large amount of their super and other investments is left in their estates when they die to pass on to their children. Or if possible their super is disseminated before death to avoid the 17.5% tax on a portion.
Such is life and human nature.

September 01, 2022

Would that not mean buying into the myth of spenders and savers,and excluding investors.I don't know why people think it has to be complicated,or people rort the system,use imagined "clever accountants".Or rich people know "secrets" of wealth creation and don't pay tax .

For me it has always been simple,nominal and real returns,and compounding .The rules can be as simple or as complicated as people want them to be.History tells you what to do..The Vanguard chart,AXJOA,the chart in Jeremy Siegel's book ( Stocks for the long run ).Ray Croc ( grinding it out ) or Sam Walton ( Made in America)

Jeremy Siegel's book gives the value of US$1 invested since 1802.The real returns are Stocks $705K,Bonds $1780,Bills $280, and gold $4.50. One $ is $0.05.After inflation returns are, Stocks 6.6%, bonds 3.6%,bills 2.7% ,gold 0.7% and $ - 1.4%.

AXJOA $1000 on 1/1/80,now around $80K,it should increase by the end of this month depending on rises or falls.Most of the dividends will be paid by the end of this month.

Wal Mart, $1760 bought 100 shares in 1971 or 72.After 11x 2 for 1 splits you now have approx 205,000 shares X whatever the share price is ($130? ,you'll need to check it,WMT is the ticker code).
Closer to home CommBank,Mac bank and Wesfarmers have been unbelievable for me.All 3 have probably outperformed Buffett over decades, leaving aside currency fluctuations.

Tomorrow is just as easy,I know nothing about index funds but S+P 500 fund,and the VAS ( Vanguard AXJOA as far as I know) should mean a very comfortable retirement,along with your super fund.You do need to plan this out 30 to 40 years before retirement ,time is money.Leverage can be dangerous but just to have a bit of fun and see what compounding does say you bought AXJOA on 1/1/2022,it cost you $80K,borrowed with the intention of paying that loan back as quick as possible.

30 years into the future see what you super is worth and what AXJOA is.

Looking at the last Macbank annual report then on 31/3/2013 they closed at $37.15.Dividends for the previous year were $2 per share. On the 31/3/2022 they closed at $203.27,dividends of $6.22. For some fun pretend you borrowed $37K in March 2013.Reinvested all dividends for 30 years and the shareholding grew to somewhere around 3500 to 4000.See what they are worth.

Human nature is across that full 30 year period they will deny that any of this happened.As long as they they can think of the name of a company that went bust that will prove that Macbank will go bust,and being very comfortable as a member of 'the crowd's is better than going out alone.Investing is always far too risky and should never be done,because they can think of the name of a company that went bust,and the news headline screamed "billions wiped off the value of the ASX".

September 01, 2022

Well said Kevin, your on the money

September 01, 2022

I should add that Stocks for the long run was the 5th edition and covers the years 1802 to 2012,written to update the details after the GFC. I think there is a new edition planned to update it again for the COVID crash.Jeremery is the same as the rest of us,he is a year older every year ,so possibly there will not be a new edition .

Wal Mart you can trace that from a debt of $25K to open and stock one shop to a behemoth of around $360 billion market cap.I'm not sure if the Walton family have much to do with it now as they they are into 3rd generation now.A rough idea is they own just over 50% of the company shares so they are worth half of $360 billion.I think if I can work that out then the IRS in the states will take an interest in their tax returns if they look a bit suss.

The rough Macbank,WES,CBA outperforming BRK is arrived at from the mantra of Buffett adding a 0 every 10 years ,$7 a share around,1965,then $70, $700, $7000, and $70000.
WES at $1000 in 1984? BRK at roughly $1000. BRK now at whatever it is and WES grew to $669K as of 30/6/21,all dividends reinvested,it may have dropped $50 to $75 K since then.

BRK at $7,000 early 1990 CBA at $5400 for 1000 shares .Reinvest all dividends and CBA is probably at $550K now BRK at whatever it is ($420K?,you'll need to google it).

Macbank at around $25 in 2000 along with CBA and Roger Montgomery's favourite, NAB.Reinvesting all dividends in Macbank then probably around $600K now.

To back up Roger Montgomery after 22 years you'd think that NAB would work out,if we stop shooting ourselves in the foot every 10 minutes we might produce good shareholder returns.They could then pass the message on to ANZ and Westpac,I'm not holding my breath waiting for it to happen

September 01, 2022

Something bugged me with the Macbank figure. Now I've realised,BRK at $70K in 2000.The tech wreck and everybody saying he was wrong because he didn't buy into the .com boom may have pulled it back to $50K a share.So $50 to $70K you got 2000 -2500 shares in Mac.So now you have between 5 to 7000 shares in Mac at whatever it closed at today,I calculated it roughly on buying 1000 shares at $25K, I'm not keen on looking at share prices daily weekly or monthly,or even annually if I can avoid it.

