Eureka Correspondence

Your thoughts on the question of super tax reform.

Robert Gottliebsen's piece The superannuation squeeze (April 8) outlined a number of changes to the super system that are being publicly canvassed. He asked readers for their thoughts on this issue. We received letters from more than 70 subscribers in response. Here is a selection.

Barrie: How on earth can one be in a system of a tax free environment for 10 years and then be asked to start contributing again as we get older?? We received absolutely no handouts, never have, all our working life. We have paid our way with substantial amounts of tax and believe we have done our bit for the country. 

Steve: that is equivalent to inducing people to invest in a "scheme" being superannuation and then saying "gotcha" thanks for the money we now need due to poor government financial management and you are one of the easy targets to patch up our current black financial hole.

Mike:I think it is fair to put an indexed cap on the total amount you can put into super . I would suggest that it start at $5 000000.That tax on pension income at the  normal rate be applied above $150000 per year.

Gilbert:We need to tell the crooked politicians to forfeit their $200,000 a year tax funded pension. They don’t deserve it because these are the guys that destroyed the nations wealth! And now that want the old folk over 65 to fix it!  We have to stop this madness.

Stan: Any income earned on assets in super funds over 5mill should be taxed at either the person’s personal tax rate or say 30% minimum. I believe that there are huge savings in this.

I also believe that lump sums should be banned. They are just a way for people to get the age pension quicker.

Tony:We have 6 friends  who have the govt pension and health cards who own their principal residences and have large super balances in pension mode. Some have substantial assets outside of super.The pension is used to give their children substantial sums of money and to pay for overseas holidays once or twice a year.

LEO:I think a $100,000  ceiling  before tax is applied at 10% above this level is a reasonable idea, but, it needs to work in conjunction with other super contributions/incentives. One incentive that I would like to propose is as follows;

a.   Currently the home is not considered in the assets valuation test for many purposes including eligibility for pension, and neither is it taxed if sold off.

b.   So if it is not taxed now it should be allowed to be transferred into ones super untaxed and unlimited in the amount. No ceiling on the amount as an untaxed contribution. The government will get its tax share there after according to the $100k income ceiling after which a 10% tax becomes effective.LEO

DAVID: This is a long term view. A  national pension scheme is the answer, that is a portion of  of the income tax deducted during a person lifetime of work , should be placed into a pension account dedicated to that person, so that at the point of retirement a pension would be payable subject to the amount saved and would not be means tested. An organization like Centrelink would be ideal to oversee and keep an eye on the investment of the money, providing annual statements to account holders.

SIMON:My view is that people who provide for their own retirement value their savings with far more respect than those on social security. Many of the latter had a choice earlier in life and chose to rely on Her Majesty. She is not an overly generous.

A realistic test of what is necessary to provide for retirement before additional tax is imposed is required.

For the pension phase I thought applying the tax to earnings attributable to the pensioner in excess of $100k [indexed] seemed reasonable. Maybe carry forward losses, too, for inevitable bad years. I'd accept 15% tax on $100-200k, scaling to a max of even 32% on plus $500k.  Industry funds got in the Government's ear as to how hard that was to administer. Tough!! I bleed for them. They are interested in their executives perks and, dare I suggest it, salaries and bonuses.   

 Make all those in the workforce save for their own retirement. 9% won't cut it, nor 12%.

 I reckon 15 per cent  reckon is about  right.

CHRIS:We have about $1.8 million in our SMSF account. In addition each year we expect to generate a significant but highly variable capital gain (fingers crossed).  

The maths to me is pretty simple.  Ifwe have to pay tax on earnings (which I assume means cash PLUS capital gains) each year we will have to sell some assets to cover the tax bill.   

BRUCE;What I would like to see brought into the ‘conversation’ is the little understood impact of the old ‘defined benefit’ super system for public servants…both State and Federal. ( I do realise much of it has finally been closed down now)

The whole modelling for it was a complete sham or scam. It is now completely out of all proportion to what is reasonable.

    I know we have had some talented people in the public sector, but the country is now rewarding them above all the people who have either struggled on a wage to accumulate a retirement benefit, or have risked houses to build a business BRUCE

DAVID:An account value of $2M does not provide a huge income in itself when using the minimum payment levels… 5% is $100,000 income PA; 6% is $120,000 income PA.

And of course you can pay beneficiaries greater amounts than the minimums.

If there is to be a tax on Retiree income, and it has been suggested 15% flat, that is a huge penalty on low Superannuation values.

It seems to come back to retiree income in excess of $100,000 sourced from Superannuation sources to be taxed.  

BRONWYN: My husband and I have a SMSF with us as trustees.

We have invested in Australian equities and it keeps me busy reading and researching - I enjoy it.

