Make hay while the superannuation sun shines
Mainstream media is alive with talk of our over-generous aged pension and superannuation systems and what doom might lurk in the current budget. Rather than caught up in the torrent of gibber, let it remind you to get your piece of the action.
Ultimately we're likely to see changes to the overly generous aspects of the current super system. The relatively young age at which you can access a super lump sum and get a tax exemption, plus the fact the exemption has no limit, come to mind.
But even if we ban lump sum withdrawals, extend the age at which you can access super and impose a small amount of tax on pensions over a certain threshold, super is still a compelling proposition. If you're not contributing the maximum ($30,000 per annum for most people from next year) then you're effectively subsidising the savings of someone who is. Remember that compulsory super typically caps out at about $18,000 a year, so getting the maximum means voluntarily contributing (by salary sacrifice or deduction, for the self-employed) at least $12,000 (more in many cases).
Australians have a love affair with negative gearing, but accessing that particular form of taxpayer largesse requires you to lose money: when you claim a tax deduction the taxpayer effectively pays you an amount equal to your marginal tax rate times the amount you lose each year. At the top marginal rate (45% plus medicare levy), that's about half the amount of the loss.
But we'd never suggest to anyone that they deliberately lose money to make sure they get their fill of the Government's coffers. If you make a chunky capital gain it might work out nicely, but it's a risky strategy.
Super is very different. If you're on the top marginal rate, the taxpayer effectively subsidises a third of your contribution (45% plus medicare levy minus the 15% tax payable by the fund on the contribution). It's not quite as generous as the half coughed up for negative gearing, but it's on money you SAVE, not money you LOSE.
You can build a diversified share, property, bond and cash portfolio courtesy (partially) of the taxpayer, not burn money and hope the capital gain makes up for it.
It's an attractive proposition and, if you're on a high marginal rate of tax, you should do everything you can to make sure you take advantage of it rather than paying full freight tax so someone else can.
In all likelihood super will end up more restricted than it is today but, for some people that might be a good thing. The temptation of being able to withdraw a lump sum at aged 60 can sometimes prove too much.
Of course, as we said in What should I do about super? you don't want to go overboard. It's not worth having a large tax-effective super balance whilst struggling, outside of super, to pay the mortgage or make ends meet.