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Will Tax benefits of Super be honoured in the long term?

Discussion in 'Superannuation, SMSF & Personal Insurance' started by try anything once, 5th Mar, 2009.

  1. try anything once

    try anything once Well-Known Member

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    I read an article in the Fin review a few days back suggesting the government may consider introducing a tax on withdrawals from super for "wealthy" people - those with Super balances above some designated level.

    I am still 25 years away from retirement age and this just confirms a mistrust I have of super as an investment structure - ie the tax advantages are at the mercy of government whim of the day.

    What do other people think? Do you think the government will in the future introduce signififcant new taxes on withdrawals which will undermine the value of super?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    FWIW - I agree on this. I'm still 30+ years away from retirement so have only relatively recently started paying attention to super, but already I've seen governments change the goal posts a lot.

    That being said, I think super is still one of the most effective vehicles to build wealth in - it just doesn't afford you any flexibility to deal with changing personal circumstances, so I'm generally against using it as the sole destination for your money (once the money is in super, you generally can't get it out again!!).

    My personal opinion is that super should be treated as your retirement insurance policy - build it as if it might be all you have when you retire ... in other words, plan to rely on super alone in retirement and so make sure you have enough to afford you the lifestyle you want. Any investing you then do outside of super is the icing on the cake - it's what you do to improve your lifestyle above the essential stuff, and it's what you use to deal with changing life circumstances prior to retirement.
     
  3. dudek

    dudek Well-Known Member

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    Withdrawing money from big Super Funds can’t be good for them in the long run. I wouldn’t be surprised if government puts some pressure in some way on people managing their SMSF. They may introduce some legislation to protect big Super Funds. Extra tax plus discounts for big Super funds may be the answer. Don’t want to speculate but if more people move to SMSF big funds aren’t going to sit on their hands and look at their profits disappearing.
     
  4. Chris C

    Chris C Well-Known Member

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    I think it all depends on the type of governments we elect over the next few decades. If we constantly elect governments that spend big, but ultimately spend poorly as they continue to try and prop up a dysfunctional welfare state we'll have to expect that at some point taxes are going to be raised, and a tax on super may be on the cards.

    Though of course the politicians are always looking to win votes so the majority will not be oppressed like the minority will. So I expect the wealthy segment of society will be extorted more than they currently are. It's the reason why I, as a small business owner, contribute very little to my Super - lack of flexibility and trust.

    This is also the reason why I have no doubt I will leave this country at some point and move to a more tax friendly country, like Vanuatu or Singapore.

    For the life of me I will never understand why the public and politicians can't make decisions for the long term... in aggregate are we all that naive?
     
  5. AsxBroker

    AsxBroker Well-Known Member

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    Hi TAO,

    There used to be Reasonable Benefits Limit (aka RBLs) there was a lump sum RBL at about $650k and a Pension RBL at about $1.3m.

    Superannuation over the years have become more relaxed, the only time I can think of the changes being stricter is the limits on contributions which was at the same time when the limits on withdrawals and tax free super from age 60 came into play. We previously had multiple components such as undeducted, pre-83, post-83 and invalidity components which were taxed at different rates (that was a huge headache!). Nowadays we have taxable and tax-free.

    Going back to RBLs, if you had a life insurance policy for an amount over the pension RBL you'd have to start an income stream for your beneficiaries to avoid the highest MTR.

    Previously someone over age 60 would receive a PAYG statement at the end of every financial year to complete a tax return.

    The government makes a motsa on contributions tax and earnings tax. In the quarter to Sep 2008 there was $13.3 billion of employer contributions, so for a year it would be roughly $53.2b at 15% that's $7.98 billion in tax...I wonder if there are additional amounts for self-employed? $8 billion in revenue isn't going to be sneezed at!

    With a quarter of the population over 60 the politicians would lose alot votes changing superannuation laws to the detriment of a large number of voters.

    Cheers,

    Dan

    PS This is general information. Before making an investment decision speak to your FPA registered Financial Planner.
     