Of the alternatives you presented the Shorten plan and the ending of lump sum payments sound the best to me

We don't have a Health Card or any Pension, full or part, and don't want any government hand outs.

Of the alternatives you presented the Shorten plan and the ending of lump sum payments sound the best to me ANDREW:I think government seeking to balance the books has a right to withdraw some of the tax benefits if retirees wish / have the opportunity to pursue the lump sum withdrawal direction in their retirement if they have more than $2.0m in reserve and 20 years to live - roughly $2000 a week to keep a couple going to actuarial death.  

Accordingly, I suggest that if a retire takes his superannuation as an annuity then it ought to be tax free. If not, the 15% tax on withdrawal (and income) does not seem unreasonable to me. If that in turn puts pressure on older people to downsize their family home while still retaining the asset exemption from inflation adjusted capital gains tax - then so be it.

On the matter of young people being able to borrow against their superannuation to buy a house, I totally disagree; it feeds housing price (demand) - in tandem with ever-declining interest rates and substantially reduces the benefits of compounding. It also increases the risk of default when interest rates begin to rise. However there may be some lessons from the Singapore model that could assist our young into housing - if applied rigorously

KEN:The biggest rort as I see is it is the "double dip" whereby people can withdraw a substantial lump sum for their super and then claim the government pension. The whole idea of super is surely to provide a retirement income.

I suggest a tax, say 15%, on amounts in excess of the age-related minimum withdrawal (or in excess of the pension, whichever is greater, to be fair to those with lower super balances).

PAUL: my wife and I are about to enter a TTR and plan to convert to a full pension in a couple of years.

Now this plan is not a spur of the moment consideration it is a strategy stretching back 10 years and more , we have worked within the frame work to build a nest egg so as not to worry the Government , only to now possible have the goal post moved on us and as we are in our late 50’s there simply isn’t enough time or more to the point enough energy left in these aging bodies to reinvent the wheel and change tack.

I’m sure we have plenty of friends in the same position that run SMSF as we do 

MARK: I support a continuation of tax- free status for all in pension phase. I suggest the government have a good look at all the largesse families receive which is well beyond anything families received historically. They now believe they are entitled to all these benefits, just like the families Robert recently observed down at the beach. They've never had it better!

PETER: As self funded retirees we are conscious of the current debate about superannuation, and have a clear vested interest in the current system continuing.

However, we accept that the current arrangements are generous to say the least. 

the current arrangement where people can organize their affairs to have millions in assets [mostly in the 'family home'] and still get the pension, all or part, is NOT fair and should be changed as soon as possible [accepting that the devil is in the detail].  'Grand fathering' would simply reward the dodgers who have already had more than enough benefit.  Some intelligence would need to be applied around the family home [must look after Sydney].

Robert's article seemed to assume that superannuation should not be running down capital over time [his comments about return vs pension payments].  This just perpetuates some selfish views that want society to subsidize their family inheritance policies.   The assumption must be that over time, we do start taking capital out of the fund. 

 WAYNE:my wife and I have an SMSF that is now large enough to fund a reasonable retirement under the status quo, and imputation credits form a considerable part of the projected income stream (30%). We are a couple of years away from our intended retirement at 60, and under the current rules will not be entitled to any state pension.  We own our home, and are still financially supporting our two grown-up daughters who are actively trying to get onto the property ladder – in SYDNEY! An impossible task without the so-called “intergenerational help.”

If Dividend Imputation is repealed, and a new tax imposed, the income return from our SMSF would drop by 30 or more percent. In my opinion it would also devalue the value of the current high-dividend darling stocks, leading to a considerable market correction, capital losses, and a drop in consumer confidence. 

RON:It is clear there would no incentive for people with a balance of $500,000.00 or less to leave their money in the super system as they will be penalised by higher taxation. The system needs to encourage people to embrace superannuation particularly the less wealthy as they are the ones that will draw on government pensions in the future. By taxing the earnings of super at this level goes against the argument that governments need to stop wealthy people from benefiting unfairly from the current super laws. 

my wife and I have an SMSF that is now large enough to fund a reasonable retirement under the status quo, and imputation credits form a considerable part of the projected income stream (30%). We are a couple of years away from our intended retirement at 60, and under the current rules will not be entitled to any state pension.  We own our home, and are still financially supporting our two grown-up daughters who are actively trying to get onto the property ladder – in SYDNEY! An impossible task without the so-called “intergenerational help.”

RON It is clear there would no incentive for people with a balance of $500,000.00 or less to leave their money in the super system as they will be penalised by higher taxation. The system needs to encourage people to embrace superannuation particularly the less wealthy as they are the ones that will draw on government pensions in the future. By taxing the earnings of super at this level goes against the argument that governments need to stop wealthy people from benefiting unfairly from the current super laws.