September 01, 2022

So you limit what can be held in super and the capital is held elsewhere with maybe lesser tax advantage. How will that affect what people spend in retirement and seek to maintain their capital? The main issue seems to be how much tax advantage super holdings are given.

September 01, 2022

"How will that affect what people spend in retirement and seek to maintain their capital?":
Before retirement they would spend less to save more to mitigate the effect of larger tax rates.

Andrew Smith
August 31, 2022

One would suggest we are starting a new demographic environment which makes superannuation more important, not just for retirement income, nest egg invested and potential inheritance for children, but to take (increasing) pressure off budgets over the next generations, why? Working age passed the 'demographic sweet spot' pre Covid i.e. higher proportion of retirees vs. working (and youth) with the latter in the PAYE tax system doing the hard yards. OECD data trends of national demographics show very starkly the issue, but super should prove itself in coming decades when retirees will have been contributing for their full working life (except those who have been in occupations paying cash in hand especially hospitality and others relying upon pension). However, with the existing super & means assets tested pension system, Australia already comes up in the top nations of sustainable retirement income vs. archaic state insurance type systems for pensions based on working years. Further, with some political catering to the significant post working age cohorts, there may be some reticence in applying some form of tapered income taxation to wealthier retirees, for budget sustainability. The easy option would be to cut services and benefits to pensioners and/or increase taxes for PAYE working age, in the medium term till demographics balance out electoral rolls.

September 01, 2022

Andrew, That working age people in the tax system "do the hard yards" has never changed, other than retirement age being lifted to reflect longer lives now lived. There will always be a similar tax system of hard yards to hoe. "The young" get old too, just in the future, but will benefit from 46 odd years of a full super system which many retirees now did not but they put a scurry on from 1992 to catch up until retirement. So there's bound to be reticence from them about "budget sustainability" for about 16 odd more yrs (1992 super start - 2022 = 30yrs) if live to a great age as had less time via super/employer contributions, many went without treats to catch up.
A fact oft forgot in Comments is today's retirees spent 35/40years working life with only $5400 taxfree threshold to 30/6/2000, then $6000 to 30/6/2012 until $18,200 from 1/7/2012 so paid a lot more tax on wages between $5400 - $18,200 for many yrs. That's a lot of tax today's workers escape. The Treasurer is just old enough to maybe remember working when it was $5400 if he starts to think of rejigging superannuation for budget repair and calculates the difference he saved when it went to $18,200 on 1/7/2012.

September 01, 2022

Just to put nominal and real to it.After returning to Australia after overseas working the tax free bit may have been around $5K,1982-83 is a long time ago.This was roughly 20 to 25% of average earnings.For me from a cold Europe straight to roasting slowly on the NW shelf construction sites the 60% tax rate was a shock.I think that applied on earnings over $36K but I'm not sure.Working 6 or 7 days of 12 hour shifts just to make sure we were all well roasted produced probably double average income,much the same as today.
Overseas countries raised the tax free bit in line with inflation,usually annually.

We get a return of bracket creep as a huge tax cut. $18,200 is probably 20 to 25% of average wages,give or take.

When we get the next huge tax cut,another return of bracket creep probably.A decade or so ago somebody mentioned something so I checked.A pay slip from 1990, overtime worked so slightly higher than average wages,I think the tax take on around $750 was 33%.You can work out for yourself what that would be today.Roughly $100K means $25 K in tax.

The changes over the decades,a quick return to Europe for a job in 1996 and tax had been reduced in the UK,however NICS ( social security taxes) had greatly increased.The tax was probably equal to the NICS contributions.Other changes of course were the huge changes in indirect taxation,fuel excise,VAT,( GST here) and various other indirect taxes.Try filling a car up in Germany,Holland,UK and then here.

Intergenerational is difficult,every generation convinces themselves that the previous generation had it easier and better.I really enjoyed walking to school with cardboard in the soles of my shoes to cover the hole

Anthony Asher
August 31, 2022

So Graham, what then is the purpose of a compulsory superannuation system? To build up assets so that we can feel secure and manipulate our children into behaving well towards us? To feed the financial industry? So that the rich can save tax? As I see it, the only argument with any real force is that compulsion cuts the cost of distributing (marketing) retirement savings vehicles, which are otherwise distributed by expensive commissioned salespeople. But once government takes responsibility for designing the system, they have to follow through.

