Welcome to Firstlinks Edition 497 with weekend update

Well $3M is the figure. Higher taxes from 2025/2026 on earnings from amounts higher.

Now, how about those under preservation age being allowed to take the amounts over if the wish.

What about employer contributions? Can we take them as salary/wages if we choose to.

The $3M HBC does not upset me. It is however a line in the sand saying that $3M is enough to provide retirement benefits.

If that is the case, we should be free to use excess amounts as we choose, or leave it in the Superannuation System if we choose.

Note to super funds: I am a simple person and I want the same from my super fund: just maximise my returns. That's it. Nothing else. Please don't use my money to chase esoteric social objectives, to save the planet from fictional catastrophes, to be part of a "re-imagining" of superannuation, to end all manner of supposed battles - "super wars", "climate wars", "culture wars", "infinity wars" (actually that last one may be real), to preen and pose about your ESG and "sustainability" credentials etc etc. Just the basics of investing is fine.

No super fund is going to do that Phil. Read carefully what your fund says about "responsible investment" and you'll see that top returns is exactly what it's about - understanding the risks to investment returns that various factors pose and managing them properly. Making impact investments is always about projects that provide strong risk-return characteristics while delivering good social outcomes.
Make sure you attend your fund's Annual Member Meeting and ask them about it.

Well said Phil.

One discussion point missing so far, is that concerning defined benefit pensions. Given that DBFunds were the main form of super over many decades in Corporate businesses, there must be many thousands of recipients of those benefits. So, if we plebs who missed out on these guaranteed benefits are to be subjected to super caps , then would it not be appropriate for the actuaries to value those pensions for the purpose of taxing any excess benefits above the proposed cap? There would be quite a few politicians, of all persuasions, enjoying their taxpayer-funded guaranteed retirement income stream who would not like the prospect of having an additional tax imposed on a portion of that income. But then, they still have the fund guarantee to keep paying at a stated annual index percentage, or the CPI , whichever is the lower, for the rest of their lifetimes. Of course, on their death, the most common outcome is that the income stream reverts to a surviving partner, or if single at death, the pension ceases. So, maybe not such a great estate planning tool after all!!

On the matter of an account-based pension valued at, say, $2M TBC, being drawn at 5% from 1/7/2023, assuming over age 65, that's $100,000 over the 12 months ahead, $2000 per week. Tax free. Assuming the house is debt free, and no other debts, that would appear to be a sufficient income for most to have available to meet lifestyle costs. And remember, that account-based pension, under the current rules, is meant to last just until we pass on, according to those clever people who calculated the drawdown percentages all those years ago.
So, really, if one WERE to have additional , or "excess" funds available, where some additional tax was to be imposed on the earnings, it's unlikely one's lifestyle would be greatly impacted. Further, if required to redeem those excess funds, assumed to be tax free on withdrawal, then I guess the smart investor might find a way to purchase other investments where the tax concessions removed in the super system could be reclaimed. Negative gearing and franking credits anyone??

Putting equitable and sustainable in the objective of superannuation will ensure a war over super forever, as it will be very easy for those seeking to raid super to mount arguments on those two very subjective measures. You can be sure that politicians will not measure your super against theirs, but against the poorest retirees. If the objective is to deliver income for a dignified retirement, then that is the measure and not measuring equity and sustainability against cherry picked others. Saying that super needs to fit within the broader fiscal strategy is wrong, because retired people require income to pay for their living expenses irrespective of the 'broader fiscal strategy'. The broader fiscal strategy must fit within the delivery of income for a dignified retirement, not the other way around. Fitting our super within the broader fiscal strategy is code for Labor spending our super on their pet projects, like social housing and climate change. How does the government spending our super on low return projects like social housing deliver income for a dignified retirement to us? Labor wants to stop us using our super for our own house, but simultaneously thinks that it is okay for them to use our super for a house for someone else! Equitable and sustainable is just code for giving politicians an excuse to raid our super whenever they want, which is the opposite of ending the super wars. If the objective of super is to deliver income for a dignified retirement, then any capital in excess of that required to deliver that objective has no justification for being in the super system, which is obviously why politicians have defined that objective. The question then becomes what is the amount of capital required to deliver income for a dignified retirement? This has already been decided by a previous government introducing the Transfer Balance Cap (TBC) of $1.6M indexed to $1.7M and soon to $1.9M, then $2.1M etc, which is the maximum allowed to be transferred into a pension paying income account. The clear implication is that the TBC is sufficient to deliver income for dignified retirement. If the indexed TBC is sufficient to deliver income for a dignified retirement, then anything above that should not be in super. The contribution caps are already in line with this. Once the maximum contribution has been made up to the cap limits, then no more money can be contributed, BUT after that there should be no limit on your super balance which is a result of investment growth. The cap (which already exists) should be on contributions, not on the super balance, which is unpredictable due to markets. Once your TBC has been fully utilised (currently $1.7M) and a pension commenced, then any excess currently sits in accumulation and is taxed at 15%. It is this excess above the TBC of $1.7M which the Labor government is clearly unhappy about as some amounts are very large in $10s or even over $100 of millions. It is very hard to argue that these huge amounts have anything to do with a dignified retirement income, however previous governments allowed very high contributions, which is not the fault of those who took advantage. This is a self fixing problem anyway as those amounts will exit super upon the members deaths. If Labor can't help themselves from raiding our super then changes should be grandfathered and not retrospective. People that are already retired or close to it should not be impacted. Any changes should also apply to politicians and public servants in the interests of equity and sustainability. Politicians should be on the same retirement system as everybody else, as it is unfair and a conflict of interest for them to make laws which negatively affect our retirement income while they are on a different lavish early access taxpayer funded retirement scheme plus taxpayer funded perks that we don't get either.

