Superannuation Discussion + market volatility

[CaptJCool]

If anything changes are needed to deal with more and more funds moving into pension phase or (lump sums) being fully removed out of super

The question of investment risk is fair even if the tax risk is extinguished by the switch from accumulation to pension phase and goes to the heart of longevity risk.

If the crystal ball could determine more about our spending and how many more years we need the cash, even if age pension is a safety net to cater for unforeseen bankruptcy or business failure that does happen wiping away previous savings, many decisions will be driven by the mix of super one has available to themselves noting defined benefits are 99% in the pension phase, pass through to surviving spouses but vanish upon death of both

Part of the reason preserving the cash balance inside super is Because the investment managers are more likely to be better money managers than the average citizen

I do think in time we will move away from inheritance as being a “thing” as more and more banks of mum and dad with less and less adult kids to support will gift with a WARM hand not the cold hand of probate. Or go SKI

 

[Pushka]

Not you, but I do come across a number of people who seem to consider any tax payable as going to 'unworthy' causes such as unemployment benefits and political frippery and not consider that most goes on age pension, health, roads, police, armed forces and generally running a pretty fabulous country

I think for those of us most currently impacted by Income streams and the like, with little opportunity to be flexible now that major employment paychecks are long gone, that any change to the rules as we have already had to adapt to, is concerning. And adding fuel to that fire is looking at spend options for things that seem not based on effective evaluation of cost/benefit. Quite happy to pay taxes as we have all through our life but having others having to pay tax on something we've already paid tax on is too much.

 

[andye]

Donning flame-proof suit....

I am a massive fan of the Australian Superannuation system. Certainly when I compare it to the UK's system, we are in a much better place economically for now and future decades*

I also entirely understand that when you are already retired with a budget in mind, changes to legislation can be pernicious.

Nevertheless, one of the major tax advantages in retirement phase is that there is no tax on the investment growth accrued on potentially $1.9M+ of (often concessionally-taxed) capital. The only other asset growth I am aware of that is taxed at 0% is the family home.
I am definitely not saying it should be changed (and it would be politically disastrous to do so) but I think we should acknowledge it as a genuine benefit


*an additional benefit is that, on average, I find Australians much more financially literate as they see their super investment grow (largely on the sharemarket). I grew up in a family that never had money to invest and much of my confidence in the investment process has come from seeing how my super has grown over the last 15 years since migrating

 

[dxwell]

Donning flame-proof suit....

I am a massive fan of the Australian Superannuation system. Certainly when I compare it to the UK's system, we are in a much better place economically for now and future decades*

I also entirely understand that when you are already retired with a budget in mind, changes to legislation can be pernicious.

Nevertheless, one of the major tax advantages in retirement phase is that there is no tax on the investment growth accrued on potentially $1.9M+ of (often concessionally-taxed) capital. The only other asset growth I am aware of that is taxed at 0% is the family home.
I am definitely not saying it should be changed (and it would be politically disastrous to do so) but I think we should acknowledge it as a genuine benefit


*an additional benefit is that, on average, I find Australians much more financially literate as they see their super investment grow (largely on the sharemarket). I grew up in a family that never had money to invest and much of my confidence in the investment process has come from seeing how my super has grown over the last 15 years since migrating

I agree, the Aussie superannuation system is a fabulous wealth generation tool.
Extremely generous tax benefits.
Are people using it correctly?

 

[RooFlyer]

Nevertheless, one of the major tax advantages in retirement phase is that there is no tax on the investment growth accrued on potentially $1.9M+ of (often concessionally-taxed) capital.

Not only that, but we get a tax refund of franking credits on shares held paid to us, because, well, I dunno, but its a nice little earner every year.

 

[tgh]

I said it and say it again… us boomers are doing too well and it will be stopped.
We pay no income tax, receive significant benefits like the safety net, while our tax sheltered shekels multiply and multiply
Chatting to the gp today.. he pays income tax but also gets tax perks like his next medical holiday, we pay for ours….

 

[33kft]

Are people using it correctly?

I don't think so - I think people generally fail to understand the significant tax benefits in making concessional contributions across their lifetime.

So many people making a loss on residential housing to reduce their income tax while a positively geared investment scheme sits right under their noses. Yes I get the capital growth aspect of residential housing but not only does that need to offset the remainder of the losses, plus alllll the expenses for leasing and insurance and rates and taxes and repairs and so on, you have tax payable on half of that loss at marginal rate when a CGT event is triggered, and negative cashflow for yonks whilst you service both the principal and interest but claim only interest losses.

That said, with super you are locked into a regime that is at the whim of the government of the time with a long time horizon if you're young. You may never live to see the benefit of the investment if you're unlucky.

 

[CaptJCool]

You’re actually allowed to claim capital works (in effect principal) as a deduction too

Work out your capital works deductions | Australian Taxation Office

You can claim capital works deductions for certain construction costs for your rental property.

www.ato.gov.au

Residential Property Upto $450,000 roughly paid for itself AFTER Year one because of tenant rent and tax refunds

 

[Pushka]

Donning flame-proof suit....

I am a massive fan of the Australian Superannuation system. Certainly when I compare it to the UK's system, we are in a much better place economically for now and future decades*

I also entirely understand that when you are already retired with a budget in mind, changes to legislation can be pernicious.

