Eureka Report correspondence

Extended edition: your feedback on Budget 2016.

Shorten would cost my wife and I double Coalition's plan

I read Robert Gottliebsen (Election 2016) and Max Newnhan (Tax with Max the Budget Edition).

My wife and I are in the position of the couple Max addresses first [each with more than $2m in pension phase in an SMSF]

I have been around super in a personal capacity and in respect of my firms principal's and staff's Super funds since 1960. Quite a long time you will agree.

I commented to you just after Budget Night when I was unclear whether under the Coalition plan [if implemented] money north of the $1.6M cap pulled out of our pension accounts could still be drawn down [if we wished] tax free either as partial commutation or pension. I now believe this is true. So The Coalition plan in a nutshell is our SMSF pays tax on its earnings attributable to the accumulation account at 15%. Put in reverse the SMSF keeps 85% of those earnings. I can live with that. I commented to you a couple of years ago [when Labour proposed such a tax on Fund earnings north of $100k] I thought such a change was fair. We well funded retirees had been too generously treated for too long. [in my case at least 16 years almost tax free]. The budget [if enacted] offers a bonus. We only need to draw the minimum pension related to our pension accounts [now capped @ $1.6m]. Thus the earning our SMSF has to achieve to stay in front of compulsory drawings is dramatically reduced- for the benefit of our kids.

Now for what Shorten proposes. I wish Robert and Max had compared the two for those retirees like me rather than aspiring to retire well. I know what is proposed has to be fair for future retirees as well as present ones. And for folk looking to top up what they already have in super. But for now I deal with the present ones. “Shorten [if elected] would leave the SMSFs alone. Instead he would tax the pension north of $75k per year.

I have done the math. Shorten would cost my wife and I at least twice as much as the Budget would. I could live with that too. My wife and I get to keep 85% of our pensions above $75%. What is much more damaging is what happens when one of us dies, or both, or we want to help one or more of our kids. Under the Budget if we [and our helpers when we are infirm] are agile all these objectives can be met tax free. Under Shorten even if his tax is only 15% the result if dramatically worse. With no way out. Who is to say the taxt rate will not be marginal rates not a flat 15% tax?

Whose proposals are retrospective? Strictly neither. We could always pull all our money out of super tax free and invest outside in the window both sides offer. However Shorten makes staying in super above his very modest tax free levels very dangerous. His successor or coalition partner might just increase the tax rate. Never mind that so doing taxes recovery of after tax contributions. Who would need a death tax?

-Simon

Editor's note: to see Robert Gottliebsen's response to this letter, see his piece in today's Eureka Report: click here.

The two parties have different plans

As always good reading. But the Labour policy is NOT similar to the coalition on super. The key difference is that the $1.6mn nest egg can grow through good investment etc and remains tax free in Morrison's plan. But Shorten will tax all income and capital gains annually at 15 per cent over $75000.

For someone retiring at 65 this can be substantial

Keep up the interesting commentary!

- Ian

Super storm in a teacup

I am disappointed that your standard of journalism is such that you have adopted the populist but uninformed view that the lifetime cap on non-concessional super contributions is "retrospective".  Of course a lifetime cap is measured from some time in the past - that is what lifetime cap means.  If someone has contributed more than the cap since 2007, there is no requirement for them to withdraw it.  The significant of the year 2007 is that contributions prior to that year do not count towards the cap. Your talk of retrospectivity and loss of trust is a storm in a teacup.
- David

Discount minimum withdrawals

I plead with the writers at Eureka to take up the cudgel of persuading the Government (whichever colour) to re-introduce a discount on the minimum withdrawal rate of allocated pensions.  A 50% discount was introduced in the GFC and surely with the latest cut in official rates, and a lacklustre sharemarket, it is time to do so again.  With the election on July 2, whoever wins can introduce the discount in time for a full financial year
- Charles

Changes too complex

I am in the one per cent affected by the changes.

I think we all knew that the very generous super concessions were not sustainable and something like this was going to happen, however, the proposed model appears very complicated to implement. Shifting the balance over $1.6mill back into an accumulation account is going to be very complex. eg What assets does one transfer into the tax free account? The assets with the highest return?

The $1.6mill tax free limit does not seem unreasonable if you consider that sum would yield around 6.5 per cent (with franking credits) if invested in shares, approx $100000pa.

Would it not be far simpler to allow the first $100000 of pension to be tax free and tax the balance at 15 per cent. The individual would declare their pension (say 5 per cent of the fund balance) in their tax return. Perhaps some sort of PAYG tax system would be needed so that the taxpayer was not hit with a large tax bill at the end of the year.

If there is to be a cap on super perhaps it could be a total of $3.2mill, $1.6 to cover the tax free component and $1.6 to cover the taxed component. This would remove the need for the lifetime cap of $500000. Individuals would be able to put in any yearly amount until they reached the $3.6mill ceiling.

Just a thought.

- Geoffrey

Not enough green focus

I'm frustrated by the lack of coverage in your report and elsewhere in the media about investing without fossil fuels and with green energy in mind instead. I know it's probably early days for tracking the returns, but some of us do actually make decisions on things other than the bottom line and it seems that Eureka Report, if anyone, would actually be able to provide some guidance on this, yet I see none. Just a thought.

- Steve

Editor's note: This interview between Mitchell Sneddon and Hunter Hall's Peter Hall about the HHV Ethical LIC might be of interest on this topic: click here to view it.