I sent an email to the previous finance minister some time back re the TBC being a line in the sand of sorts saying if this is deemed sufficient for retirement needs then if you have extra you should be allowed to take it out regardless age.

As for the limit in TBC, by the time I'm 60 it might be $2.5M and if I put $2.5M worth of shares in XYZ that pay an 8% fully franked dividend and I only draw the 4% minimum, that TBC amount will grow, which is allowed.

I got out of super the moment I retired!!!! Where has it all gone???? My secret Jim,Anthony,Chris and all you other self serving,"feather your own nest"politicians!!! PS I've done better in the last 5 years than leaving it where it was!!!

Certainly not about shaming those who merely took advantage of the system, but more about getting the system back to what it was designed for. Currently it's a haven for very large balances receiving tax concessions - not what it was defined for. For "a comfortable retirement" there should probably be a balance limit to achieve this purpose and then heaven forbid the owner would have to withdraw some millions and invest them elsewhere much of which probably entered the system with a tax deduction. It's important that individuals are not worse off by making the withdrawals, just no more concessions going forward, with SMSFs in particular needing to be given a reasonable time frame to liquidate where necessary.

A case study on ‘social housing’ via SMSF (a real-life example):-
- Average (refer table in article) SMSF invested ~720K in a duplex at the time of setup/establishment
(Classic mistakes: too much in one basket, off the plan purchases always overpriced);
- During accumulation, paid off loan, collected rent, and paid virtually no tax on rent income (negative gearing), while asset value ‘catching-up’ with market prices (still showing ‘nominal loss’);
- Entering pension phase SMSF ‘maintained’ low valuation (using aggressive depreciation methods), and offered low rent (~20% below market values) for tenants (single mums, retirees);
- Enter Covid, property boom, increased costs (insurance: +65%, rates: +35% for investors), and pepper with the compulsory withdrawal requirements - the SMSF was forced to sell;
- Total (net) return on investment (9 years): ~64.26% (~32.65% rent + ~31.61% capital gain, ~no tax);
Conclusions:-
- Decent average return (~7.1% pa, no complaint), but not sustainable in pension phase;
- Too much trouble, typically dominant, illiquid asset in ‘average size’ SMSFs
(unlisted property trusts would’ve been probably a much better option, with even higher returns)
- Happy first home buyers (two young couples), but a loss of ‘social housing’ units for rent;
Questions:-
- Could the BFIN provision be interpreted as more than just about money?
- Could the government really support SMSF investments in social housing? How?

I think you are all getting sucked in on the possibility of a Cap - be it $3m or $5m and the implication it will be a "hard cap" where you actually have to take funds out each year if you are over. Don't believe that is going to happen as it would be a total administrative nightmare for the ATO, Industry and Retail Funds +SMSF's which clearly are the target.

Think it through - you have an illiquid property, unlisted assets, private equity that would need to be valued and disposed of, if over - way too hard! Much more likely in my view that the tax rates inside Super, probably over a threshold and closer to the Corporate tax rate for mega earnings. In Accumulation mode, almost certainly, in Pension mode, not so sure, as those funds were effectively capped in 2017. That sort of structure "fixes" the tax take. Remains a broken promise!

And do not forget, Shorten and Bowen conspired to lose the unlosable election in 2019, by an attack on franking credits. Do they want a repeat? Do they want to unravel all confidence in Super, across the generations?

While we wait for word from the mount, might be an idea to check your unrealized cap gains!

Rob Totally agree. They shouldn't be calling it a 'cap'. We don't want to end up with another administrative nightmare like the TBC. The excess income over the $3m per member zone (or whatever the figure and whatever it is called) should be treated the same as where a member is partly in pension mode and partly in accumulation - just two different tax treatments. If there needs to be an acturial certificate, as in the part pension/part accum, then so be it.

That is the likely scenario, however we don't have confirmation of this yet. Could be a case of policy in the run. Leak out an idea, gauge perception of it. Governments do this all the time.

Should be the option to take it out though. Especially if one is still under preservation age.

Amounts over $X will be taxed higher if you don't take it out. Likely 30%. There are options available that would result in a lower tax rate than this for some, so the option to take it out should be there.

In specie transfer of assets from Superfund to oneself should be available too.

Jeremy - remember when the TBC was first raised - the Labor concept was to tax pensions, over $75,000 as I recall but could be wrong. This is likely to be a re run - net effect/objective will be to unscramble "Costello 2007"

Hi Graham
Your comment quote 24 feb 23 " So a couple can place $4.2 million in a pension account with no tax on their earnings " Yes the proposal is $ 3 million per account ?
Are you indicating that all pension accounts be taxed ?
What is required is drawable % be increased for pension account more that say $ 3 million.that way account greater that $ 3 million will gradually decrease.
In my opinion The rich will always be richer because they have ways to earn and minimise the tax..
Always easy to give an opinion when not affected with changes.

Hi SN, the point I am making is that with indexation of pension amounts, by the implementation date (say 1 July 2024) of a potential $3 million INDIVIDUAL cap on super, a COUPLE could start tax-free pensions worth $4.2 million. I am not saying pensions will become taxable, no government would do that.

"I am not saying pensions will become taxable, no government would do that."

I would like to believe you but I am not so sure.

They keep changing the rules so I wouldn't rule out a 5% or 7.5% tax rate in pension mode at some point in the future.

If they tax pension funds, that would also apply to industry super funds as well. That cuts into their investment performance that they like to trumpet and therefore also the fees they generate. Labor would kill the goose that lays the golden egg.

Will this apply to the Politicians' super which I believe they can access early?

"Shame on them for leaving their money in a government-designed scheme."