Nevertheless, one of the major tax advantages in retirement phase is that there is no tax on the investment growth accrued on potentially $1.9M+ of (often concessionally-taxed) capital. The only other asset growth I am aware of that is taxed at 0% is the family home.
I am definitely not saying it should be changed (and it would be politically disastrous to do so) but I think we should acknowledge it as a genuine benefit


*an additional benefit is that, on average, I find Australians much more financially literate as they see their super investment grow (largely on the sharemarket). I grew up in a family that never had money to invest and much of my confidence in the investment process has come from seeing how my super has grown over the last 15 years since migrating

Sure. The superannuation system is excellent. Shame that likely all of us in income stream phase didn't receive the benefits until 1991. In my case, that was 15 years after I started working. 15 years is a long time. Over 1/3 of my working life.

 

[SYD]

I agree, the Aussie superannuation system is a fabulous wealth generation tool.
Extremely generous tax benefits.
Are people using it correctly?

A recent survey said that almost 40% of retirees had wished they’d put more into super when they had the chance.

Yet, almost 40% said they were happy with their choices… The inbetweeners where things like seeking professional advice sooner and some other odds and sods.

Not only that, but we get a tax refund of franking credits on shares held paid to us, because, well, I dunno, but it’s a nice little earner every year.

Not always. Ultimately depends on how much unfranked / untaxed other income one has and ultimately your effective tax bracket.

Some what ironically, all the woo-ha around franking credits was a complete bunch of hog wash. The main beneficiaries of franking credit rebates were/are mums and dads investors with Telstra and other privatisations, demutualisation from the ‘90s who otherwise don’t come close to the top marginal tax rate and therefore rightfully are eligible to a tax credit as per Paul Keating’s imputation scheme.

 

[RooFlyer]

Not always. Ultimately depends on how much unfranked / untaxed other income one has and ultimately your effective tax bracket.

I’m retired and living off my SMSF, so not in any tax bracket & also no pay tax on the gains in the fund. And because I don’t pay tax, that nice Mr. Chalmers sends me quite a nice cheque every year to compensate for the fact that I can’t claim the franking credits because I don’t pay tax.

this is of course the rort that’s been referred to several times above and why I’m whispering now.

Some what ironically, all the woo-ha around franking credits was a complete bunch of hog wash. The main beneficiaries of franking credit rebates were/are mums and dads investors with Telstra and other privatisations, demutualisation from the ‘90s who otherwise don’t come close to the top marginal tax rate and therefore rightfully are eligible to a tax credit as per Paul Keating’s imputation scheme.

Not sure I’m wholly with you on that. See above.

 

[SYD]

Not sure I’m wholly with you on that. See above.

Even non retired Mums & Dads can get FC rebates. You just need to earn less than $180k (or there abouts - maybe even a lot less? - so not super wealthy).

 

[CaptJCool]

It’s the quirk of the 1998 bipartisan agreement to allow excess FCs to be refunded which was turbo-charged by the 2008 decision to abolish income tax on all private superannuation once in pension phase.

 

[RooFlyer]

Even non retired Mums & Dads can get FC rebates. You just need to earn less than $180k (or there abouts - maybe even a lot less? - so not super wealthy).

OK; I think we are talking about different things - prob my mis-terminology.

 

[cove]

Franked dividends are a favourite for baby boomers especially.

 

[andye]

I don't think so - I think people generally fail to understand the significant tax benefits in making concessional contributions across their lifetime.

So many people making a loss on residential housing to reduce their income tax while a positively geared investment scheme sits right under their noses. Yes I get the capital growth aspect of residential housing but not only does that need to offset the remainder of the losses, plus alllll the expenses for leasing and insurance and rates and taxes and repairs and so on, you have tax payable on half of that loss at marginal rate when a CGT event is triggered, and negative cashflow for yonks whilst you service both the principal and interest but claim only interest losses.

That said, with super you are locked into a regime that is at the whim of the government of the time with a long time horizon if you're young. You may never live to see the benefit of the investment if you're unlucky.

I've never invested in property but agree it does carry a fair bit of work. The big advantage is the ability to gear the investment.
A home loan is so much psychologically easier than an investment loan with the associated margin call risk (house prices are not updated 5x a week and there have been many more 10+% dips in the sharemarket than in house prices over the last few decades)

 

[openseat]

The Australian super system is not so great. You’re taxed on the way in and taxed on the earnings. No tax on withdrawals.

A better system would be no tax on the way in, no tax on earnings and tax on income.

 

[RooFlyer]

The Australian super system is not so great. You’re taxed on the way in and taxed on the earnings. No tax on withdrawals.

No tax once in pension phase on realised capital gains or earnings, though.

 

[andye]

The Australian super system is not so great. You’re taxed on the way in and taxed on the earnings. No tax on withdrawals.

A better system would be no tax on the way in, no tax on earnings and tax on income.

That sounds similar to the UK system where your pension drawing are taxed at usual income rates. Haven't done the sums but I think I'd be worse off as expecting to have a highish retirement income

 

[drron]

That soundd similar to the UK system where your pensiom drawing are taxed at usual income rates. Haven't done the sums but I think I'd be worse off as expecting to have a highish retirement income

And a lot of UK pensioners will be worse off in the future with income limits being frozen.