Diamond in the guff

PORTFOLIO POINT: Parliament House was filled with enough hot air to nearly see it float off like a hot air balloon during the tax summit. Buried deep, however, were some interesting ideas for super.

“Much of what has been said has been quite predictable. I could have written the script for this before coming in.”

Right, well … given that was uttered by the man whose report so many had been summoned to Canberra to discuss, even those with even modest expectations of the national tax summit should have been looking for something else to do by the time tea and bikkies were offered in Canberra yesterday afternoon.

That comment came from former Treasury secretary Dr Ken Henry. The tax summit had, essentially, being called together to discuss his 2009 report. The summit itself was a political demand of independent Rob Oakeshott.

And, sadly, the summit itself would appear to have achieved almost nothing. Few would have had high hopes. So most won’t have been disappointed.

The main headlines were reserved for the totally predictable calls from business to cut their tax from 30% to 25% and the equally predictable protests by unions.

So, I’ll leave you with two choices. You can wait to read some more yawn-inducing headlines tomorrow. Or you can read on, to find out what interesting stuff missed the mass media headlines.

There was some interesting stuff in super.

But you won’t have found it discussed anywhere on the floor. For that, you would need to read deep into the submissions. Okay, I won’t make you do it. That’s what they pay me for.

In total, seven major parties with specific interest in superannuation presented submissions. Some of their recommendations I have covered before – and that’s not being blasé, but many people at this summit literally represented their submissions to the Henry Tax Review.

Long-term bonds for pension annuities

ASFA, the Association of Super Funds of Australia, pushed the idea of the government giving encouragement to provide long-term bonds, both by the government itself and for private industry, particularly for infrastructure.

An argument being made by industry is that the government needs to encourage more Australians to take up annuities, particularly life-time annuities, which is sadly light-on in Australia presently.

From the government’s perspective, having Australians purchase lifetime annuities with at least a portion of their accumulated super would reduce spending of retirees in the short-term, with the aim of providing a longer-term income stream. Literally, until death.

Governments are in the best position to offer ultra long-term bonds. And they are considering an extension beyond their current 10-year issuances.

The provision of long-term government (and non-government) bonds would allow product providers to provide more efficient and cost-effective annuity products.

Compulsory income streams

Forcing retirees to take a portion, if not all, of their super in a retirement income stream, such as an annuity was supported by the Australian Institute of Superannuation Trustees (AIST).

Making an income stream – as compared with the ability to take the lot as a lump sum, or withdraw at will – would force competition and innovation in the area, AIST said in its submission.

Concessional contribution rolling limits

An idea I flagged in this column a few times in recent months is the idea of rolling limits, particularly for concessional contributions. I’ve suggested a five-year rolling limit, so that if people are unable to contribute for economic or personal reasons for a few years, they have ability to make that up later.

A small twist on that was also recommended by AIST. Instead of averaging, introduce a bring-forward rule (as exists for non-concessional contributions, or NCCs) for concessional contributions, or CCs, to allow for three-years’ worth of contributions to be made up-front, or potentially retrospectively.

Force employers to offer salary sacrifice

Another good suggestion from AIST is to force employers to offer pre-tax salary sacrifice. I’ve written before (6/10/10) that there are traps to salary sacrificing. Two of which are that employers are not required to provide it and that they can also use salary sacrifice to reduce the SG contributions they make to your super fund. AIST said legislation to force the provision of salary sacrifice as a worker’s right would be useful.

Deferred lifetime annuities

A complex topic, but one that annuity-specialist Challenger likes to talk about incessantly.

A deferred lifetime annuity (DLA) is an annuity that, for instance, you purchase at age 65, that doesn’t start paying you an income until you are, say, 91. Challenger’s figures estimate that a single premium of $10,000 at age 65, could provide an lifetime (starting at age 91) income stream of $8000 a year until you fall off your perch.

Challenger argues that the current tax rules do not provide enough incentive to create these products.

They are, in essence, closer to a pure risk product than any other super income product on the market today. Providing incentive for them to flourish would have several advantages, Challenger says.

Remove the 9% SG rate from the contribution caps

A variation – although a worthy one – on what we’ve all been arguing for since the previous Rudd Government halved the concessional contributions thresholds, with the intention of dropping everyone to $25,000.

And you (Eureka Report readers) and I have been specifically talking about this sort of issue in recent weeks.

The Financial Planning Association has suggested making the $25,000 CC limit independent of the 9% Superannuation Guarantee limit.

Therefore, if you’re earning $50,000 a year, your employer would put in $4500, but you would still be able to contribution $25,000 of your own money. If you were earning $200,000, your employer would put in $18,000, while you could still put in $25,000.

Sure this would mean that higher earning Australians would get more into super than lower-earning Australians. But few would claim at this sort of level it would be unfair, particularly if it had a cap on an income of, say, $200,000 to $300,000.

CC limits simply must be raised. This would be at the low-end of a spectrum that would be considered acceptable.


Some of what we’ve discussed in this column in recent weeks is, I would argue, even more useful than some of these suggestions from major industry bodies. But large organisations inevitably have an eye on their own till.

Perhaps next time, I’ll write a submission for a government panel/committee based on Eureka Report readers recommendations …


The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are advised to consult your financial adviser.

Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking.

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