Fair play to those who use the system to their benefit, agreed this is nothing to be ashamed about. However I must say again I feel sorry for the minority whose sense of entitlement and self-interest now seemingly leaves them unable to see clearly or fairly around what is equitable and sustainable; lacking in community spirit or give back; and lacking gratitude for the fact they have benefitted far more than their fellow citizens for decades, and will continue to benefit far more than the average even if a reasonable limit is now applied. All these articles on super changes, age pension, franking credits and the comments they provoke and great examples why there is little correlation between wealth and genuine happiness beyond a basic level. Wealth needs to be managed carefully not only in a financial sense but wrt how it can feed the ego, greed, attachment, anxiety, isolation. Many "successful" people somehow forget where they came from and the things that truly matter.

Hi Adrian, let me ask this on your "they have benefitted far more than their fellow citizens for decades, and will continue to benefit far more than the average even if a reasonable limit is now applied" in relation to the $3 million cap.

How do you feel about the increased limit that will apply to tax-free superannuation pensions of $1.9 million per person from 1 July 2023, likely to rise to $2.1 million a year later. So a couple can place $4.2 million in a pension account with no tax on their earnings, with the government finding new ways for people to put more into super such as lowering the downsizer age to 55 (allowing $600,000 into super, not subject to other caps). This tax-free pension level will reach $5 million in a few years. So let's eliminate that feast for the rich. Now, what else should be fix? Lump sum drawdowns from super, can't allow that. Super is for income in retirement.

Graham could we not put some of the self interest to bed with a a simple formula?
In the land of the fair go, surely nobody could (publicly at least) be offended if we said we’ll cap the maximum amount anyone can have in a tax-free environment at, say, ten* times the median holding at retirement or similar?
* ten might not be the number - perhaps it’s six, perhaps it thirteen.
Such a cunning plan might just turn out to be an inducement to get that median value up by elevating the holding of the least-well-off in our community. Hopefully that would not offend too many.

Graham, surprised you are making a point, presumably about the possible $3m or $5m individual caps, with couples balances! Given nothing has been decided, one is speculating, but presumably past practices might dictate future rules, so the cap, say $3m cap will be as at say 30 June 2023 or 2024 and will, like the $1.6 pension threshold, be a cut off ie if your balance then goes over that then it will be ignored.

Your comment about lump sump withdrawals not being allowed is also spurious as there is no upper limit on pension withdrawals, just minimums, and at present, the only reason for taking a lump sum from a pension account is that it counts against the $1.7m pension limit, whereas an additional pension payment does not. If you have more in super than the pension limit, I’m sure you won’t be stopped from taking lump sums from accumulation accounts as they simply help reduce the total amount in super and therefore the level of government subsidy.

There are also good reasons why downsizer contributions should be limited to those with lower super balances and that they should count towards your total super balance.

And while the Government is at it it should look at all other middle class welfare eg childcare, paid parental leave, seniors health care cards, etc.

Hi Graham,
as others have commented we await the details and there are ways to implement this sensibly and avoid forcing people to liquidate assets, e.g. tax income on holdings > the max limit at 30%. My comments support the principle that the existing system is inequitable and unsustainable. The tax system is very inconsistent, what is the point of steeply progressive income tax paired with effectively regressive approaches to superannuation and own home exemption on CGT and means testing. It drives income inequality, gaming of the system, inter-generational angst and inefficient use/allocation of resources. As I said, those who have the assets and the inclination to optimise their affairs will continue to push up to any revised limits, and therefore will continue to benefit with tax incentives far more than the average Aussie who has far less assets or time/care factor (e.g. many good people people like teachers who educate our kids and nurses who look after us when we're sick). Personally, I'd be grateful and considerate of those less advantaged, rather than cry foul.

@Old

Limits on withdrawals will come about in the not too distant future as we are going to have around 4M baby Baby Boomers and GenX reaching preservation age and retirement age that fully intend to pay down mortgages, help kids out, renovate and a number of other things.


Superannuation is meant to help fund or part fund your retirement. Governments will want us taking pensions and Annuities to make our Superannuation last and also help with liquidity issues for funds if a huge number of people start drawing cash from their funds.

A lot of funds monies are tied up in infrastructure, commercial and retail and bonds.

"This tax-free pension level will reach $5 million in a few years. So let's eliminate that feast for the rich."

Personally in order to raise more tax I would rather they just freeze the cap (TBC) at its current $1.7m limit, rather than keep fiddling with other superannuation rules. Over time inflation would make the amount in tax-free pension mode smaller meaning more tax would be paid by those with larger balances. Also perhaps the minimum drawdowns should apply to your total Super balance rather than just the amount you have in pension mode.

"Now, what else should be fix? Lump sum drawdowns from super, can't allow that. Super is for income in retirement."

Not sure if you are serious Graham or suggesting that is what a government will think? Personally I think that you should only be allowed to do lump sum drawdowns on amounts in accumulation mode where you have already used up your TBC. So you should only be free to drawdown "excess" super above and beyond what you can put in pension mode. Maybe we would also need maximum as well as the current minimum pension rates.

A less than expected level of humility in many of the replies. Of course its not fair to allow unlimited tax free benefits. The question is simply where do you draw the line (a fraught question when families on half a million expect some taxpayer support for childcare!). So lets take $3M (per member I presume). So $6M for a couple. At 5% pension payment that's $300k per year tax free income. If you have assets that exceed $6M and you have to invest them outside the super scheme, you simply have to declare the income on this and pay tax. With a tax-free threshold around $18,000 per person ($36k for a couple) you need around $700k in outside assets, but likely you'll have franking credits so lets call it around $1M investable outside super with still nil or very low tax. So we're up to around $7M in assets producing $340k in tax free income. Not counting the primary residence which could add a few million more to the assets. To the vast majority of Australians that is not unfair, it is still likely to be considered extremely generous in the proverbial "pub test".
To me the big thing here is Labor seem to have learned from the envy war of the previous election where they targeted virtually all SMSF account holders as collectively the Top End of Town. They used examples of very few people with $50M in assets as a reason to remove franking credits from those with much, much less, and whose income was not much more than the age pension. That was very dumb politics. This is smart politics - target the top 1% and the electoral damage is zero (as most of these won't be lost votes to Labor will they...).

