Cap super, says Richard Denniss

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.

7 thoughts on “Cap super, says Richard Denniss”

  1. It seems really important that something be done about this. But I’m afraid it’s going to be a hard sell! A couple of months ago, I ran a similar argument up the flag-pole with a group of friends and was jumped on from a great height by a normally mild-mannered middle-income professional who sees no equity problem at all with the current Costello model!

  2. The tax concessions for super were sold on the basis that super would reduce the load on the younger generation compared with using welfare to look after the oldies.
    The reality is the other way around. The richer the oldies are the more the young will have to work to provide the goods and services the oldies can afford.

  3. jumpy, by my calculations 240 should do it, but I don’t invest in managed funds (about 20% of effective profit goes to the manager, or in houses, where the face return before expenses can be vanishingly small.

    Len and John, Costello was a disgrace. He waxed lyrical about his ‘intergenerational report’ and then did the opposite of what it indicated should be done, to the benefit of his rich mates.

  4. A conservative approach is to assume that your investments will at least keep up with inflation and that you will support yourself by running down your capital. On this basis a million will allow you to spend the equivalent of $100,000 per yr for 10 yrs. The tricky bit of course is guessing how long you are going to live and what you are going to need money for.
    I am about to turn 71, have had good paying jobs most of my working life and am not the last of the big spenders. For what its worth this was what the Davidson’s did.
    At round about 55 I started taking longer unpaid holidays to coincide with my wife taking a term off. This allowed us to take overseas trips and long trips within Aus while we were both reasonably fit. The driver for doing this were the Xmas letters that contained stories of friends about our age dying of cancer or having health problems that really restricted them. I had also passed the point where I was chasing promotion.
    Retired officially at 60 after a number of years working 4 days per week when it was possible.
    Switched to doing casual work for about 6 months a year until the GFC hit. The work usually involved long hours designing, commissioning etc. The pay was sufficient to allow us to build up our savings and to take advantage of the Costello super deal.
    The work dried up when the GFC hit and I was unwilling to chase work while people who really needed the money were chasing work.
    I am not sure what I would have done if I had less money or was in a job where taking extra time off was not practical.

  5. Our situation is too complicated to outline in full, but both my wife and I work part-time beyond what is normally the age of retirement. In part, I do it for the exercise.

    So both of us earn from work, both have direct share investments, and my wife has a modest super account. So 5 income streams. We hope never to be a burden to the taxpayer.

    We look for yield with some growth in shares and in the main get 5%, mostly franked. We’ve got a few low yield growth stocks like CSL and Ramsay Medical, which bring down the average a bit.

    We never dispose of capital, but have been known to borrow against assets.

    With my wife’s super, she takes a 5% income stream and we hope it will grow equivalent to the CPI.

    With shares, I’m told you need 22 for diversity. We’ve got 27 across three portfolios (two separate and one joint) and only one dog at present, offset by stuff like having bought Commonwealth Bank @ $5.40 in 1991 (now $81) and ANZ for $4.60 etc.

    So far it’s OK apart from a 46% hit in the GFC (mainly because we had too much listed property). The banks recovered quickly but some well-known property funds took a 95% hit. They’d borrowed too much and had to sell at firesale prices. You live and learn, but such are the hazards of direct investment.

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