Super reality check – unlimited tax-free super was always too good to be true

Don’t know about you, but I’ve got flashbacks to the 70s. Specifically, of Bruce Banner: “Don’t make me angry. You wouldn’t like me when I’m angry.”

The Incredible Hulk is the ultimate in “pissed off”. From gentle scientist to brute-force killing machine in seconds.

Potentially, just because the wheel nut slipped when changing the tyre in the rain. (It’s true. Look up the starting credits for the 70s show on Youtube.)

As a world, we now seem to be more likely, in an instant, to turn green, hit the ’roids button and shift the transmission into don’t-mess-with-me mode.

That Donald Trump is even a chance to get elected … that the Brexit vote got up … that Australia’s major parties got such a low primary vote in our own Federal Election and such a carnival of multi-coloured independents will sit in both houses of parliament …

We’re angry. Everyone seems to be. Even Mrs DebtMan, though I’m not sure whether it’s political or if I’ve done something wrong.

The opinion polls, along with the ballot boxes, say so. The feeling is that the world, since the GFC, doesn’t seem to have improved all that much. And if it has, the punters certainly haven’t shared in it. (Though, it is constantly pointed out, bankers and politicians seem to have moved onwards and upwards.)

Get angry at the ballot box all you want. Register a protest vote. When they phone poll you, box their ears.

But keep the voter side of yourself in its own box. Keep that personality separate from the rational investor side of you. (Both sides might be rational. I’m not suggesting otherwise.)

What do we need to understand out of the current mess?

Let’s stick with, for now, superannuation.

What comes out of our Federal election for super? A few weeks ago, it seemed like a vote for Malcolm Turnbull was a vote against your super.

However, even if the ABC’s Antony Green (doesn’t he deserve his time in the sun come election time?) has got the result all wrong, let me assure you one certainty.

Superannuation, as we know it, is in trouble.

Not for everyone, but for the wealthy, and for anyone aspiring to use superannuation to help them become so.

Why? Because very quietly, just a few days before the election, Labor said that it accepted, almost completely, that the Coalition’s reforms to super were necessary. Labor included the budgetary savings in their Budget estimates. That is, they banked the savings the Coalition’s policy would produce in their own budgetary calculations, and adopted those policies.

Labor accepted the $1.6 million transfer to pension cap. They accepted reducing concessional contributions for everyone to $25,000. And they accepted the changes that would see “transition to retirement” pensioners pay more tax.

They also banked the measures that would be unarguably positive, such as the five year catch-up provisions, the no-contributions tax policy for those earning under $37,000 a year (which was actually their policy to begin with), extending the contribution age to 74 and allowing tax deductions for personal contributions.

Why?

Because almost universally, even by the Coalition whose former leader John Howard introduced the policies, the line pushed by Treasury is now accepted. And that is that unlimited, tax-free, superannuation simply isn’t sustainable. Or fair.

Under the current rules, the truly wealthy can get tens of millions into super, where their pension funds will pay no tax on the earnings and the individuals receiving the pension will also pay no tax on what they draw as a pension.

Yes, there are elements of it that might seem like retrospective taxation. People made decisions to plough money into super based on the fact that super pension funds and drawings were tax free.

But even under the Coalition’s rules, even the uber-wealthy will still enjoy a tax-free pension fund and drawings from a $1.6 million pension fund. The remainder – for those who have truly planned well enough to have more than that in super – will be transferred back to a regular superannuation fund, to be taxed at no more than 15 per cent.

Versus up to 49 per cent if it was in their personal name.

Sure, even the wealthy were angry at this election. However, I think most of them understand that, honestly, 15 per cent tax is still a pretty good deal.

Bruce Brammall is the author of Mortgages Made Easy and managing director of Bruce Brammall Financial. E: bruce@brucebrammallfinancial.com.au.