Housekeeping: tax-free threshold SAPTO $29,783 / y, couple $59,566 / y. 31.5% tax on $1 more. $1,191,320 @ 5%. https://paycalculator.com.au/

The SMSF with $100M is:
1 of ~598,000 = 0.00016% of all SMSFs.
$100M / $822G = 0.012% of all SMSFs assets.

Not even a 1%er whichever way.

Seems to make some ravingly jealous but might be a fine example of how to invest via SMSF from which to learn - or not.

If the contributions or earnings are illegitimate then that is a legal, not a super, problem.

If shown to be legitimate then argue if mob jealousy would be abated restrictions.

I suggest abolishing super and Age Pension Means Tests and adjusting tax rates.

I suggest reading comments before replying. Never mentioned $100M funds, just as a throwaway line example of very high asset accounts (I used $50M as a number) as an excuse to attack all SMSF's. But we are talking about funds (or more particularly, individual whether in SMSF's or not) with members holding >$3M assets. Whether that's 1% or 2% or 0.3% is not the point, its the realisation that Labor have that having more targeted policies will be more politically palatable if they only affect those who are unarguably very well off. And at the end of the day they don't lose any assets, they just have to find a different tax shelter besides superannuation for the excess. Or God forbid pay some tax.

"Of course its not fair to allow unlimited tax free benefits."

Tax free benefits (pension mode) is NOT unlimited. Current max is 1.7m soon to probably increase to 1.9m.

"So $6M for a couple. At 5% pension payment that's $300k per year tax free income."

If both partners in the couple are in pension mode then maximum is 5% of 3.4m or $170k - so just over half of your 300k a year.

I have read that this change would raise 1 to 1.5 billion in tax. These calculations are never correct as they assume people do not react to the change and adjust their strategies.

With limits now placed on concessional & non concessional contributions the accumulation of large balances seems unlikely to me. The current system is regressive in a way in that the biggest tax breaks go to the well off. I agree with Dudley, abolish super and implement a non means tested pension like in NZ. The Australian system seems designed to ultimately hand power to the union funds that then provide financial support to Labor.

My question of Chalmers and his rabid haters of anyone who's well off is thus. When does it end? I mean someone who is under the $3mn cap today - let's call it $2.9 mn - will in 5 years have $4.7 mn if all that happens is their portfolio grows at 10% per annum. That's not impossible in a good growth portfolio with dividends reinvested.

So what happens then? Does someone who wasn't regarded as excessively wealthy in 2023 going to pilloried in 2028? Because $4.7 mn is in 2028 still going to be regarded by many as making you rich.

The philosophy behind this proposal doesn't give me any comfort that it will "end the super wars" as Albanese hopes. Envy and jealousy is a monster that can't be killed off that easily.

Sigh ....

The High Balance Cap would be indexed, same as current TBC is. TBC started at $1.6M and went up to $1.7M and is now set to rise to $1.9M

Mark, I wasn't talking about the cap on what's in pension phase, but the cap on the total you can have all up.
Even if they index that, a well invested portfolio makes a positive real rate of return over time so would still grow to a level that may well be regarded as 'excessive wealth' in 5, 7 or 10 years' time - all because an amount deemed reasonable one day is invested soundly.
The ''logic'' behind having a cap at all escapes me. What they need to cap is how much people can put in. Limit that - as they do these days - and so what how far it grows.
Really they should be saying in response to all the nonsense about how much some people have in super is this:

"In the past the amount that some folk could put in was too generous - eg Costello's $1 mn free for all, among a few other things. But those were the rules back then and it's unfair now to denigrate people who took advantage of them as if they're tax dodgers and anti-social beasts. Further, we acknowledge that sound investment strategies - which APRA claims to want for everyone {though heaven knows how their heat map is going to achieve that} - have seen those funds grow. Good for them! But we are going to limit from today how much people can put in so that high income earners simply can't build a super portfolio at the rate they've been able to in the past."

Of course that doesn't address the real issue - they want a tax grab. So why not just say that and put the tax rate on all super earnings up to say 20% in accumulation and 5% in pension, from this day on. EVERYONE all the time faces the possibility of higher taxes. Putting super fund earnings tax up a bit would be treating super investors with the same dignity as an ordinary citizen that faces a higher income tax rate. Instead of demonising them.

The likely outcome is that when a High Balance Cap comes in is at the end of the financial year if you're over, you'll have to take the excess out or it will be subject to higher tax rate on the earnings it attracts. I don't believe anyone needs more than $3M in Super to fund or part fund their retirement. How would such a Cap work? What if you're under preservation age, can you take excess out or do just cop the extra taxes imposed until you can get the money. Will it be compulsory to take excess out or can it stay there and just cop extra tax. If you are still working,so you still have have your employer contributions paid in or can you take them as salary or wages. Yet to hear a reply, they probably haven't a clue yet either on some of these.

"don't believe anyone needs more than $3M in Super to fund or part fund their retirement":

Don't need any super at all. For home owner Age Pension is adequate, Age Pension Asset threshold capital is nicer.

Abolish super, full Age Pension for all age eligible.

Well it looks like I was wrong, not indexing the $3M limit

Happy with the Cap being in place but I think it should be indexed.

Inflation in time erodes the value of money, indexing helps retain purchasing power.

Won't be surprised if indexing does come about in regards to a HBC.