Graham Hand
August 31, 2022

Hi Anthony, thanks for the question. That's a big topic for a comments section, so I'll cover one major point. If you are asking about the purpose of super FOR ME, then over 30 years, I have followed the rules - and yes, they allowed $1 million a year twice, the NCC was $180,000 a year at one stage, there are all sorts of other incentives such as $600,000 downsizer, as well as salary sacrifice - so of course over a long career, I have gathered a large super balance. That was my objective. I could have put this money into a more expensive personal residence and made massive tax-free capital gains, or I could have gone on first-class holidays or bought expensive cars.

But I saved using the super system and at almost every step of the way over decades, governments encouraged more into super. Was I supposed to self-impose a limit at the point where I thought I did not need more for retirement purposes? I am not that saintly.

If you are asking from the more general perspective of what is the objective of super for society/Australia, then that's a big question I may write an entire article on. Where I think governments went wrong was they designed superannuation for people with low to middle incomes who would not otherwise save enough for retirement. They did not put enough thought into the consequences of hundreds of thousands of people like me using it as a tax-effective savings vehicle.

September 01, 2022

All the money the government is giving individuals should have gone into the pension for everyone

September 03, 2022

Mick, yes Comrade !

September 07, 2022

Graham, What would you be doing if the RBLs were still in place? They were in the original system to limit the accumulation of large super balances and only removed by Costello in 2007 (15 years ago by my count).

Greg Hollands
August 31, 2022

At the very least, the perception of what one "needs" in your super fund to go forward into retirement is a moveable feast - generally it will vary depending upon the eye of the beholder. One of the most common questions asked of me as an accounting practitioner is that very question - "how much do I need in super to retire?" The prospect of a government edict on that question is somewhat frightening. It sort of reminds me of the statement by the then Treasurer of the Commonwealth, Frank Crean, when he said anyone who earns more that a Class 4 in the CPS is a "fat cat". A very low target indeed - but again, in the eye of the beholder. Your comments are well made about the system that has only recently been a little more focussed about how much, rather than leave that to the individual's capacity and tenacity to achieve, rather than a mandated maximum which, no doubt, will change at some future point in time when it is ( once again) reviewed in the eye of the beholder!

Graham Hand
August 31, 2022

From Crikey today:

"The wealth of Australia’s top self-managed super funds (SMSFs) continues to grow. There were 32 funds worth more than $100 million in 2020, up from 27 in 2019, new documents reveal.

Information about the top 100 largest SMSFs in the 2019-20 financial years has been released by the Australian Taxation Office (ATO) in response to a Crikey freedom of information request. The data reveals how Australia’s richest people are taking advantage of the favourable superannuation tax concessions.

Australia’s largest SMSF had $401 million in the 2020 financial year compared with $544 million the year before — each fund is identified only by its position in the top 100, meaning that the top fund may not be the same one as the year before. The next two largest had $371 million and $273 million in 2020, respectively. The smallest had $53 million, up from $52 million the year before."

August 31, 2022

These few funds hardly represent the majority position , probably the top 0.3% or less (all super funds not just SMSF's). Yes, it's an anomaly against the intent of superannuation but is unlikely to be repeated going forwards with newer funds.

Clamping down on these few mega funds might yield a little for the government, after taking into account tax minimisation manoeuvres.

Let's not throw the baby out with the bathwater though!

John Abernethy
August 31, 2022

Hi Graham,

I think we should try and understand as to how we got to where we are regarding superannuation and particularly the rule changes that allowed the acceleration of contribution amounts.

Here is my reflection on the position.

First, there was not a lot of thought ( at conception ) around the pros and cons of the “account based” pension scheme structured by Keating and Kelly. For instance - was it really for the benefit of the average person and was there a better long term solution?

Second, as the system developed over its first twenty years, Commonwealth and State governments persisted with non contributory pension schemes that were highly beneficial to the recipients and highly detrimental to the average tax payer. The Future Fund was born out of this dilemma as it sought ( and still seeks) to create a funding mechanism for unfunded indexed pensions;

3. The changes to superannuation contribution rules accelerated around the time of the creation of the Future Fund ( 2005/06) as a means (arguably a bribe) to limit criticism of the creation of the Future Fund and ensure the maintenance of excessive pension benefits to ex public servants that included politicians; and

4. Despite the forecasts made in 2006 and the near $50 billion contributed by taxpayers, the Future Fund ( today) at about $200 billion is still underfunded against its assessed liabilities. The Future Fund is not expected to pay its first pension until 2027 and it remains an aggressively managed accumulation fund chaired by the ex-treasurer whom oversaw its creation and the allowance of excessive contributions to SMSFs as a tax minimisation scheme.