Most of the rhetoric has been directed at the SMSF sector as I guess they may generally hold larger balances but many people do not realise the changes will also include those who have their contributions paid into the many industry & retail funds & that as time passes & their balances grow they too will be penalised.

Unfortunately the privately funded retiree does not have the collective power of the more organised groups & so we are an easy target. I urge everyone young & old to take an interest in their super now, understand what is being proposed & if you don’t like it write to the news papers & contact your local 

member of parliament

ALLAN  Lump sum superannuation for anyone under the age of 55 will be a thing of the past. My view is they will give you two options--- take superannuation as a lump sum you will be excluded from the pension. Take your superannuation as an income stream and it will be means tested against you superannuation balance. There will be allowable lump sums to pay off mortgages and debt maybe medical reasons but it will be a trade-off   

 MAX:At 74 years of age and being supported by a SMSF earned entirely from my own investments over my working life. At no risk to anyone else other than myself, having paid personal and company taxes, I find it an affront that the Government should consider taxing my retirement funds which enables me to be totally self-sufficient and non-reliant on a government handout. 

PAUL:My wife and I have combined super of approx $1.6m.  I'm 53 and my wife is 52.  We are particularly concerned about recommendations concerning the end of lump sums.  I say this because we have deliberately deferred consumption in the past to have a decent superannuation nest egg that we can partially use in the form of a lump sum and now this may no longer be an option for us.  It's almost pointless having so much money in superannuation if we can only draw down on the capital via a pension.  We would seriously look at the option of leaving Australia permanently should the need arise.  I have dual citizenship (Australia & EU - Italy) which would make a move more likely if it is to our advantage. 

PETER:I think it's grossly unfair to penalise people like me who have taken responsibility for their lives and planned their finances based on existing super rules. I've paid my share of tax over time, never relied on government hand-outs and now I may be penalised for that. I'm very angry!

I think whatever changes are made those already in pension mode should be allowed to continue under the current super rules. Otherwise, do I have to go back to work to make up for the additional tax payable and perhaps loss of franking credits?

Can the 'older' group start making some noise to balance that of the younger group? Eureka Report is in a unique position to bring together people like me to organise ourselves and state our case.

TERENCE: SMSF's, Industry Managed SF's, but what about all those on defined pensions from the government, universities etc.Especially, lets look at the politicians an ensure that they are in any scheme that is devised, because they are the best off of any.

PETER: Am quite happy to run my SMSF funds down and then when needed apply for a part pension. The Health Care Card is a big help

My suggestion is that asset test be reduced to say $800k, with Seniors Health care card be automatically rolled over from Age Pension card to the Seniors  card.

This would see present recipients using their own funds rather than a hand out whilst their assets accumulate.

Additionally , a part of the saving from asset test reduction could be used to increase the full pension .

This would be a fair trade off.

One thing that concerns me is that prior to Simpler Super coming into being, my SMSF had a Deductible Amount which under the then rules reduced my taxable income to the extent that no tax was payable.

If the fund suddenly had the tax free status removed SMSF pensioners like myself would be disadvantaged.

WALTER:I have often wondered if it would be viable for the government to introduce a Superannuation bond scheme for retirees (>.65yrs). These funds could be used for certain infrastructure projects. There must be a certain cost involved in raising taxes, 

ROGER;The current framework for superannuation with tax free earnings for over 60's is not sustainable. I am in my 60's, in a fortunate position, having a family SMSF with a balance in the order of $2mil. I find it embarrassing that I pay no tax on the earnings of the fund.

MAURICE;I support a progressive increase of tax form earnings above $100 000, but with a progressive reduction of tax with increased age

The effect will be on  income irrespective of the asset value and will help to cover older peoples increase in medical and help expenses

JOHN:I think the assets excluding residence limit should be reduced - maybe $250,000.  The current level is ridiculous.  The pension was only ever meant to be a safety net but is now regarded as an entitlement - it can't go on!

Allow pensions only from super funds, no lump sums - this is being abused by people spending up and drawing down their super balance so as to get a part pension.

CHRIS:Reintroduce:

(a) CGT payable at normal tax rate but adjusted to allow for CPI movements ( perhaps building in tax concessions for truly long term investments held for say 5 or 10 years  or more )

(b) reintroduce RBLs for superannuation accounts

NEIL:Retirement age should NOT be lifted - As a former diesel fitter in the mining industry I am in pain most days from accumulated stress on my body. I am 50 & feel I am typical of my trade in fitness. Since losing my job, the only work I have been able to find is in a milk factory