I’ve been contemplating that question since the budget. Are superannuation changes the end of the world? Are they fair? Changes were’t a surprise. They’ve been on the LNP agenda for sometime. Going back to Joe Hockey and Tony Abbott. Previously, the government has either backed down or been voted down. Malcolm Turnbull is standing firm despite attacks from media, conservative supporters and self-interest groups. Good on him.
When I’m working through a vexing question I try to think back on a past experience.
More than once in my career I’ve had to sit down with my senior team and both explain and ask their permissions to in effect, hit them in the back pocket. Tough economic times means making tough decisions. You take those decisions in the hope you can make improvements in the months and years ahead.
Asking people to agree to give up their merit increase and any potential bonus is a tough decision. Tougher when asking people to forgo themselves and to use those dollars to bump up the less well paid in our wider team. Most people are selfish. I’m selfish. But, I’d already swallowed the bitter pill so, I wasn’t asking them to do anything I wasn’t doing myself. Was I over the moon about it? Hell no. But sometimes you simply have to do the right thing.
So why am I sharing this? It reminds me of the discussion that is now taking place as a result of the 2016 budget. Particularly the push back on superannuation changes. Those ‘with’ are being asked to be prudent and to give up a few perks and those who need a helping hand are being given a leg up.
When superannuation changes have been raised in the past, I’ve been critical. But I’m also realistic enough to accept that things needed to change. The wealthy and those who could were using what was set-up as a retirement fund as a wealth accumulation tool. In my opinion Scott Morrison and Malcolm Turnbull have done a reasonable job with something that was always going to be emotive. It wouldn’t matter where they placed the cut-off point for contributions. Or, what limit they placed on non taxable etc someone would be unhappy.
They’ve delivered a suite of changes that takes certain benefits away from the higher end. But added in a handful of sweeteners. Although no one mentions them. The biggest sticking point appears to be centred on the ‘retrospective’ claim applied to the non-concessional contribution. Taking this back to 2007 and limiting it to $500,000. The following comment from the Australian today I thought summed it up perfectly.
“All of the complaining around retrospectively is just noise. If I have already placed more than $500k in non-concessional contributions then I am only stopped from adding more in the future. The retrospectivity argument is only semantic. The facts are, nothing about my past actions have been changed. The consequences all lie in my future actions.”
If you managed to add $500,000 in non-concessional contributions to your super in the last nine years, you are either on a huge salary or you’ve had a windfall. It equates to $55,500 per year.
I made two comments this morning. How many of those complaining will ever have more than $1,600.000 in their superannuation account? Given the volume of whinger’s I didn’t realise we had so many rich people in Australia.
So if we have an abundance of rich people with over $1,600,000 in their super accounts why is our welfare bill so high? Just wondering. But that isn’t the case according to readily available research which states.
The average male has a super balance of just over $80,000; the average female about $44,000. Even at the point of retirement, the average super balance for a male is just shy of $200,000. For a woman it is $105,000. Sure, people want to build that up but to get from $200,000 to $1,600,000 10 years out from retirement is a Herculean effort.
So, would it be safe to assume that the bulk of the complaints are coming from those who are already self-sufficient or will be self-sufficient. Is it coming from those who were planning to cash in assets and start funnelling into super as a wealth building exercise. Is it from those who think they are missing out on something? Or maybe it's the usual eruption we get when people say ‘we must fix this but don’t look at me’. I’m not sure which.
My first reaction on hearing of the changes was was, sod. But after giving this some thought and speaking with my financial advisor it's not so bad and I as everyone else does, does have other options for investment.
Whilst there has been endless chatted about the negative aspects few people talk about the upside of the changes.
For lower income earners the co-contribution scheme didn’t change. According to reports I’ve read very few people take advantage of that. Free money.
Whilst the government lowered the salary sacrifice cap to $25,000 on concessional contributions from the current $30,000 for under 50s and $35,000 for over-50s. They added a sweetener. At the moment if the annual cap is not used you lose it. But the new $25,000 cap will be cumulative for five years for those with super balances of $500,000 or less. Based on research that’s the majority of people.
Ability for everyone up to age 75 to make contributions to super without having to meet the work test. Surely that's a positive for those in retirement now with some ready cash. Plus future retirees.
Plus, the ability to make personal before-tax contributions, if your company doesn't offer salary sacrifice or you don't have an employer. Before this was only available to the self-employed
Lastly, they added an increased eligibility for the spouse super tax offset
So it's not all downside.
Would I love to keep building my super nest egg (which is very healthy) and not pay tax on it when the time comes to start drawing down? Of course, I’m selfish but I’m a realist. Is it fair, perhaps not. After all, I will continue to reap the benefits of things like healthcare, subsidised pharmaceuticals (should I need them in the future). Roads and other infrastructure. So whilst I’ve accused people on pensions and on welfare of being a burden on tax payers. Maybe in using super as a wealth building system (and not contributing fairly to the government pot) I’m not any better. Don’t get me wrong. I’m not being a martyr here. I’m simply recognising that I can’t demand changes to stop abuse then scream when a few not unreasonable changes impact on me. I’d be nothing more than a hypocrite if I did.