My point is simple. Superannuation ( including the Future Fund) is designed to look after a small part of the population ( arguably described as elites) . The broader population whom contributes to their super account and pays taxes to pay ex public servant pensions, provide the necessary mechanism to facilitate and somehow justify a system that was deeply flawed at its inception.

Near forty years later we are battling to provide advice and investment solutions to people whom really just want and simply need a contributory national pension scheme that provides adequate income to them in retirement and facilitates their care if age or health overwhelm them, and ( importantly) endures no matter how long they live.

John Abernethy

August 31, 2022

If we are talking about public service defined schemes, the employees did contribute a percentage of their wages. The reason we now have the Future Fund is that for decades, the Governments didn't invest the employees' contributions, rather treated them general revenues funding general expenditures. Also, when Superannuation Guarantee came into effect, those with defined schemes didn't get the 9% employer contribution, but still had to contribute their own monies. Lastly, the final payout was based on final average wages and years employed. If an employee had a material balance, the growth compared to a market linked fund was poor, which is probably one reason why they stopped taking on new members.

Michael O'Hara
August 31, 2022

Totally agree, John.

The opportunity to 'fix' super disappeared when it was locked into industrial relations negotiations.

Had any government initiated a national scheme with a legislated purpose of establishing a retirement income and lump sum on earlier death or disability - then it would have the benefit of massive scale, and could offer innovative insurance and even guaranteed retirement income options at extremely low unit cost.

There are those who cry out against "government control"; the Industry Funds angst at loss of control of the nation's capital (and boardrooms); banks and retail funds would have lobbied to get their super gravy train back. Unfortunately, such a logical answer would please no-one and annoy everyone.

The average person is now being asked to decide between a host of competing super fund offers and somehow make a decision that even a financial planner finds a bit tricky. Just ask ASIC or APRA to provide a written document for a bunch of different people to help them each decide between any of the industry super funds (you can't use all of them, so which one is best?). The foolishness of this idea is extreme.

Legislation and regulation is worked on the assumption that everyone is either wealthy, well-informed or has access to affordable advice. My assumption is that legislators and regulators are now out-of-touch with the average Australian.

Add in the regulatory mess that's removed any decent financial advice from the reach of the median (not average) super member, and you can see that not much is going to change.

The end result is that it is only the wealthy who get to make an informed decision. Not exactly egalitarian, is it?

September 03, 2022

The Future Fund is a sovereign wealth fund designed to alleviate the burden on future taxpayers, as the employer did not pay any contributions. It does not pay pensions. In addition, contributions by employees were made in after tax dollars, not pre-tax dollars. These government pensions are also taxable. In contrast, state government pensions are non-taxable as the Federal Government cannot tax the states (constitutionally protected funds). I predict no-one will want to contribute to superannuation in the future as the system is constantly tampered with. No-one is going to want to contribute to a system for 40+ years if they have no idea whether they will receive payment or when.

August 31, 2022

Fair solution? Just include at least some of the home value (eg value above average dwelling value) in the assets test for the aged pension. This would get a large number 40% of wealthier retirees who don't touch their super to make the decision to spend their super more aggressively and/or downsize.

Many high net wealth retirees want at least a part pension because of the $5-6K of annual benefits (reduced rates, car rego, power bills etc etc)

The other option is to defer income tax unpaid on super plus interest as a estate tax duty on passing. P. The ATO is now keeping data on incomes and super each financial year for everyone so it can do a fairly accurate calculation. Probably more palatable than applying it to PPOR.

August 31, 2022

Retirees with high super balances won't change their spending habits because a politician changes a rule or a definition. They spend what they like & their super balances still grow over time.

September 23, 2022

Even if you are forced to take it out you can't be forced to spend it. Buy 100% franked stocks just to annoy them or stuff a mattress and pretend you put it in a poker machine. People will find a way.

Jon Kalkman
August 31, 2022

Graham, sorry to be pedantic but it’s an important point. Costello did NOT “encourage” people to contribute $1 million into super. It was a compromise between the previous arrangement and what he was proposing to legislate. Prior to 2007 non-concessional (after-tax) contributions were unlimited. These contributions were then turned it into tax-free pensions. We are talking of multi-million funds here. Costello limited those after-tax contributions to $180,000 per year after 2007 as part of the suit of other changes. In response to the howls of protest, his compromise was to allow $1 million contribution but for one year only. Those extremely large super funds are perfectly legal and still exit but the tax concessions they attract, distorts the whole discussion about tax concessions going to super, leading to suggestions that all super pensions should be taxed. And that would be contrary to Keating’s key promise. Incidentally, the Transfer Balance Cap in 2017 was the first time the tax concessions on large super pensions were limited. That TBC is now $ 1.7 million per person.

