Play 4CRB Radio Segment: ‘Don’t mess with our super’ with Troy Theobald of RFS Advice

History

The Keating government introduction of compulsory superannuation passed in 1992, initially at 3.0% of Australian wages and now at 10.5%.  This has been very successful and is arguably the envy of retirement savings around the world.

The original motivation was to help supplement retirees’ income and reduce the anticipated strain on the welfare system.  The baby boomer demographic has been steadily retiring since 2010 (Baby boomers were born between 1945 and 1964 so the first baby boomers hit age 65 in 2010) and as a demographic group makes up a large part of the population.  Funding their retirement was always going to be expensive and compulsory superannuation was a way of funding that.

Compulsory superannuation has achieved far more than anticipated and in 2023 it is forecast that 43% of retirees will be self-funded versus 22% in the year 2000. This is a fantastic achievement.

Compulsory superannuation hasn’t just reduced the reliance on aged pension, it has totally removed a large portion of retirees from the pension system. That has also reduced the demand on the public health system as well.

At the end of 1991, superannuation assets in Australia were approximately $146 billion (38% of Gross Domestic Product (GDP)).

In September 2022 this pool of assets has grown to just over $3.3 trillion.  That is $3,300 billion (565% of GDP).

Superannuation has been a political football as both Liberal and Labor governments try to work out some way of accessing your hard earned savings.

The reality is there might be some $100 million super accounts out there but they are very few and far between. 

The Albanese government despite very clearly, only 19 days before the 2022 election stating there would be NO changes to superannuation tax laws is trying to massage that statement to no MAJOR changes to superannuation tax laws.

A couple of quick points:

Kelly O’Dwyer – a liberal minister in the Turnbull Government – back in 2018 introduced retrospective laws that impacted existing balances despite Australians working in good faith with the government to save for their own retirement so they would never be a burden on social security.

We have seen both sides of government fall into these traps.

The current wording of lost revenue is a perception. It is actually Australians super and pension accounts that they are now looking to raise tax on, NOT lost revenue as they are saying.

A fully government funded retiree couple receives around $40,328 per year, a single person receives around $26,689. Those 43% self-funded retirees mentioned above are saving the government that cost every year, NOT costing them money in tax breaks.

  • For self-funded retirees to generate $40,328 a year from their assets they need to have accumulated over $672,000* in their superannuation accounts. (*Assuming a 6.0% return).  That is a lot of hard work and sacrifice.
  • The average balance in super for Australian’s aged 60-64 is just under $215,000.  A couple would be $430,000. 

*ANZ – Average super balances Aug 2022

Larger balances are already taxed at 15% for a balance over $1.7 million and the maximum deductible contribution amounts of $27,500 annually for workers pretty much ensures we will not see large balances in the future for anyone currently under 50. (Yes, you can add in $110,000 or $330,000 depending on if you use a bring forward rule) (The $1.7 million is said to be going up to $1.9 million).

Going forward, it is going to be hard to see really large balances in the super environment.

Governments on both sides can’t help themselves.  They believe the income and lifestyle you have foregone while you saved for your retirement is somehow theirs.  Yes it is concessionally taxed but it is locked up until your retirement and that was the incentive to save for your future.

The Albanese/Chalmers rhetoric is all about stopping the rorts but their proposals will hurt middle Australia, not the 0.001% who have really large balances.

  1. The current discussion is they will cap super balances at $3 million which means that any existing balances of that level or above would have to remove amounts in excess of that. 
  2. Any number of small businesses hold their commercial property in their self-managed super fund (SMSF) and yes over 20-30 years of hard work that property may be worth more than this. They would now have to sell that property to get under the cap.
  3. The same for Australians with investment properties in their SMSF’s.  We have never been a fan of leveraging property assets in SMSF’s but there are a lot of funds out there with property assets and arguably this was incentivised by the tax office.  These may have to be unwound.
  4. What about the death of a spouse and being forced to now sell the assets in a fund as you no longer have your combined super balances in the fund.