Assuming the 10% return is taxed under the new scenario, the part under 3m will grow at 8.5% (10% less 15% tax) and the part over 3m will grow at 7% (10% less 30% tax)

Graham, it is disturbing to see all the arguments criticising the current government for attempting to bring super back to its original purpose were not there when Costello abolished the tax on pension withdrawals and thus taking super away from its original structure. Sadly the loss of revenue since then (combined with the added creation of unintended tax imputation refunds) is contributing to the massive debt left for future generations to address. The old adage, "it's only a rort if you're not in on it" seems rather appropriate.

"unintended tax imputation refunds":

Those are to add symmetry to the intended PAYE tax credit refunds.

Yes, agreed, but when the tax on withdrawals in pension phase was abolished, that increased the imputation refund as the taxable component moved to zero. That was not intended by Costello in his mad rush to curry favour with retirees and has compounded the ever decreasing tax revenue from super. Someone has to pay...eventually!

"That was not intended by Costello in his mad rush to curry favour with retirees":

Costello was faced with a mega-flood of taxes and no bonds left to redeem - no obvious place large enough to stuff the treasure. Considered a sovereign fund and decided the loot belonged to the people from whom it had been plundered. Their super python would swallow it all and slowly digest it.

"Sadly the loss of revenue since then (combined with the added creation of unintended tax imputation refunds) is contributing to the massive debt left for future generations to address.":

China Price resulted in manufacturing shipped offshore while deflation was imported with the Chinese goods. To keep unemployment politically acceptable, interest rates were deceased without creating inflation due to goods deflation. Smallest interest rates in the history of the known universe increased 'borrowing capacity' eagerly sucked up by the FOMOs - resulting in large debt to income ratios for them. Government debt is largely due to pandemic response. Government has benefited from a free loan, being shrunk by inflation, from shareholders of about $300 billion of unclaimed franking credits.

I read in The Oz today that removing the ability to withdrawal a lump-sum, even once a condition of release has been met, is on the cards. This would mean the only way to access your super will be in the form of a pension.

If you can't withdraw a lump-sum or shut down the account, think of all the Death Benefit Tax that will flow into government coffers instead of to the beneficiaries of your will when you die.

These people are dead-set socialists!!

I wrote to my super fund, CareSuper, this week to inform them that if the trustees are going to support the socialist diatribe 'The Doctor' is spouting, I will rollover to an alternative that is not going to be sucked in by the propaganda.

I doubt trustees will invest if the investment case doesn't stack up however, if enough members indicate to their fund that they will rollover to an alternative if their fund sings along with 'The Doctor's' tune, it may have an impact.

"removing the ability to withdrawal a lump-sum, even once a condition of release has been met, is on the cards. This would mean the only way to access your super will be in the form of a pension."

This is a very real possibility, if not immediately, then certainly in the not too distant future. Is this one of the "real" reasons behind the proposed changes and introduction of a "purpose" for super? The introduction of a death duty by stealth?

I believe you are correct Rob...

The hidden agenda is to 'quarantine' the taxable component inside super forever in order to get 17% in DBT when the remaining balance passes to a deceased estate.

Think of the current 'contingent asset' on the government's books that exists on the $3,500,000,000,000 total super balance, which is compounding.

As most people's super would be in the taxable component, via concessional contributions over their working life, if we assume that 80% (which I feel is conservative) of the total amount in super is in the taxable component, the contingent DBT liability for members = $3,500,000,000,000 x 80% x 17% = $476,000,000,000!! And growing...

Treasury will know this because APRA will know the taxable component balance for all the funds they regulate, and similarly, the ATO will know the taxable component balance within SMSF's.

Over the life of super, your concessional contributions get hit 15% on the way in, then the profit in accumulation gets hit 15%... and as a parting gesture for the service to your country, your taxable component gets whacked 17% as you are laid to rest, or having your ashes scattered.

This will impact beneficiaries of deceased estates. Don't bet on an inheritance being able to wipe your mortgage because you won't get as much as what you think you will!!

It's not until people realise they're going to get hit in the hip pocket will they wake up to what is going on. The sad part is, no one in the media or the opposition seems to be able to counter the socialist rot and/or explain this to general public.

As Charlie Munger said, "show me the incentive and I'll show you the outcome..."

I've been saying for a few years now limits on Lump Sum withdrawals are coming. The reason became blindingly obvious to me.

We are an ageing population and have around 4M Baby Boomers and GenX coming into Preservation Age and retirement age over the next 10 to 25 years. Average Superannuation balances for these two groups are higher.

If a good portion of these two groups start taking all their Superannuation to pay off mortgages, renovations, new cars, help kids out etc there is going to be a huge liquidity issue for funds.

The funds don't have that much cash assets
The invest in commercial and retail buildings, infrastructure, government bonds all things that pay a clip or give income but are illiquid


The other issue becomes a government problem, that money that was meant to help fund or part fund retirement is diminished..

More pension payments either outright or people that would have got a part pension now get a full.

Limits on withdrawals are a given, just the timing off their introduction is the thing.

Boomers will be protected. If I was a betting man, I'd say GenX will cop it.Those of us born after 1st July 1964. ( Same group that have to wait to 60 for their preservation age)

I would think limited Lump Sum withdrawals would be available, just not whole balances.

I should have mentioned that the inability to make lump-sum withdrawals will make extinct the 'withdrawal/recontribution' strategy which is employed to reduce the taxable component and thereby mitigate Death Benefit Tax, which is their 'prize'...

"The hidden agenda is to 'quarantine' the taxable component inside super forever in order to get 17% in DBT when the remaining balance passes to a deceased estate." Simple. Leave it to your spouse (or a dependent child if you have one) and make sure you don't die at the same time as your spouse! The deceased' super can then cashed out, if you wish, tax free. If you're the one remaining, find another spouse (younger) to leave yours to!