  6. Billv

    Billv Getting there

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    I agree, and we shouldn't forget that it's the politicians who have the most super so any changes will affect them as well
     
  7. Chris C

    Chris C Well-Known Member

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    That's why leaders need to seize crisis opportunities like this GFC to scare people into voting in the right policy choices, rather than waiting for better times to let them make independent and self centered rational decisions that ultimate make everyone worse off in the long run aka a tragedy of commons situation.
     
  8. Shady

    Shady Well-Known Member

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    I think you might find the 9% SG will be increased to ~12% and employees will have to contribute ~3% before changes to the tax treatment occur. I still think this is a few years off, it has been thrown around a bit over the last few years. The ecomony/unemployment will have to be favourable before any government will try and bring this in, and just like the 9% was fazed in so to would any other increases.

    That's not to say that any government wont try and fiddle with how/when super is taxed. I also think/hope that the concessional and non-concessional caps will be raised.

    What are the figures? 10 years ago there were 10 tax payers for every person on gov. aged pension, now there are 4 and in 10 years there will be 2 tax payers for every person on the gov. aged pension.

    I cant remember the exact numbers, but its not looking good for anyone that hopes to rely on the aged pension in retirement. The fact that the 9% SG isn't enough to retire on and the aged pension will be next to nothing or non-existent, points to a government sooner or later increasing the 9% to a more realistic 15% and an increase in the limits for contributions.

    How are they going to replace the lost revenue from increasing the limits? I have no idea, but it still needs to be done.
    Maybe an introduction of tax free threshold on withdrawing super, anything over $40k pa gets taxed at 15%, or different limits for couples and singles.


    That's just my 2 cents anyway
     
  9. AsxBroker

    AsxBroker Well-Known Member

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    Yes this is what prime minister/treasurer Keating wanted, here we are 25 years later and still waiting...

    They always will, the concessional cap is expected to be $55,000 in 2011/2012.

    I've got to break it here...15% contributions tax on 9% contributions is 1.35% of the salary being taxed in super, at 15% contributions tax on 15% contributions is 2.25% of the salary being taxed in super. Hey presto, you've increased the tax by 0.90%!!! When your talking about the billions of dollars in SGC 0.90% makes a nice fat difference...

    It is!!! For 55 to 59 (inclusive) the first $140k withdrawn from superannuation is tax free...For anyone over age 60 the withdrawals are tax free...These are each...


    Cheers,

    Dan
     
  10. Shady

    Shady Well-Known Member

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    Yeah but I was thinking more like $100,000, and I realise that it currently is for over 50's until 2012. Just a way of encouraging people to provide more for themselves in retirement and not rely on the aged pension


    True, but the employers only puts in 3%, so that effectively adds .45% (15%*3%) but the extra 3% of personal contributions was going to be taxed at 30% when paid as wages (or higher), so they're effectively loosing .45% there which cancels out the extra from the employer. So no extra tax revenue, which is better than what I originally thought of reduction in revenue, for the gov anyway:D


    I was thinking for over 60's as well, either income stream or lump sum payments taxed after a certain amount p/a
     
  11. austing

    austing Well-Known Member

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    Fortunately most changes to Super have been for the better. At age 49 I just scrape in as being able to access Super at 55 if needed. However I'm not intending to access it until 60 at which stage I hope the tax free status still applies.

    However statutory risk is still a concern for me. Hence I continue to invest outside of our SMSF as well. Each month nowadays roughly 1/4 of available funds is invested in Disc Trust assets and the remainder in SMSF assets.

    Excluding one's PPOR I like the idea of up to 2/3 assets in Super and at least 1/3 outside Super by age 60 and beyond.

    Changing the rules particuarly relating to tax free super from age 60 would be politically unpopular. Unfortunately there is a chance that the Government of the day may decide to penalise wealthier individuals. In other words self funded retirees who have worked hard to save for their retirement (beyond needing the pension) may be a target. Ironically with so many on the pension in Australia you would think the Government would encourage and reward those who aren't drawing the pension.

    Cheers - Gordon