I need to declare an interest: I am a superannuand, and deeply interested in the rules that govern superannuation. So the past few weeks have been more than usually interesting to me, since we were being told that the Government had plans to do something about the superannuation rules. As it happens my superannuation comes from the Commonwealth Government, since I was put in to the Commonwealth Superannuation Scheme when I joined the ANU (a Commonwealth statutory authority) in 1980. My main whinge about super since, and here I am no different to any other CSS pensioner, is that the index used is CPI, not AWE. The Cost Price Index is about half the value of Average Weekly Earnings. I know all the reasons why the Commonwealth uses CPI, but it means that over time I have less and less real money.

I also have a small nest-egg in what was called AGEST and is now Australian Super. This is our buffer against small calamities. I paid in some consultancy earnings and was taxed at 15 per cent. Whatever I take out is tax-free. And this is the bit I worried about. We now learn that the Commonwealth Government proposes to tax the earnings of self-managed super funds when these earnings pass a certain point. I don’t even have such a fund, but many do. On the face of it, what is being proposed has some fairness to it, but everyone who is putting money away for retirement, rather than spending it now, will feel a shiver.

Governments have contradictory aims in this domain. First, they like us to be provident, thrifty and investment-conscious people worried about rainy days and doing something about them right now in order to live well later — and not need the old-age pension, and so avoid being a drain of the taxpayer. But second, they don’t want us to live in a luxurious fashion when we do retire. To have been too successful in being provident attracts the grasping tentacles of the taxation system. ‘We didn’t mean that you should live this well!’ they are likely to say. But who is to say what ‘this well’ ought to be?

If you put in a question like ‘how much superannuation will I need?’ into ‘your favourite search engine’, as the ABC likes to say, you come out with some disquieting news. You don’t have enough to live comfortably. You need more. You should have started earlier, and so on. But a fairly well accepted figure is that a couple will need about $1m in super in order to live comfortably. What is ‘comfortably’? Well it doesn’t allow for extravagance, but does include some travel. Oh, it is understood that you already own your own home and are free of debt. You’re not? Hmmm. And, let us be upfront about this, the equations assume that you won’t live much past 85. You expect to live much longer than that? Well, you’ll need more money still.

All in all, superannuation is a problem, and Paul Keating started to do something about it when he was Treasurer. It was part of the fabled Accord that the Hawke Government signed with the unions back in the 1980s. The three variables in it that we need to be aware of are that (1) we are all living longer, and need more money for the extra years, (2) our standards of living have all risen, and to maintain them in retirement we need more money, and (3) there is no way that the old-age pension can cope with the majority of the community. Hence the Government’s concern that we plan for our retirement, and that everyone, not just salary-earners, should have a superannuation fund.

Now the Government’s proposals (which don’t seem to be part of any legislative program yet) start affecting people at the $2m super fund level, and apparently that’s about 16,000 people. So the rest of us can breathe the traditional sigh of relief. But while Tony Abbott has warned us that next time they’ll come for  those lower down, I feel again that what is ‘comfortable’ to some might not be nearly comfortable enough for others. I have in mind couples, one of whom has a chronic disease, and people whose families are spread around the world, and people who already need serious nursing care, or expensive medicaments. And the older we get, the more expensive our health care becomes.

I recognise that there could be rorts in the current system. But it is a courageous government that fiddles with any scheme whose aim is to encourage thrift and financial prudence. Tony Crosland, a British Labour MP and Minister in the 1960s, wrote a book called Left Luggage, whose message concerned the way Labour voters felt let down in Britain when all the care and thrift they had shown was disregarded by their own Government, intent on providing social welfare to everybody. It’s a book that Messrs Swan and Shorten ought to read.


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  • Sinic says:

    A long post – sorry.
    The problem the government had, and to which the recent proposals were the answer, was simply that speculation about taxing superannuation, ignited and fed by government ministers, had flared out of control. The initial response of the PM was as usual to cut off the rational option (in this case, income tax on pensions). Consequently a definite proposal not involving income tax was needed to extinguish the flames. Hence the proposal to tax upstream from the pension at the income generation point, although in practice simply having the same effect as an income tax.

    This will never be implemented, and indeed there is no real proposal to do so.

    We older members of the newly classified “fabulously wealthy” class will remember the disaster of the superannuation contributions surcharge of the Howard government. This apparently simply plan to tax at higher rates the deductible contributions of higher income earners cost more to administer than it collected. I was still receiving notifications of variations of my assessments five years after the tax had been withdrawn!

    The description of the current proposals is again deceptively simple – just a 15% tax on revenue above $100000 pa. While this would appear to be similar to the 15% tax on all earnings of funds in the accumulation (pre-pension) phase, it has in fact material differences, particularly the $100 000 threshold and the complex treatment of realised capital gains (excluding the sale of assets purchased prior to August 2014). There is a very vague proposal for the taxation of defined-benefit funds.

    The concept of this appears to be that it is simply an attack on wealthy people holding all their superannuation in single self-managed super funds, and who after all has any time for these parasites! The problem is that this model is not accurate for the majority of people with large superannuation assets.
    I recently retired after a work life of fifty years – a couple of decades in the defence force, followed by periods in the Commonwealth and State public services, and finally a time self-employed as a consultant. To assess my liabilities under the proposals the Taxation Office would need to collate reports from two defined benefit pension providers (with valuations by actuaries), a state government accumulation fund, a
    private accumulation fund and my self-managed fund. I also have a Commonwealth accumulation fund that I have not yet moved into the pension phase.
    We have no description of how people with combined defined benefit and accumulation fund pensions would be treated, but presumably the hypothetical earnings relating to the defined benefits pensions and the actual earnings from the accumulation funds would be totalled, and the tax liability totalled and apportioned on this basis. Remember that these calculations would need to be done not only for the relative few with actual liabilities but all 4.1 million (and increasing) superannuation pension recipients!

    Lest it be thought that this is an unusual situation, even a lifelong commonwealth public servant in the same scheme as me retires on both a defined benefit and accumulation pension, due to existence of a voluntary contributions component.

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