That won't make any difference James. The 'taxable component' retains it's characteristic/proportion for life, which means when your dependant goes, and super eventually passes to a 'deceased estate' that's when the 17% Death Benefit Tax is triggered. The only way you can completely mitigate DBT is via a withdrawal/recontribution strategy, if eligible to recontribute, or withdraw it completely from super. If you can't make a lump-sum withdrawal or close a pension account, that 'taxable component' will be quarantined and it's a only a matter of time before it gets whacked 17% DBT. "Death duty by stealth" as Rob has quite rightly stated. 

Is it fair? That's ultimately subjective, but I can see why those affected would be filthy. You've planned for it and they're proposing to change the goalposts. I get it.

But the bottom line is over the last 20 years governments of both persuasions have baked in a structural deficit that someone has got to fix. Targeted spending cuts is part of that, but that's no silver bullet as we're going to spend more social services with an ageing population, an increase in NDIS funding even if they cut the rate of growth, and defence spending growing to 2% of GDP.

In the end an increase in the revenue base has got to come from somewhere.

Indeed, S2H, but there are two sides to the budget and there is always money for pet projects such as car park rorts and clay pigeon centres. How about this: The Federal Budget just gave $3.5 billion to Queensland to host the Olympics including $2.7 billion to rebuild the Gabba. We spent a billion to replace Allianz Stadium with ... Allianz Stadium and let's not go anywhere near submarines, Snowy Hydro or billions on consultants each year. The cost of the Olympics has already doubled since we won the bid, and of course, it will blow out further for a two-week event.

Graham,
How does the proposal purport to deal with the entitlements of those retirees that are in defined benefit funds (including politicians). I recall that the Liberal' Government's immoral amendment to entitlement rights of 2017 included provisions that dealt with defined benefit funds in addition to accumulation funds where the lifetime contribution was concerned?
On another subject, have the architects of the present mischief, explained how the quantum of $3 million was arrived at? Presumably there is some defensible basis to the cornerstone of the proposal which they could share with those who will be disadvantaged. In the interests of fairness, there must be some Treasury odd bod amongst the ranks that can explain in a reasoned way, how the quantum was arrived at.

Do you really think it is fair to have NO limit on how much money an individual can retain in the extremely advantageous tax environment of superannuation?

Government should just go back to the original plan setup under Keating. Be a lot easier and raise heaps more cash. 15% tax across the board (even in retirement) and no Franking credit refunds.

No doubt people will have a heart attack at this but it would still be the best tax structure going and let’s get real, we can’t afford 55billion in lost revenue when the fed government owes 1trillion bucks.

Why "no Franking credit refunds"? They are fair and logical and entirely reasonable.

$3 million cap is per account holder ?So a senariyo 4 members fund with member 1 in Pension account $ 3.5 million(started at 1.6m) other 3 members in Accumulation account with $ 250 k each.So total in SMSF is $ 4.25 million.To reduce this fund by 0.5 million (3.5-0.5) will affect the 3 members big time ?
Perhaps Pension draw down percentage be increased so balance can gradually comes below 3m and more importantly other funds do not creep to 3 million.

Hi John, on your question "Why do the assets need to be liquidated. Why not in species transfers to the member." It depends on the asset. The ATO limits the types of assets that can be transferred in specie: "Generally, you must not intentionally acquire assets (including in specie contributions) from related parties of your fund. However, there are some exceptions to this rule, including listed shares, other securities and business real property (land and buildings used wholly and exclusively in a business)."

Thanks for that Graham

But it sounds like this is referring to the fund receiving in species contributions from members

And if there is any legislation preventing in specie transfer to the members it could be amended to solve rush liquidation problem caused by capping total super balances.

But as mentioned by other people a higher tax rate on balances over the cap would be much simpler.

How many of these 11,000 SMSFs with balances exceeding $5m hold just one or two assets, namely commercial and industrial property? An asset that is not only illiquid but non-fungible in nature. My guess is that members of such funds would have become very nervous when the Turnbull Government introduced a cap on pension funds some years ago. There goes my tax-free income stream and tax-free capital gain in retirement. And now, we have the next extension - a likely cap on all super balances taking into account accumulation-style funds. When the asset involved is illiquid and non-fungible and vehicle of choice is largely unregulated, I would have thought that the combined liquidity and legislative risk heavily outweighs the beacon of any future tax benefit.

A simple solution to excess accumulated super would be to allow super in excess of $3 m to go into an Excess Accumulated Super Fund and be taxed at 30% (profits and CGT). The tax rate is now the same as the company tax rate and allows the money to stay in the Fund or eventually to be removed (important for illiquid assets).

Simple solution for negative gearing is to only allow an interest deduction against taxable income with the excess to become a capital loss.

"30% (profits and CGT). The tax rate is now the same as the company tax rate":

Company tax is refundable tax credit for resident shareholders.

Dudley
I am sure there is a point to your comment, but I am not sure what it is.

Oh and those refundable tax credits are also assessable income.

"The tax rate is now the same as the company tax rate" - but it is not the company tax rate which only applies to companies. Hence, it does not give rise to imputation credits and by implication, refundable tax credits.

There will be higher tax payable, that's a given.

What needs to happen along side this newer higher tax is the ability to take the excess amounts out if Superannuation if you are below preservation age. The ability to invest outside of Super and pay less than 30% tax is possible so people should have the option to do that.

Problem with changes to Super are people's money is still locked away and you have to cop the changes. This is a major change and also the government saying $x is enough for your Super.

Well, if it is enough, give me access to the extra at anytime I wish.

The "debate" must include politicians superannuation and its ongoing cost and sustainability.

Editors piece always welcome.
“But a $3 million cap is a major change. Thousands of people with illiquid assets in their SMSFs will be forced into asset sales and a substantial reorganisation of their retirement planning. “

Not sure that “ thousands” is a correct figure. As you make clear, shares - at market value - can always be transferred off market to personal names and this will cover most of those drawing down to $3 or $5m. The whole exercise is only going to affect about 30,000 or so. So I think ‘thousands’ is an exaggeration.
Regards Ian McGaw

Thanks, Ian, I did worry about that number, but here are more reasons.

