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Industry facing ‘superannuation tax conundrum’

news
By mbrownlee
October 05 2015
1 minute read
20 View Comments

To its detriment, the superannuation industry is sending the government strongly conflicted views on whether tax concessions within super should change or remain the same, says Chartered Accountants Australia and New Zealand (CAANZ).

CAANZ superannuation leader Liz Westover told SMSF Adviser there is work that needs to be done in regards to the taxation of superannuation, but added that it is a “conundrum for the industry at the moment”.

“On the one hand, we’re telling government at the moment, don’t tinker with superannuation [because] the constant changes are undermining confidence in the system; on the other, we’re saying, well, actually, we might need all these changes around taxation and superannuation,” Ms Westover said.

 
 

She said that while it was certainly worth looking at changes to tax and superannuation, the industry first needed to establish a range of objectives for superannuation, or risk undermining public confidence in the super system.

“First and foremost we need to establish a set of objectives, not only for super but [for] our retirement income system and then we can assess any potential changes against those objectives,” she said.

If one of the objectives established is to provide an adequate standard of living in retirement, Ms Westover said, it may then be appropriate to look at some of the proposals put forward, such as reducing the concessions for assets over $2.5 million within a superannuation fund.

“A balance of $2.5 million or $3 million may be appropriate for an adequate retirement so those people no longer need the support of government through tax concessions to save further – they should certainly have the option to save further within superannuation, but they lose those tax concessions,” she said.

Ms Westover added that the industry needs to “assess whether tax-free [superannuation income] over 60 is still reasonable”.

“It’s really [about] sitting down and doing the proper analysis of the implications of where those tax concessions actually lie and lining them up against each other, and what’s ultimately going to meet the objectives that we set down for our retirement income system,” she said.

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Miranda Brownlee

Miranda Brownlee

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: miranda.brownlee@momentummedia.com.au

Comments (20)

  • avatar
    Dr Terry Dwyer, Dwyer Lawyers Friday, 23 October 2015
    Eric is not far from what the IDC on Retirement Incomes wanted back in the 1980s. All benefits as pensions based on life expectancy at age of start, $1 for $1 income test but the quid quo pro was unlimited deductibility, no taxation in accumulation or in the fund and no preservation (since it would always come out as taxable income and offset any social security benefits). In other words super would be a forward income averaging device over a lifetime with allowance for reversionary pensions for dependants.
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  • avatar
    This topic has brought on an interesting debate, however, I believe there are other areas that need to be included. Superannuation, whether SMSF or other, offers tax concessions to provide for our retirement, but those concessions have been used to minimise tax. I submit the following for consideration. From a set age, be it 65, 70 or whatever, I believe there should be a compulsory conversion to pension mode. If we then re-instate those pensions as taxable income, with some tax concessions up to a set pension income threshold, the concept of being solely a tax minimisation would diminish and the excess would flow back into our tax system.
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  • avatar
    A couple of quick points.

    Greg E, the other option for excess benefits is simply make pension payments taxable income just like they used to be. The taxable component was added to assessable income and tax payable if applicable, this was only in 2005 BTW. Secondly put a cap on tax exempt income in dollar terms inside the fund to cap ECPI claims. This would be not be a burden on the admin system as other income must be reported anyway.

    Secondly any claim that the super system does not ameliorate the aged pension liability is hard to understand.

    Pension thresholds are also going back to the pre Howard gambit of approximately 10 years ago on 1 January 2017.

    As a result some people will lose up to $14k in ages pension.

    The debate is not that hard nor complex in my view.
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  • avatar
    DavidL - the problem is that even someone with $350k still receives the age pension. I agree, it is crazy. Surely retirees should have to exhaust their super before they get handouts from the government.
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  • avatar
    I'm confused. If there are SO MANY people with SO MUCH MONEY in superannuation that the tax concessions are apparently an issue, then surely it follows that the number of people ultimately reliant on the age pension must fall over time. Or is my maths somehow wrong?

    Everyone entering the workforce from 1 July 1992 will have at least 45 years worth of contributions and earnings stashed away as superannuation savings to help fund their retirement.
    Even someone on minimum wage should have around $350k saved up by retirement.
    That's the equivalent of 18 years worth of age pension payments at the maximum rate that the government won't have to pay to that couple!! And many people will have way more than the minimum amount thanks to additional contributions made over their lifetime.

    If governments stopped pissing our taxes down the drain the budget wouldn't be in such a mess, and we wouldn't even be having this discussion.
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  • avatar
    I understand that long term savings require stability, and periodical changes could destabilise.
    But GFC showed that during crises, Governments are as powerless as a leaf in a storm (Iceland, the mighty US, our own bank guarantee...) Preemption requires potential disasters to be scanned and averted, if need be, by making changes.
    Our super system was designed to significantly reduce the age pension burden, and tax concessions were offered. This goal now seems a mirage, and a review (and balance) are warranted.
    I hope we are not suggesting nothing should change in policy settings? Why are favourable changes not considered changes?
    Government is not an amorphous other person, it is us. Who will speak up for the tax payer when lobby groups seek benefits but will not give up any?
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  • avatar
    Dr Terry Dwyer, Dwyer Lawyers Thursday, 15 October 2015
    Treasury mucked up superannuation when it imposed the 15% "bring forward" tax in the 1980s. It was very short sighted.

    If more of this uncertainty goes on, people will be looking for alternatives such as personalized life assurance (not available from the local club but available elsewhere).
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  • avatar
    Raman, based on your premise that changing circumstances justify governments having a changed reaction, then any laws, policy could only be considered a commitment at the instant they were enacted.

    Superannuation is a long-term activity with funds inaccessible to participants for decades. Superannuation would be an extraordinarily high risk activity for participants if laws, policies etc were transitory and I suggest only a fool would make contributions to superannuation if this proposition was enforced.

    Superannuation laws, policy etc must remain stable for timeframes near to the contribution time of participants for them to have confidence in superannuation and lock funds away for decades at a time.

    In terms of solutions, perhaps across the board grandfathering (whenever any change is made) is a way ahead ?
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  • avatar
    If reduction / removal of existing concessions flows from the law of unintended consequences, by symmetry, so was making all benefits post 60 tax-free in the dying days of Howard Costello government. I did not notice a whimper of protest about this 'tinkering', nor was then any consultation with those who fund the concessions (tax-payer).

    Short of a plebiscite or referendum each time any change is mooted, we would be doomed to status quo.

    Like Keynes who famously boasted that he changed his mind when circumstances change, Governments must react to emerging conditions - all the time.

    Law of Unintended Consequences is intended.
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  • avatar
    Is this an example of the law of unintended consequences ?. Offer tax incentives (concessions) to encourage super contributions. When the contributions have been made (and time has passed) , act astonished that people have used the laws of the land to contribute to superannuation and are now expecting their tax concessions to be provided. Ahh no, that isnt what we meant to happen , is it ?.

    I support Terry Dwyers assertion that the voters who have legally contributed funds under the rules (and promises) of the day should be consulted.
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