We hear you!

Our subscribers have very clear views and some surprising ideas on superannuation reform.

Summary: An enormous amount of correspondence from readers indicates that people with $2m in super do not see themselves as rich and oppose a tax on superannuation income above $100,000. But a number of readers support a tax on those who have more than $5m in super. Readers also say an attack on dividend imputation benefits would be an enormous blow. Subscribers are split on the question of lump sums, and some are opposed to negative gearing.

Key take-out: There is extreme hostility in the retirement community to retrospective changes to superannuation. 

Key beneficiaries: General investors, SMSF trustees and superannuation accountholders. Category: Superannuation

What an enormous response. I was stunned. More than 70 people wrote me a note after my column last week asking subscribers their views on potential superannuation reforms (see The superannuation squeeze, April 8).

There was an incredible variation in ideas from subscribers and you can see an edited extract I have put together on our correspondence page (see Eureka Correspondence, April 15).

One theme came through with thundering impact – people with $2 million in superannuation do not regard themselves as rich. 

They are living comfortably because they put money aside for their retirement over a long period and that money must now fund their living expenses for many decades. However there was sympathy for the fact that once a superannuation fund goes substantially above $2m there was a case for a tax. 

This of course was the basis of Bill Shorten’s proposal in the final six months of the Gillard government and which the Coalition unceremoniously dumped… in many ways that decision by the Abbott Government has inflamed the current debate.

The main reason for dumping was that the big funds find it all too hard. Nevertheless the Shorten plan had many gaps and needed a lot of work but was based on the fact that in simple terms a five per cent return on $2m in superannuation yields $100,000 a year. This amount, indexed, will allow a very comfortable living but not a luxurious one. Accordingly the Shorten proposal taxed superannuation income above $100,000 per person at 15 per cent.

Many Eureka Report readers opposed such a tax and were hostile that they had allocated their money to superannuation on the basis of government policy and now the government was thinking of changing the rules retrospectively. The indication we are getting from the Coalition is that there will be no substantial changes to superannuation in this term of government although if it restored the Shorten plan it would be re-establishing the status existing before they took office.

A number of Eureka Report readers attacked the contention that superannuation should be all about money earned on the fund and really the assets of the fund should be part of the distribution process. 

You can fund a retired person much more generously using the principal sum than simply relying on the income. 

The difficulty with this contention is that no one knows how long they are going to live and if a person retires at 60 and lives to 100 then, say, $2m must be used to fund their living expenses for a long time. If it is spent too early then there simply won’t be the income there for the final and often very expensive years of life. 

A number of Eureka Report readers said that if their dividend imputation benefits were attacked it would be an enormous blow. First it would substantially reduce the share prices of stocks that are very popular in superannuation such as the banks and Telstra but it would also substantially reduce income and force much greater asset sales to maintain living standards. 

A number of Eureka Report readers are opposed to negatively gearing as applied to existing houses and there is a substantial debate about the relationship between government pensions and superannuation. 

Many subscribers believe lump sums should be stopped. But others said lump sums were terribly important to them as they had housing loans that had to be serviced. One threatened to leave the country if lump sums were banned.

Separately, a number of Eureka Report readers suggested that a maximum of $5m be placed on money in superannuation and those with more than $5m in super should be taxed at normal rates.

The great problem either an ALP or Coalition Government faces is there is extreme hostility in the retirement community to retrospective legislation to superannuation. 

There was real fear in a number of Eureka Report readers aged in their 50s planning their retirement via superannuation who now see the possibly of taxes being applied which would completely upset their superannuation planning. And then there were others in their 60s who have just retired and had similar levels of apprehension. They were in good health and hoped to live for a long time. One reader pointed out that in the public service sector there were very generous life time annuity pensions that were probably worth more than $10m in the open market and these people were making the decisions about those who save for their retirement! Similarly politicians had equally generous superannuation conditions. 

It’s clear that any retrospective changes to Australian superannuation in the general population will be met with vigorous demands to end the very generous public servant schemes for older and past public servants and slash current and past politicians’ superannuation to levels that are in line with the broader community. 

Given the enormity of this response I am going to publish all of the letters using the Christian name or names of each of the respondents and then I have selected a sentence or two from a great many of them to give you a flavour of what our readers are thinking. 

But I have a confession. I got so interested in each letter that I only got through half in the extracts. I will do the rest next week. This is a debate that has a long way to run. Many of the letters are long and I do not do them justice by taking a short extract but all are available for people to read. (Again do take the time to have a look at this treasure trove of subscriber views.)

Like me you will be stimulated by the variety of ideas. And Eureka Report is going to need to work very hard to counteract what is a vicious campaign being organised by big superannuation funds who see this as a chance to hit self-managed funds. They have an organisation called ASFA (Association of Superannuation Funds of Australia) which is pressing to hit those who have saved for superannuation via self-managed funds. Most people who have worthwhile sums in superannuation were able to achieve them because they were able to use self-managed funds and so avoid the enormous charges levied by the members of ASFA. 

Thanks for this tremendous correspondence. For a publication of Eureka Report's size, it is all the more remarkable. I will get around to responding to the second batch of correspondence next week. This week I published the posts on a 'first-in-first-published' basis.