There are 1,127,384 members of SMSFs and 3% of them are over 85. That's 34,000. They are required to draw pensions of between 9% and 14% of the balance of their super account. A further 14% or 156,000 are aged 75-84 and required to draw a pension of 7%. So that's nearly 200,000 who must ensure their SMSF remains liquid enough to pay large pensions each year, not as a one off. Around 20% to 30% of the balance must be paid in pensions for people over 90, and that cohort is increasing quickly.

Also, large SMSFs hold disproportionally high allocations of 10% to 'non residential real property', often offices for the business of the trustee which are illiquid. And many property and other funds are locked up for years with no meaningful liquidity facility.

So while you say shares can be transferred, we should not force SMSFs to leave all their illiquid assets in super and move their shares and cash out. And shares often carry franking credits which help to manage the tax payments in an SMSF.

With such big numbers, I'm comfortable 'thousands' is about right as trustees are forced to reduce the size of their fund PLUS meet their pension and other liquidity requirements.

We have in Australia probably the best retirement income system in the world. It clearly does need a specified objective. e.g. to provide a retirement income sufficient to support a comfortable retirement. A 'comfortable' retirement income could be defined as being, say the 66 percentile of average weekly earnings. The maximum balance can be calculated from that and life expectancy etc... This would likely result in a maximum balance of between $3m to $5m.
The superannuation system should not be a tax payer subsidised investment scheme. Therefore any balances above the maximum should be taxed at marginal income tax rates as if they were held in the hands of the individual.

Another suggestion... :-)
Super balances on death can only be transferred into the superannuation account of beneficiaries.

Dear Graham

The hypocrisy of the following statement referencing Wayne Swan needs to be aired - but not for what he said but for what he failed to state and continues to fail to declare.

"Then Labor Party National President and Chairman of Cbus Super, former Treasurer Wayne Swan, weighed in at the $3 million level, telling the Today Show:

“But the truth is if you have $3 million in an account, you're doing pretty well and you don't need tax concessions from every other taxpayer.”

Mr Swan is presumably a recipient of a Commonwealth Public Service pension.

He Is presumably entitled to this life pension which is indexed (also partly taxed) under a scheme that was originally unfunded.

Mr. Swan's presumed pension is currently paid out of consolidated tax revenue because the Future Fund does not and has not paid a pension to its beneficiaries.

The Future Fund was created to protect the entitlements of pre 2005 participants because they were a unfunded and a growing liability.

This a big issue that no one in the press wants to address or investigate. Meanwhile the public beneficiaries (particularly ex politicians) of the Future Fund never disclose their entitlements (conflicts) when giving their public opinions on the superannuation rules.

They never disclose that tax payers continue to pay tax to pay these pensions and will do so until at least 2027 - some 20 years after the Future Fund was set up to solve the problem.

Therefore, can FirstLinks openly request a statement from the Treasury as to the range of entitlements flowing to the beneficiaries of the Future Fund/Commonwealth Public Servant Pension Scheme. The NPV of these entitlements (currently estimated as a group to over $270 billion) can be identified on an basis that we can compare to the range of SMSFs balances that is publicly detailed.

Then we can put into context the debate about the appropriate level of superannuation tax concessions and whether everyone will be treated fairly and consistently if changes are made.

Let's not forget that Costell put $60 billion yes billion of tax payers money into the Future Fund to pay poli's and public servants. This was due to be repaid in 2020 but the poli's extended it to 2026 What happens then ????

Now that would be a very fair outcome and we all know that the primary motivation of the Prime Minister and the Treasurer in promoting the proposal is overall fairness.
Should the disclosure and subsequent guilt and remorse produce a reduction in the benefits then this could not be considered "major change" because the oppressed group of politicians would be an even smaller minority group than self -funded retirees who have done no more than be successful and relied on good law when contributions were made during the previous 40 years of their working lives.

In order to achieve the level of fairness to all who have Super surely the fairest way to arrive at a cap if there is a determined socialist mindset to this end , then the actual amount of such cap should be based so that the cap upper limit includes calculations based on the current 12 month term deposit bank rates to achieve the same returns for all super entitlements both public and private as is the average superannuation and defined benefit funds returns paid to public servants including the elected representatives.I believe a cap of $3M for private funds is highly unlikely to achieve any thing like a fair result.

For example the current Treasurer , who apparently supports a $3m cap , could he disclose the capital value needed to provide equal returns of his super scheme based on the current bank 12 month cash deposit rates or similar as of today.

"the current bank 12 month cash deposit rates": Can we have CPI with that? Negative capital? Everyone out?

Are the Canberra press gallery asleep at the wheel on this issue or would highlighting it lose them favourable access to political members?

John, I am in total agreement with your analysis.
The taxpayers of Australia have paid taxes of $4,000,000 and invested at 4% long term rate of return to pay a public servant's (and politicians) annual pension of $160,000 pa.
Huge conflict of interest by the law makers and no equity whatsoever compared to a self-funded retiree with $400,000 in superannuation.

Hi John, according to The Australian: "ALP national president and former Labor treasurer Wayne Swan – who on Thursday backed the case for a $3m cap on superannuation – is also entitled to a figure in the order of $300,000, according to new estimates provided by right-wing think tank the Institute of Public Affairs." Mr Swan said this is not accurate. A retiree needs a lot more in super than $3m to receive $300,000 a year for 30 years of a retirement.

