Joe Hockey raises prospect of first home buyers using super to enter property market; Joe Hockey's plan for early access to super appeals to the young and the Greens
Tweet Topic Started: 6 Mar 2015, 06:31 PM (10,958 Views)
I hope the point I am trying to make is able to be read. I rewrote this 3 or 4 times before I posted it.
You've made your points quite clearly Poontang.
I'm not too sure where I stand on doing away with super altogether. It would be good for the savers and investors amongst us. But bad for the others is my general initial thought.
But doing away with it is not what Joe is proposing. Rather he seems to see it as compulsory savings, which rather than being preserved for retirement as such, could be dipped into throughout life for various reasons.
The sales pitch will be to allow it to be dipped into initially for reasons that many will find attractive. Though over time, the reasons will presumably be broadened to include ones that we might not necessarily find so attractive. And become compulsory rather than options that we might choose to avail ourselves of or not. For example, things like using it to fund one's own unemployment benefit should one become unemployed.
We've already seen this happen. Super was never supposed to be a replacement for the aged pension. Rather it was meant to be in addition to it. Thereby meaning one could live better in retirement. But it wasn't meant to be used to pay for one's own retirement. Conned again!
Joe Hockey might have just found a way to broaden the Coalition's political base.
The latest Essential poll shows young people and Greens voters are responding well to his push to allow first home buyers to get early access to super to buy houses.
The Coalition's traditional sources of support - high earners and Australians aged over 45 - are far less impressed.
The poll has traditional Coalition voters rejecting the idea 47 per cent to 42 per cent. Labor voters reject the idea 52 to 38. Supporters of independents and very minor parties oppose it 49 to 39. But Greens voters back it 50 per cent to 32 per cent. Australians under the age of 45 back it and Australians under the age of 24 back it very strongly.
"We are seeing a classic age divide," said Essential Media director Peter Lewis.
"Young Australians can see something in it for them, older Australians are more worried about the stability of the superannuation system."
The Essential poll shows 49 per cent of adults under the age of 24 support the idea only only 35 per cent oppose it. University-educated Australians support it 45 to 44, low-income Australians 46 to 45. Australians aged 65 and over overwhelmingly reject the idea 64 to 34. High earners reject it 53 to 36.
Compulsory super and unlimited negative gearing tax deductions are combining to put home ownership out of reach for many Australians.
Without family assistance, even with financial institutions prepared to offer high Loan Valuation Ratios (LVRs), many Australians struggle to achieve home ownership in today's inflated markets.
Bitten by the housing collapse in the GFC, even though the US provides an income tax deduction for interest on loans up to $1 million, their financial institutions now require deposits of up to 25 per cent of conservative valuations.
Even with low interest rates, high LVRs on expensive purchase prices still involve large loan servicing costs out of after-tax income for our home buyers. Compulsory super increases their cash flow problems by diverting at least 5 per cent of their gross income annually into an investment that is untouchable until at least age 60.
Moreover, high levels of borrowing leaves little room available to cope with unexpected developments such as unemployment of one or both partners or a need to reduce workforce participation for family reasons.
Australia's hardship super provisions are particularly cruel in limiting the amount available to be withdrawn from super to $10,000 which, believe it or not, is taxed at up to 22 per cent.
No wonder younger Australians or those with uncertain job prospects have little incentive to make voluntary contributions to super. So far, the debate started by the Treasurer has focused on withdrawing money from super to be used to achieve home ownership. That, however, is not a sensible or efficient option.
The money could still be left in super and used to help achieve home ownership by being invested in a mortgage offset account owned by the super fund. This option has a much lower cost to government than first home owner grants or allowing people to withdraw part of their money from the fund.
The average super income tax rate is less than 10 per cent and even if 1.5 million Australians had an average $50,000 each of their super invested in a mortgage offset account (a total of $75 billion or about 4 per cent of total fund assets), the loss in tax revenue would at a 5 per cent interest rate be around $375 million annually.
This is less than 15 per cent of the annual outlays on negative gearing or equivalent to giving 25,000 first home buyers annually $15,000 each.
Far from being unaffordable as some critics are arguing, allowing access to super to help fund ownership via mortgage offset accounts is a low cost way to help Australians achieve home ownership and is well worth detailed consideration.
There are some people who seem angry and continuously look for conflict. Walk away, the battle they are fighting isn't with you, it's with themselves.
The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it. The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.
Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
Pressure is mounting on the government to change the rules that allow wealthy people with millions of dollars in superannuation savings to access their money in tax-free lump sums.
The tax white paper, to be released on Monday, is expected to put the issue squarely on the agenda, as debate already rages about other changes to super rules proposed by the financial system inquiry.
The Association of Super Funds of Australia (ASFA) has been campaigning for people with more than $2.5 million in superannuation to be forced to pay tax on lump sum payouts. Taxing lump sum superannuation payouts would be one way of encouraging people to invest in retirement income products.
