Be honest, who hasn’t had someone seek advice with that question?
Continue readingsuperannuation
Dismantling superannuation
The governing Labor Party in Australia has just delivered bills to the Parliament to authorise next year’s budget. Included in the measures is the additional tax on superannuation balances that exceed $3m.
Continue readingThere is no pleasing some people
This is becoming tiresome. More opinion presented as research. In this case, the Financial Services Council of Australia has released its latest piece on superannuation in Australia. The FSC finds that Australians are not spending their superannuation quickly enough and this is ‘not optimal.’
Continue readingWhat’s in a name?
Shakespeare wrote some pithy lines in the 17th century about names. You’ll find those lines in Romeo and Juliet. In essence he contended that calling a rose something else would not make it smell any less sweet.
Continue readingDoes this represent effective retirement incomes policy?
The Australian Retirement Incomes system is based on the three pillars of a taxpayer-funded age pension, compulsory occupational superannuation and then everything else including voluntary savings, causal work, family support etc. The introduction of compulsory occupational superannuation in 1992 has not done much to relieve pressure on the first pillar.
This chart shows how a retirement income is generated in one particular case. The hypothetical individual in this chart enters full-time work at age 21 on a salary of $45,000pa. What follows are 44 years of continuous work, with the salary rising at a real rate of 1.5%pa, superannuation contributions are at 12% of salary over the whole term and the investment return is 3%pa real before fees and taxes. On retirement at age 65, our hypothetical worker targets a retirement income of 50% of pre-retirement income.
It is not inspiring. This person would be unusual among Australians to have a full-time career with no employment breaks, through choice, necessity, unemployment, parenting etc. The earned income is better than the median. The rate of contribution is 12% of salary throughout – at present, most people have no more than 9.5% saved. The real investment return of 3%pa will require everything to go well over a very long period, including through retirement.
The conclusion is that the taxpayer is funding about half this person’s retirement income, until about age 90, when the taxpayer takes over 100% funding obligations.
Allowing access to superannuation assets to purchase first home
Another kite being flown? The Federal Treasurer, Joe Hockey, suggested that the law could be changed to allow first-home buyers access to their ordinarily preserved superannuation savings. Supposedly, this would help them finance the price. The cost of housing in Australia is very high and getting into the market is hard.
If that is a kite, it should be shot down. Such a change in policy would be a very bad decision. The high price of housing is not caused by young people not having access to super money. Nor would the price pressure be eased by allowing such access. In fact, the price pressure would be made worse as extra demand chases an unchanged supply. The prices would rise, the first home buyers would have depleted their super savings and the transfer of assets would have gone to sellers of housing.
Twisting the language of tax for political gain
George Orwell wrote of the importance of language as a political tool. Language could be used to manipulate the way people think.
Today’s example of manipulative language comes from the world of superannuation tax. Apparently, using the language of the politically motivated, high income earners in Australia receive greater superannuation tax concessions than do low to middle income earners. Consequently, reform is needed to make the system fairer and levy a higher rate of tax on the superannuation contributions of the high income earners.
Australian Actuary 