(03) 9020 2905PORTFOLIO POINT: Regulatory risk fatigue is a major factor in why you’re putting less into super. But some of you want me to “Stop encouraging the whingers, Bruce!”
If ever I needed proof that SMSF trustees and Eureka Report readers are not a homogenous bunch with the same interests and needs, then it was provided rather forcefully this week.
For a second week running, I was deluged with emails about why super contributions had dropped so heavily in FY2010, following my August 4 column.
The emails still predominantly list the cut in the concessional contribution limits. However, readers had, in general, taken a longer-term view. There’s a definite exasperation and/or disillusionment over regulatory change much deeper than simply the concessional contribution cuts.
But there was also a backlash. A vocal minority agree with the former Rudd Government’s reduction in the concessional contributions limits, even though it is directly impacting on their finances, because they agree it was too generous. According to this group, I’ve been pandering to a generation of whingers.
And it wasn’t just one or two. About 10-15% off all emails this week had a crack at other Eureka Report readers, or me, for banging on about the loss of generous tax breaks. Some thought their opinions wouldn’t see the light of day with me as gatekeeper. Well, they were wrong. Here’s a few:
MM: “You have produced a carrot to draw out the whingeing, selfish group of retirees who, as dear old Harold McMillan would say, “have never had it so good!” … Howard’s super legups were super generous, as were his wealth-blowing tax yummies and some hogs are having withdrawal symptoms from the trough as if it were a guaranteed entitlement. It’s not hard to imagine what the boys who sacrificed thier all at Frommell, Kakoda et al (who didn’t get to cash in their pay, let alone super) would make of this mob of greedy old a-holes. Doubt if they’d want them in thier platoon. Stop encouraging them.”
D: Personally, I agree with the pull back by the ALP in the allowable contributions to super. Peter Costello’s decision to create ‘non-declarable, non-taxable income’ from fully funded superfunds was the most stupid decision ever … even though I benefit from the policy, it is totally unethical that someone with >$2million in super should be able to draw down a tax free income of $100,000 p.a. (5% drawdown) and not only not pay any tax, but also not pay any Medicare levy.
HL: The government’s actions did seem reasonable at the time and still do … Tax-free pensions don’t make sense. Never heard a good justification for this! I have plenty of money in a SMSF – (if someone throws money at me I’ll catch it), but to then whinge – unbebloodylievable!
M: The argument needs to be balanced. If you’re 55 and need more super, then maybe you work 2-3 years longer than you had planned or scale back to 3 days and work 6 years longer. That’s life! Too many Australians have become whingers about tax.
MB: The reduction in deductible super contributions is good policy. The Howard government in its later years was simply too generous … for it to be sustainable given the enormous cost to the budget. It is ridiculous that income from super for those over 60 is tax free, irrespective of its quantum. Giving such generous tax breaks to those who, to be frank, probably have least need for them, can only mean that the rest of the population has to pay more … the rules brought in by Costello are bad economics.
MA: Capping contributions to super was one of a very few better ideas the Rudd government had. Why should ordinary taxpayers subsidise the wealthy? It is highly selfish to make such a suggestion.
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Sure, so perhaps the point should become about tax-free income. But the Rudd Government didn’t move to change the taxation of pensions – they moved instead to cut the ability to get money into super. And in doing so, they tightened a noose that had already been yanked pretty hard around the necks of those over 50.
When the Costello government bought in its massive overhaul of super, what some people are forgetting is that those Coalition contribution changes WERE huge cuts themselves. The Howard Government was introducing far stricter limits to offset the tax-free nature of the super that it was introducing.
Prior to 2007, Australians had age-based limits. Forget the young’uns for the purposes of this argument. If you were over age 50, you had an age-based limit of what was approximately $105,000. But that was PER JOB. If you had two places of employment, you could put in double that.
Costello’s changes were to cut that to $50,000, with a limited, transitional, five-year window of $100,000 for those caught out. After the five years, the $100k was to be reduced to $50,000 for everyone. Less than half of what those who were over 50 had previously been able to contribute.
Rudd’s cuts are such that, from July 1, 2012, the amount the over 50s will be able to get into super will be less than one-quarter what they were previously allowed to contribute in a tax concessional manner.
Under the old rules, you could get a fair sum of money in (up to RBLs), but you had to pay tax getting it out. Now, you won’t have to pay any tax to get it out, but you won’t be able to get it in.
Under the current rules, a 45-year-old could get in a maximum of $425,000 before turning 65 (20 times $25,000 times 85%). That’s if they are in a position to contribute the maximum each year. But in your 40s, there are mortgages to pay, kids to educate. It simply won’t happen for 80% of the population. They will be left to backend their super when the mortgage is paid off and the kids are gone.
Now they’re 55. They’ve got 10 years with a maximum of $25000 a year. Versus 10 years at $105,000 or so.
While the focus on the Howard/Costello changes was on the tax-free pensions and the $1 million limit, Costello actually severely restricted how much money went into super by cutting those limits from $105,000 to $50,000 – with a five-year limited exception.
That too often gets forgotten.
We are now getting what should be once-in-a-generation changes every few years. And that’s what really flowed through in this week’s letters. Here are some comments on that theme:
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GN: If only the superannuation industry had the clout of the mining sector. It MIGHT be better in super, but it’s safer out!
WR: (Your article) was reinforcement as to why I don’t like super and have tried to pay the minimum from day one. In theory it sounds great, but with so much uncertainty as to what the government will do next, I would rather pay the tax and have full control over my money. I just wish I could sign a waiver along the lines of ‘I don’t want a government pension, I am quite happy to fund my own retirement’ but don’t take my money and put in it a big box and tell me you are doing me a favour.
RM: Australians love sport but here we have the football game of superannuation (any code) being changed almost every time the game starts. One never knows whether the goal posts will be moved, the size of the field changed, the rules modified, the referee replaced or quite often in recent times, which way our team is actually running after kick-off.
RH: I had to reduce my concessional contributions (because of the lower limits). I decided to not make any undeducted contributions because I am concerned that some future change, especially by the present government, could result in being unable to withdraw a lump sum.
PR: (People could be) substantially disadvantaged if a future government changed the rules as to how their super funds could be used and/or withdrawn. For this reason, I think that the SMSF is still important, and we will continue to operate our own SMSF, but we need to build up other substantial assets outside super. I was completely comfortable with the Peter Costello approach to super but as governments change the rules, it is becoming blindingly obvious – don’t put all your eggs in one basket.
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And there were another dozen or so with similar themes.
Governments – and I’m not limiting this to the Coalition or Labor – are running an ever greater risk that people all the way up and down the income chain, will abandon super.
My full-time gig is as a financial adviser. A considerable part of my role as an adviser is to educate and advise people about their superannuation – how much to contribute and how to invest it.
Regulatory change insures there will always be work for financial advisers. So, don’t see this as self-interest. My concerns are for the opposite. If Eureka Report readers are turning their backs on super – and we know that, as a bunch, SMSF trustees are considerably wealthier than the average Joe – then it will be flowing through the whole system.
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But at least Labor has a superannuation policy. We’re three days out from an election and there’s been nothing from the Coalition. Shadow Treasurer Joe Hockey said last week that the Coalition didn’t even have a super policy.
Bruce Brammall is director of Castellan Financial Consulting and author of Debt Man Walking.