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Wealthy take a hit, rest of us unscathed

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John Collett

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Modest reform or betrayal?

The Opposition concedes some of the government's changes to super are sensible, but claims one is blatant broken promise.

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At last, the phoney battle on super is over. Now that the government has spelt out how it intends to reform retirement savings, the real political war will begin.

Opposition Leader Tony Abbott has come out with the opening blast saying reforms are ''shades of Cyprus'' and a ''raid on people''.

Super changes: Wayne Swan and Bill Shorten.

Super changes: Wayne Swan and Bill Shorten. Photo: Alex Ellinghausen

But putting the political hyperbole to one side, the truth is that new tax imposts announced on Friday will not affect most people. They can go on saving for super in the knowledge that for them, nothing has changed. The reforms are targeted at limiting the tax deductions for those with incomes of more than $300,000 a year and those retirees with superannuation account balances of more than $2 million.

The biggest proposed reform is the limit to the tax-free earnings of those with very big superannuation balances once they are in retirement. Everyone accumulating their super pays a tax on earnings of 15 per cent. Once in retirement, however, there is no tax on earnings.

The government will allow those in retirement to have tax-free earnings on their superannuation investments of up to $100,000 a year. But each dollar of earnings over $100,000 will be taxed at 15 per cent. According to the government, the change will only affect those in retirement with a super balance of about $2 million or more, or about 16,000 people.

The superannuation changes are bad news for some.

The superannuation changes are bad news for some. Photo: iStockphoto

The government has also confirmed that those earning more than $300,000 a year will have to pay 30 per cent contributions tax instead of the 15 per cent paid by everyone else. That will affect about 128,000 people.

The big change that will be of interest to most people is that everyone over 50 will be able to salary sacrifice up to $35,000 a year in super instead of $25,000. The cap is not as generous as it appears, because it includes the 9 per cent superannuation guarantee. Someone on $100,000 a year in the current system, for example, receives $9000 a year in superannuation guarantee, leaving a real cap of $16,000 a year to make salary sacrifice contributions. With a cap of $35,000, the same person, assuming they're over 50, would be able to make salary sacrifice contributions of $26,000 a year.

It allows those who have some spare money, perhaps after the children have finished school, to build their retirement account balances in the years they have left in the workforce until retirement. The start date for the new higher cap will be brought forward to July 1 this year.

There will also be a streaming of ''deemed'' rate of earnings for social security benefits, such as the age pension. For calculation of the age pension, a retiree's investments are ''deemed'' to have earned a certain rate of interest on their money regardless of the actual interest rates earned.

The deemed earnings are important because the more the retiree is deemed to have earned the less their age pension payments could be under the social security income test. The deeming rates that are calculated on retirement saving are more generous than the deeming rates that apply to assets held outside of super.

The government will make the way deeming rates are calculated uniform, with the result that many of those drawing a private pension will be reporting a higher deemed income to CentreLink. This could result in a cut in their age pension.

Early indications are that there will be no change in pension payments for those with less than about $600,000 or $700,000 in super savings.

215 comments

  • That's still too generous - $100k a year TAX FREE for wealthy retirees, who have probably paid off their house.

    Contrast that with a young family paying a mortgage, childcare fees and having to pay tax on their incomes to boot.

    why not make super tax free on the way in, then tax it like ordinary income when people draw it down?

    Commenter
    Paul
    Location
    Sydney
    Date and time
    April 05, 2013, 1:01PM
    • Yes I bet those retirees never had a mortage, child expenses or ever paid tax. I also bet they never helped their children with buying their first home and university education. I bet they never donated time and money to charitable causes. Why not lock them up in a retirement village and feed them water and bread.

      Commenter
      enough is enough
      Location
      Superannuation La La Land
      Date and time
      April 05, 2013, 1:34PM
    • Paul, That 100k is not tax free it, was taxed at 15% when it was put in to super.

      Commenter
      Ecka
      Date and time
      April 05, 2013, 1:39PM
    • Paul, please don't comment if you don't understand it.

      Commenter
      Andrew
      Date and time
      April 05, 2013, 1:40PM
    • They earned the money and paid tax on that money.

      It was subject to 15% tax as it went into the super fund.

      Any income it generated whilst in the super fund was subject to 15% tax.

      This is the same for everyone.

      Punishing people because they earn more is ridiculously stupid. Earning more is a representation of the extra skill and demand for those skills in the jobs market. No-one wakes up one morning to discover they are a highly paid lawyer/doctor/architect/engineer/miner/tradesperson/banker/accountant. It is the result of years of work. In some cases up to 20 years before you're truly on a good wicket. This is open to anyone to get out there and do it. If you didn't then don't whinge that other people did.

      Commenter
      Bender
      Date and time
      April 05, 2013, 1:50PM
    • @ Andrew To be honest I think Paul understands just fine. The $100k earnings in RETIREMENT was NEVER taxed. If I put money into super (principal amounts) and over my life time this principal earns interest and dividends, then yes, these earnings are taxed at 15% - no different to if you have money in the bank and pay tax on your interest.

      However, once I retire, I retire with an accumulated sum in my super. The interest earned on the accumulated sum is currently TAX FREE. The current proposal will tax interest/earnings on the principal over $100k at 15%. If you draw down on the principal, this remains TAX FREE.

      If you still don't understand ask a 5 year old to explain it to you.

      Commenter
      Dozer
      Date and time
      April 05, 2013, 1:54PM
    • It is $100,000 tax free. Its not the amount saved in super, its the earnings on those savings. If you had $2 million in a standard bank account you'd pay tax on the interest generated. In super you don't (i.e. tax free).
      I love Tony's raid on the people take. Perhaps he feels the entire taxation system is a raid and will pledge to abolish it? I'd vote for that!

      Commenter
      Peter
      Location
      Oz
      Date and time
      April 05, 2013, 1:54PM
    • "Yes I bet those retirees never had a mortgage, child expenses or ever paid tax. I also bet they never helped their children with buying their first home and university education."

      If those retirees hadn't destroyed the housing, economy and infrastructure, their children would have gotten the same free university education the retirees got and been able to afford a home without needing to rely on their parents to buy their first home at a massively overinflated price from a different retiree who has a stable of multiple investment properties.

      Commenter
      DM
      Date and time
      April 05, 2013, 1:55PM
    • I'm no where near $2m in super but Its changed my attitude to super. Its best not to rely on super for retirement as this is bound to be a rich lode in the future for our socialist governments.

      Commenter
      Peed off
      Date and time
      April 05, 2013, 1:55PM
    • @Paul, If any government removes the tax when its deposited and only applies the tax when its withdrawn then that government is forgoing revenue for about 50 years. To date governments have preferred the money now approach :o)

      Commenter
      Peter
      Location
      Oz
      Date and time
      April 05, 2013, 1:56PM

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