Speaking to SMSF Adviser, IOOF national manager of technical services Kate Anderson said that if the government does decide to proceed with changes to superannuation, it may look at introducing a flat tax rate of around 10 per cent in the pension phase.
Ms Anderson said that from an administrative point of view, this would be easier to implement compared with some of the other proposals, such as capping the funds forming a retirement income stream at $2.5 million, as proposed by the Association of Superannuation Funds of Australia.
“It’s too hard to administer – if [the government] says, okay if your balance is over $2 million in pension phase, then you’ll be taxed at five or 10 per cent, well when is that $2 million calculated? Is it at the beginning of the financial year or halfway through?” said Ms Anderson.
“What happens if you’ve got fluctuations in property or listed securities?”
Ms Anderson said that while the tax discussion paper has made suggestions that one of the focuses of the white paper will be superannuation and retirement income streams, it is unlikely there will be any changes until after the next election.
“The government has come through and they won’t make any significant changes to super,” said Ms Anderson.
Any changes need to be made as part of a broader picture, she said, whether they are changes to super and retirement income streams or changes to social security.
“Everyone sort of needs to sit down together and make sure that it’s all in line, instead of changing super and not changing social security, and not changing tax – it all needs to done simultaneously,” she said.
IOOF is being simplistic.
If the tax is 10% on earnings, it will make people take lump sums and put them in personalized portfolio life assurance policies offered them similar net returns with a lot more flexibility and better asset protection. If the pension itself is taxed at 10%, it means interest can be deducted in borrowing to contribute, which makes for interesting income splitting pre-retirement saving strategies.
As usual there will continue to be two classes of taxpayers, the well advised and the rest.
I absolutely “get IT”. I have been working with SMSFs (excluded funds) since 1993 (you know, when SISA came in).
There is a complex budget dilemma that needs to be resolved and from any perspective, super is on the table as a chance of increasing revenue. Rather than bombastic statements, careful, moderated debate is required to ensure that (the inevitable) changes are the least painful.
Practitioners should stop acting like this is a “pub brawl” and make their voice heard.
Superannuation is an amazing construction and well worth being considered in the highest echelon possible. Don’t fall into the trap of making superficial statements and hoping ‘it will be alright’. This is a serious debate and needs all the brain power that can be mustered.
(PS: the first step in reducing administration is at local govt level. I hope you are actively supporting Council amalgamation. This is where the rubber hits the road (in reality) and where massive savings will be garnered.
Kym still does not get it. Anyone suggesting an increase in super tax to fund the overspending of Government is going to lose the election and that will be that. People pay tax on the way in and pay tax on the earnings and Kym wants them to pay tax at a higher level. How about we get rid of 10,000 public servants and abolish negative gearing
It’s paramount that any changes are straightforward to implement. In my view, increasing the contributions tax even 1% would be a significant revenue raiser and simple to implement as it is not a new tax, just a tax increase.
Rebates via the personal tax regime can be used to ensure equity for lower income brackets.
If we go back less than 10 years, super withdrawals were taxed. Under the current regime there is no tax on withdrawal over age 60 and the income is deemed exempt so stays away from income tests.
It would seem that a flat tax on pension capital would be preferable to taxing withdrawals however, increasing the contributions tax is broader, covering SGC so strategies for avoidance wouldn’t be as evident.
This is the government shooting themselves in the foot. On one hand they know they won’t be able to afford everyones Age Pension Entitlements in the future and are actively encouraging self funded retirees. On the other had they want to keep changing the rules which undermines the very system that will ensure more self funded retirees. Our Australian Government needs to think long term not short term. Reduce spending not increases taxes.
Never going to happen. Governments are the most useless inefficient squanderers of others’ money. We are already extortionately taxed, why give these parasites more? Get the SPENDING under control. And start with the RET, which is just another trade union racket.
Albert – I certainly agree, My concern with this idea is the Government could be one of the losers. The IOOF idea has a great strength in that its simple to implement, unlike Labor’s idea of taxable income over $75k. My own simple idea is to extend tax on withdrawals past age 60, maybe having the first $50k taxed benefit pension exempt. Anyway, I can see the issue, it just needs a simple solution (like IOOF) but with no significant side effects.
The Government that brings this tax in will lose office at the next election that is if they can get this tax through the Senate which is unlikely.
Who ever thinks that this is likely is living in cloud cuckoo land and the discussion paper can say what it likes as this tax idea is really quite dead.
To Cam. Every change will have winners and losers. Every proposal can be shot down by a simple example. I believe after the next election (it does not matter who wins) Superfunds will be all be taxed regardless of accumulation or pension phase. It is the easiest way to raise a lot of revenue. If there is a shift out of super then so be it.
The proposal above is just another thought bubble with ignorance of the wider system being kicked along to fill the pages and get names in print.
Another idea that fails. A couple with say $700k in super currently pays no tax. If they get a 6% return, or $42k, this idea sees them paying $4,200 in tax. If they pull it all out and earn $21k each personally they pay no tax. What many will do they is put the $ into a term deposit, historically earning far less than a balanced super portfolio. So to maintain spending they draw down more capital. That leads to less assets for the age pension asset test, so more age pension. So the Government loses with this couple. Some people, with all this money in their own hands, may increase spending making the situation worse.