August 31, 2022

If my memory serves me well, the number of people who went ahead and did contribute $1,000,000 to their super funds was far higher than expected. I believe it shocked some in the financial world who were surprised that so many people could get their hands on this sum in such a short time.
Plus I think the year that this munificence was allowed happened just before the GFC - which would have wiped out much of the value of the $1,000,000 that had been tipped into super.

August 31, 2022

If I could see into the future and know what I will need for aged care and future health needs, I would be more inclined to draw down my super capital.

August 31, 2022

I firmly believe one of the biggest reasons people "under-spend" in retirement is simply the fear of running out of capital early. If the government could find a means to provide a realistic (meaning similar returns to a conventional super fund) annuity that one could use to fund spending, this will remain a problem. Current annuity payments are simply pitiful and much of the monthly "income" they provide is simply returning your own capital to you (ie the earnings are actually woeful due to the ultra conservative nature that assets from annuity providers are forced into).

August 31, 2022

Super has more wrinkles than a prize Marino ram.

All the fault of means tested Age Pension.

Were Age Pension paid to all living beyond a certain age (Kiwi-isation), then there would be no need for super.

Those wanting more cash in retirement than provided by Age Pension could invest after tax savings and be taxed on the earnings.

Adjust the tax rate on income and earnings to fund Age Pension.

August 31, 2022

"Were Age Pension paid to all living beyond a certain age (Kiwi-isation), then there would be no need for super.

Those wanting more cash in retirement than provided by Age Pension could invest after tax savings and be taxed on the earnings."

The problem is a vast majority of people do not save and live pay to pay! Saving and investing requires discipline, a long term plan and the ability to ignore consumption desires beyond one's sensible means. We live in a rampant consumer society that constantly encourages spending. Most find going against the herd difficult!

Superannuation forces people to save and offers some hope of a better retirement income (including access to accrued capital for one-off expenses, that just having a pension does not provide), even if just supplementing the meagre pension.

August 31, 2022

"people do not save and live pay to pay!":
As is their choice; plenty find it possible to 'get ahead' of their mortgages; some save and buy homes with cash.

"Superannuation forces people to save":
Compulsory saving is not nice, and not supportive of the "rampant consumer society" in the short term.

"supplementing the meagre pension":
Due to the means testing of Age Pension, the majority, who have between $419,000 and ~$1,200,000, have smaller incomes that those with less. Age Pension of $38,708.80 / y plus deemed earnings on $419,000 gives around $50,000 / y income. Munificence, not meagreness; exceeding cost of living by ~$25,000 / y. Plenty for an indulgent retirement.

August 31, 2022

"Age Pension of $38,708.80 / y plus deemed earnings on $419,000 gives around $50,000 / y income." My point exactly! Most people will not have saved anywhere near $419,000 were it not for compulsory superannuation. Deemed income of $7,556 (Centrelink) + $38,708.80 = $46,264.80. Data a little old, but ASFA superannuation account balances by age and gender 2015-2016 in the 60-64 year old cohort shows men with a mean super balance of $270,710 and women $157,050. Mixed mean is $214,897. Are not people better of income wise then, because of some superannuation savings, enabling access to capital if needed for unexpected expenses plus likely returns in excess of Centrelink deemed income adding to the full pension? If superannuation were abandoned, many would have nothing (savings) but the pension in retirement!

August 31, 2022

"Most people will not have saved anywhere near $419,000 were it not for compulsory superannuation.":
Would be their choice mostly. Not as though they did not know that people, including themselves, age and eventually either can not sell their time or run out of it.

"Deemed income of $7,556 (Centrelink) + $38,708.80 = $46,264.80":
Without deemed income, $38,708.80 / y - $25,000 / y cost of living leaves $13,708.80 / y for saving - or boughten entertainments.

"better of income wise then, because of some superannuation savings":
Some savings - less than $419,000 - which they could easily save without being horse whipped into Super, especially with a small marginal income tax rate.
= PMT(1%, (67 - 18), 0, -419000)
= $6,668.28 / y
2 minimum wages:
= $84,510.40 / y
Savings rate:
= $6,668.28 / $84,510.40
= 7.89%

August 31, 2022

ahhh, us good old taxpayers solve all the problems right ?

August 31, 2022

"consume their super as income"? err 'consume their super capital' perchance?

Super withdrawals are of capital, not income.
Income is earnings on capital, not capital itself.


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