The Future Fund website has breakdown of amounts for the Future Fund's set-up for super provision ( not just past liability at that date but future liabilty too--- clearly indicated on website) and the bulk of the $60B set-up came from sale of Telstra (on website) which was a national asset but most of its' funds were sidelined for past & future C'lth employees' benefit only, not the rest of the nation. The Minister for Finance should come forward to explain to ordinary people how it is right that @ 31/12/22 $196 .122 B sits unquestioned/unused in the Fund, albeit the legislation allows it, so all taxpayers including self-funded retirees can understand why some is not now brought into Govt General Revenue when required to pay its' super after 18 yrs of such accumulation instead of scratching about, changing super rules to fill some other hole in her Balance Sheet. We must have countless CPS retirees or they live longer than most or the entitlements are huge if such capital's earnings do not cover current CPS pensions, which SMSF's & other funds must pay when due, not at some later date. Perhaps Graham could request an interview with the Minister to reproduce here to enlighten us.

At least super contributions have a positive purpose. Negative gearing is almost entirely about minimizing tax

Gearing is simply a different way of supplying the capital for a project - e.g. buying a house to rent out. If 100% of that cost comes from the purchaser’s own funds (equity) then the return on the investment (the rent and capital appreciation) has to be at an equity rate to make the investment attractive. If part of the cost is sourced from borrowings, the cost of that borrowing is lower than the equity rate. Overall, the rent can be lower as the cost of the whole of the “capital” is lower. If one starts to disallow deductions for borrowing funds to run a business why does one not do the same for every business?

ATO figures report 36,000 people with balances in super over $3m and about 10,000 people have more than $5m (I realise these figures need to allow for low ball asset values on property).

So some sense of perspective needs to come into these discussions

Thanks for the article Graham. Is there a break down of those member balances, say above $5m, by age group? The 'problem' of large super balances is likely to simply go away when members die and their funds are withdrawn from the super system.
These statistics seem to be missing from the argument. Perhaps there is a good reason for that. Call me a cynic if you like ....

Hi Davidy, those numbers are from 2018 and asset values rose strongly in 2020 and 2021 so the number is probably now much higher.

1% of those in super are affected ...why so much bleating ...is it not obvious these folk are NOT saving for retirement but simply , sensibly using the system to avoid tax and for inheritance .....and the argument that If the government do this they will do that etc etc used by Voldemorts stand in should be treated with contempt......just an opinion
also - agree with Dudley - age pension + benefits for all and abolish this nonsense = " End Super Wars "

Anyone that invests money only on the basis of favourable tax treatment or other government concessions, could be considered naive. Good things never last forever and in general, politicians cannot be trusted! One should always accept the possibility (likelihood) of changes and if the investment still makes sense without such favourable tax treatment or other concessions, to then proceed.

Why do these debates wholly ignore the Commonwealth and State employee schemes whose pension liabilities are met through the public purse? I would like to see that projection! As for dignified, if all of us received a pension of 80% of our final salary in retirement, perhaps a new adjective should be coined!
The debate is framed and responded to on only one plain.

There is no moral argument to force employees to contribute to Super over their working life with zero surety as to what the rules will be at the point of retirement. The current debate is not just an attack on the large balance accounts, it goes to the very heart of "Certainty" underpinning your retired years and that threat impacts every single working Aussie - the fear that "your money", invested in good faith, can be stolen or redirected, "for the greater good" at the whim of Canberra.

If you want to to destroy all confidence in Superannuation, hard to imagine a better wrecking ball than Jim Chalmers.

The capitalized retirement benefits of long- term MPs and civil servants [including spouse] would amount to many many millions of dollars. Will a cap be applied to those wealthy people or would that be a step too far?

My thoughts as well. What would the balance need to be to provide the retirements benefits politicians get? Also, will the CSC also be nudged to invest in social housing and the like?
Regarding the balance limits, I would have to agree that a huge balance, more than you can spend even with a lavish lifestyle is not for funding your retirement. However, determining the cap will be a matter of much discussion. My "reasonable" balance figure is likely to be a lower than for wealthy people. Doing it so it doesn't undermine trust in the stability of superannuation is going to be hard.

And don't forget "ending child poverty".
It was never in doubt that the flat tax rate in super would stay as is. It is too hard to get over the line even though it is a logical tax point. Raising superfund tax could be compensated to lower income people via the tax system, as it already is.
There is a multitude of potential solutions available here but the one that should be completely discounted is a capital cap and forced removal.

'Thousands of people with illiquid assets in their SMSFs will be forced into asset sales and a substantial reorganisation of their retirement planning'

That is an assumption. What could happen is that the pro rata earnings in excess of $3m cap is considered normal income and thus taxed at marginal rates. I accept that this would possibly increase the pressure to liquidate a holding but one would assume that most large super funds have contingency cash reserves that could e drawn as required.

Colin, it is based on Jim Chalmers saying he was not looking at a higher tax rate on contributions or income, only a limit on super of $3 million. If he follows up on this, it will require the removal from super of assets above the cap, which means liquidation in some cases.

Graham
Why do the assets need to be liquidated. Why not in species transfers to the member.

This is the AFR quote, 22 February 2023: "After letting debate run for two days, Dr Chalmers stressed the only plan under consideration was to cap super fund balances. He told radio 2GB the government was not considering either a higher tax rate on contributions or earnings. “I haven’t been considering that. It’s not on the table,” he said."

Hm.. so, if he puts a cap of $3 on total super then the excess would be taxed at marginal rates outside of super, agreed? This taxing the excess within super as a concession to avoid forced fire sales would be sold as playing nice. Does not break his promise of not increasing tax o income within super. Maybe ??

"limiting super benefits": Abolish Super. Age Pension for all age eligible. Adjust tax rates. End saving coercion.

sure, comrade....

Cancel comrade....

Abolishing super results in all paying tax at progressive rates on savings earnings.

Age Pension for all results in Age Pension for those who paid for it all in addition to welfare for those who paid nothing.

Adjusting taxes results in similar tax burden with less complexity.

Ending savings coercion results in more disposable income or similar saving according to personal inclination.

Libertarian.