I’ll swallow the bitter pill and look at what other options I have to reduce my tax liability. I hope the PM and Treasurer do stand firm. It may cost them votes but at least they had the guts to try and fix the inequity that some many complain about.
When I’m working through a vexing question I try to think back on a past experience.
More than once in my career I’ve had to sit down with my senior team and both explain and ask their permissions to in effect, hit them in the back pocket. Tough economic times means making tough decisions. You take those decisions in the hope you can make improvements in the months and years ahead.
Asking people to agree to give up their merit increase and any potential bonus is a tough decision. Tougher when asking people to forgo themselves and to use those dollars to bump up the less well paid in our wider team. Most people are selfish. I’m selfish. But, I’d already swallowed the bitter pill so, I wasn’t asking them to do anything I wasn’t doing myself. Was I over the moon about it? Hell no. But sometimes you simply have to do the right thing.
So why am I sharing this? It reminds me of the discussion that is now taking place as a result of the 2016 budget. Particularly the push back on superannuation changes. Those ‘with’ are being asked to be prudent and to give up a few perks and those who need a helping hand are being given a leg up.
When superannuation changes have been raised in the past, I’ve been critical. But I’m also realistic enough to accept that things needed to change. The wealthy and those who could were using what was set-up as a retirement fund as a wealth accumulation tool. In my opinion Scott Morrison and Malcolm Turnbull have done a reasonable job with something that was always going to be emotive. It wouldn’t matter where they placed the cut-off point for contributions. Or, what limit they placed on non taxable etc someone would be unhappy.
They’ve delivered a suite of changes that takes certain benefits away from the higher end. But added in a handful of sweeteners. Although no one mentions them. The biggest sticking point appears to be centred on the ‘retrospective’ claim applied to the non-concessional contribution. Taking this back to 2007 and limiting it to $500,000. The following comment from the Australian today I thought summed it up perfectly.
“All of the complaining around retrospectively is just noise. If I have already placed more than $500k in non-concessional contributions then I am only stopped from adding more in the future. The retrospectivity argument is only semantic. The facts are, nothing about my past actions have been changed. The consequences all lie in my future actions.”
If you managed to add $500,000 in non-concessional contributions to your super in the last nine years, you are either on a huge salary or you’ve had a windfall. It equates to $55,500 per year.
I made two comments this morning. How many of those complaining will ever have more than $1,600.000 in their superannuation account? Given the volume of whinger’s I didn’t realise we had so many rich people in Australia.
So if we have an abundance of rich people with over $1,600,000 in their super accounts why is our welfare bill so high? Just wondering. But that isn’t the case according to readily available research which states.
The average male has a super balance of just over $80,000; the average female about $44,000. Even at the point of retirement, the average super balance for a male is just shy of $200,000. For a woman it is $105,000. Sure, people want to build that up but to get from $200,000 to $1,600,000 10 years out from retirement is a Herculean effort.
So, would it be safe to assume that the bulk of the complaints are coming from those who are already self-sufficient or will be self-sufficient. Is it coming from those who were planning to cash in assets and start funnelling into super as a wealth building exercise. Is it from those who think they are missing out on something? Or maybe it's the usual eruption we get when people say ‘we must fix this but don’t look at me’. I’m not sure which.
My first reaction on hearing of the changes was was, sod. But after giving this some thought and speaking with my financial advisor it's not so bad and I as everyone else does, does have other options for investment.
Whilst there has been endless chatted about the negative aspects few people talk about the upside of the changes.
For lower income earners the co-contribution scheme didn’t change. According to reports I’ve read very few people take advantage of that. Free money.
Whilst the government lowered the salary sacrifice cap to $25,000 on concessional contributions from the current $30,000 for under 50s and $35,000 for over-50s. They added a sweetener. At the moment if the annual cap is not used you lose it. But the new $25,000 cap will be cumulative for five years for those with super balances of $500,000 or less. Based on research that’s the majority of people.
Ability for everyone up to age 75 to make contributions to super without having to meet the work test. Surely that's a positive for those in retirement now with some ready cash. Plus future retirees.
Plus, the ability to make personal before-tax contributions, if your company doesn't offer salary sacrifice or you don't have an employer. Before this was only available to the self-employed
Lastly, they added an increased eligibility for the spouse super tax offset
So it's not all downside.
Would I love to keep building my super nest egg (which is very healthy) and not pay tax on it when the time comes to start drawing down? Of course, I’m selfish but I’m a realist. Is it fair, perhaps not. After all, I will continue to reap the benefits of things like healthcare, subsidised pharmaceuticals (should I need them in the future). Roads and other infrastructure. So whilst I’ve accused people on pensions and on welfare of being a burden on tax payers. Maybe in using super as a wealth building system (and not contributing fairly to the government pot) I’m not any better. Don’t get me wrong. I’m not being a martyr here. I’m simply recognising that I can’t demand changes to stop abuse then scream when a few not unreasonable changes impact on me. I’d be nothing more than a hypocrite if I did.
I’ll swallow the bitter pill and look at what other options I have to reduce my tax liability. I hope the PM and Treasurer do stand firm. It may cost them votes but at least they had the guts to try and fix the inequity that some many complain about.