This will be a boom for Accountants but will destroy strategies Australians have had in place for years to help fund their retirement.

  • Jim Chalmers is also trying to rewrite history and argue that superannuation was only ever about retirement income so you shouldn’t be allowed to take lump sums out of your accounts after retirement.
  • In reality, any number of our clients need access to lump sums as they start to retire, or in retirement, as they start to deal with the unexpected or the planned.  Examples such as: 
    • Paying down mortgage debt on retirement;
    • Renovating an existing home;
    • Dealing with unexpected medical bills;
    • Helping out children;
    • Upgrading things like cars, RVs or caravans;
    • That dream holiday;

and IT IS YOUR MONEY!

I notice there is no mention or effect on the politicians and public servants that are drawing down $300,000 – $400,000 from their old style defined benefit funds.

  • This government is now raising the threat of taxing gains on your personal residential property as well as including it in the assets test for pension income.
  • Your residential property receives none of the tax concessions that an investment property does.  You pay it off with after tax dollars and any maintenance and improvements are done through your after tax savings.
  • Investment properties do incur capital gains tax but that is because of the concessions that aren’t available to your primary residence.
  • If your primary residence is included in the assets tests that could force retirees to sell the home they have spent their whole life paying off so they can use its capital as income.

All of these suggestions can be described as retrospective laws as they impact existing assets which were accumulated in good faith based on activities previous governments have encouraged.

Average earnings for full time working Australians is $93,900 so a household is probably closer to the $120,000 to $150,000 mark.

$41,000 of pension may help but arguably that is survival, not lifestyle.

We would strongly lobby all governments to leave superannuation alone and provide confidence to Australians that their retirement nest eggs will not be sacrificed for short term financial needs of a current government. Irrespective of what side of government that you prefer.

The issue with saying it is now only the larger balances over $3 million. That is this time. What about next time around?

Retirement is such a difficult time and comes with enough health and normal financial challenges. You do not need further challenges with any government starting to change the rules.

Hopefully, retirees and all Australians can have a voice.

Super Contributions

Over the years the generous contribution rules have been closed.

If we look at those changes, it has been a long time since large amounts could be contributed into superannuation. I remember a client selling a property and making this contribution just before this change. This was an asset they held their whole life and it was going to fund their retirement. It allowed them to retire.

I found this old article published back in 2007 that speaks to the rules at the time:

Moving back to current times in 2023, whilst there’s no legislation…yet, the press has reported on different super balances being over $5 million then it became $3 million.

These super large balances were contributed a long time ago and at the time pre-retirees used the rules of the time to add huge amounts into super and are now caught up in the $1.7 million tax free cap and the remainder has been paying 15% tax each year. The Government have unfortunately eroded the confidence in super yet again.

When you consider that the money in super has to come out of the super environment upon the death of the member, is what we’re potentially seeing a grab now from the Government that really would have happened at some point in the future anyway?

What have they achieved? They will get some tax on this in a few years earlier….

They have concerned and worried retirees again and we believe that they need to realise our super is our money. The reward for saving in a better tax environment is that you have to use it for your retirement and can not easily access it earlier.

There will probably be little resistance against large balances as the attitude is they can afford it. BUT we still need to reward people that have taken risks and built large amounts of wealth over the time using the current rules, at the time.

We would argue that it is a double standard and un-Australian particularly when it would appear that politician’s and their own government pensions would be exempt from any changes.

Summary

  • We have housing affordability issues. I think they should have kept this system well away from super just so it was a different issue.
  • They will probably end up pushing through the balance cap at a certain level. If that is all they do then that will not affect most Australians.
  • Super is a great vehicle and allows people to do amazing things in their retirement.
  • All Governments need to realise that it is our money not theirs.
  • Maybe it is just a big distraction from increasing prices in petrol, housing, rent, food, inflation issues and constant government spending that is fuelling inflation.
  • Please do not lose faith in super.
  • Come and see me or one of our team and let us help your family thought retirement.

Retirement Living Your Way.