Treasury secretary Martin Parkinson says the superannuation system is being used as a wealth creation vehicle for the rich.
Paul Drum from Certified Practising Accountants Australia says there is nothing wrong with wealth creation as such. If you want to provide income for the future you need to create a pile of wealth. (By my calculations, for example, if you don’t buy a house and need to pay $400 per week in rent, then you’ll need capital of at least $416,000 with growth capacity at least equivalent to the CPI. Of course if you buy an equivalent dwelling it will cost you more than $416,000 in most places around the country.)
Drum says we need to look at equity aspects, but doesn’t elaborate.
Richard Denniss of the Australia Institute says we’ve created an intergenerational wealth transfer system rather than a retirement incomes system:
So if we want to create a system that helps the majority of Australians have slightly higher incomes when they retire, that’s fine, we can talk about that.
But the idea that superannuation is used as a tax minimisation vehicle of very high income earners to pay far less tax than we’ve deemed fair, and then in turn to pass tens of millions of dollars onto their children, this isn’t the retirement income scheme, this is a intergenerational wealth transfer scheme.
The Treasurer himself said that in 2050 the proportion of people getting a pension or part pension will be about the same as now – roughly 80%. As a retirement incomes system super is a failure.
Tax concessions for super are about to pass total expenditure on pensions and in a few years will exceed the GST. Something needs to be done.
Part of the problem here is that superannuation assets are not included in the will and are not sold up when a superannuant dies. The benefits simply flow on to the next of kin. Directly held shares, on the other hand, must be sold, triggering capital gains tax.
When one spouse dies the benefits go to the other. Also, if I’m right the other spouse could cash out the super, tax free.
Family trusts provide similar intergenerational tax free wealth transfer.
Richard Denniss says cap super, to limit the call on the public coffers.
That is one change among others that is certainly needed, but what should the limit be?
When super was an issue with the Gillard government in 2013, we were told that a pile of $1 million would provide a ‘comfortable’ retirement income of $50,000 for a couple who owned a house.
In calculating income from super the rule of thumb is that you can draw an income of 5% of capital, so $2 million could produce an income of $100,000 per annum. That’s about 50% above average household income. More than enough, I should think!
Do it, please, Labor, when you get the chance and ignore the cries of class warfare. The LNP are more likely to be concerned about those who ‘waste’ their super on trips away, then rely fully on the pension.