Taxing lump sum superannuation payouts would be one way of encouraging people to invest in retirement income products.
"The government's tax white paper, to be released on Monday, can be expected to address the question of this nature," ASFA chief executive Pauline Vamos said.
Deloitte's head of superannuation, Russell Mason, backed ASFA's proposal provided the government did not enact it retrospectively.
"I think it [taxing lump sum super payouts over $2.5 million] would be a fair thing to do so long as it only applied to money people put into super after the rules had changed. If people have abided by the rules and legitimately accumulated $2.5 million or more in super then why should they be penalised?" Mr Mason said.
Introducing a tax on lump sum super payouts has the potential to be administratively complex and unfair, at a time when the sector is already grappling to adjust to a raft of other recent changes, Mr Mason said.
The peak body for self-managed super fund investors has also thrown its "in principle" support behind the call to introduce a tax on lump sum super payouts above a certain threshold, but wants an integrated review of how tax, super and social welfare payment rules interact.
"In principle we support taxing lump sum super payouts above a certain threshold but it is unclear what that threshold should be," SMSF Association senior manager policy Jordan George said.
"We acknowledge the system needs better incentives to encourage people into retirement income products rather than taking lump sums, but want to ensure people have enough flexibility to withdraw money when they need to." 'Strong nudge, not a default'
Calls to reform tax concessions on superannuation come as the government struggles to manage the budget and support an ageing population. Treasury's 2015 intergenerational report, released in March, forecast that in 2055 Australia will have a population of 39.7 million, with an average life expectancy of 96 years, and relatively fewer young people.
A key plank of the findings of the financial system inquiry, chaired by David Murray, was that the government should strengthen the law to ensure that the intended purpose of the superannuation system as a source of retirement income is protected.
One of three recommendations made by the Murray inquiry in relation to super was that it should "meet the needs of retirees better by requiring superannuation trustees to pre-select a comprehensive income product in retirement for members to receive their benefits, unless members choose to take their benefits in another way".
As reported by Fairfax Media earlier this week, Treasury executive director and chief operating officer John Lonsdale has signalled that recommendations from the Murray inquiry put forward to overhaul superannuation are likely to be adopted. This means retirees could be pushed into an allocated pension-style fund rather than automatically getting access to a lump sum.
"Superannuation trustees should be cautiously optimistic that the framework will go towards something like what is outlined by the inquiry. That said, there are still a lot of details that need to be understood," Mr Lonsdale said at the Australian Securities and Investments Commission annual conference in Sydney on Tuesday.
Challenger's head of retirement income, Jeremy Cooper, who led the 2010 super system review, backs the plan to encourage retirees into a retirement income-orientated style fund at the end of their working life, provided it remains optional.
"The origami-like careful wording of David Murray's recommendations make it clear that this should remain an opt-in arrangement rather than a default," Mr Cooper said. "What has been proposed is a strong nudge into retirement income products, not a default, and I think that is the right setting because retirees have very individualistic needs."
But other experts argue that a much stronger crackdown on lump sums is on the horizon.
Looking at the recommendations of the Murray inquiry and the findings of the 2015 intergenerational report together, the debate over whether to ban lump sum payments from superannuation is a live issue, said Antoinette Elias, EY Oceania's head of wealth and asset management.
"The big question is whether the government should act to prevent lump sum payouts," she said. Draw-down plans the norm
The current suite of tax concessions, aimed at encouraging people to top up their compulsory super payments from employers with additional voluntary contributions, were put in place so more people would be able to self-fund at least part of the income they need in retirement.
Calls to reduce access to superannuation raise the gnarly issue of how to deal with the rights of those people who have already been voluntarily contributing extra money to their superannuation in good faith that, as under the current rules, they would be entitled to access this money in a lump sum at retirement.
"Any significant change to the lump sum rules would only be reasonable if there were strong transitional rules in place so the changes weren't applied on voluntary contributions people have already made," Ms Elias said.
Mr Mason supports the idea of banning access to super balances in a lump sum retirement, so long as the reform is well-implemented and an exemption is put in place for people with small balances.
"It does not make sense for people with a superannuation balance below $50,000 to be forced to buy a pension – they should be allowed to take that money in a lump sum on retirement. But if someone has a superannuation balance of $500,000 then a draw-down pension plan makes a lot more sense than a lump sum payout," Mr Mason said.
A self-funded pension-style draw-down plan is already the norm for people with higher balances. Last financial year just $8 billion was withdrawn from super in lump sums by 182,000 new retirees, most of whom had balances of $50,000 or less.
In comparison, $45 billion was withdrawn from super as a self-funded pension with a draw-down rate averaging 4 per cent by another 155,000 new retirees who had a balance above $50,000.
The average superannuation balance for people retiring today is slightly more than $100,000 for women and just less than $200,000 for men.
There are some people who seem angry and continuously look for conflict. Walk away, the battle they are fighting isn't with you, it's with themselves.
The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it. The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.
Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
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