Today Josh Frydenberg announced incentives for older Australians to contribute more to super, but these are a little disingenuous of the Liberals. Their changes to super over the past few years provide very strong disincentives to put more into super in terms of retirement income outcomes and those disincentives will remain in place.
The two main planks of the disincentives are the increase in the taper rate in terms of the Age Pension under the Assets Test and the increase in tax for transfers to fund a pension if they exceed a $1.6 million limit.
The increase in the taper rate means that for a very large number of super savers they will will see their total income over their retirement rise by a great deal less than the extra superannuation they manage to save. This occurs because they will lose more in Age Pension entitlements than they will gain in extra income generated from their extra savings. A situation that did not exist after the reforms made in 2007 under Howard / Costello.
If you get back less in terms of total income than you save, which equates to an effective tax rate on those extra savings of over 100%, why would people choose to take advantage of the opportunity to put more into super?
The $1.6 million transfer balance limit also means that people face the possibility that if they put more into super and / or invest their super savings well, they will just be “rewarded” with increased tax in retirement. This provides another powerful disincentive to save more super in addition to the prospect of losing more Age Pension than they will receive in income from their increased savings. It is a double whammy.
Also, the budget does nothing to address the truly insidious nature of the $1.6 million transfer balance limit, which is that it is only indexed by inflation rather than being indexed in line with wages. Because super is a percentage of wages, super balances will grow in line with wages. Wages are expected to grow faster than inflation over time. This means that more and more of people’s super, including the less well off of Australians, will face increased taxes in retirement.
This will mean that more and more Australians over time will find their super running out sooner than if they were tax free, or even if the limit was indexed in line with wages. This will see the Liberals lie about the increased taxes only applying to the rich exposed and also see more and more Australians being forced to fall back on to the Age Pension, something which the superannuation system was intended to avoid.
The undermining of the superannuation system therefore continues, with both sides either passing laws already (Liberals) or proposing laws (Labor) to increase taxes on superannuation to the detriment of retirees in order to fund their bribes to non-retirees and using the excuse that they are only attacking the “rich” to cover their tracks.
Every Australian needs to remember that they will eventually be a retiree too, which means that when they are at their most vulnerable their retirement savings will be used to pay for politicians bribes rather than being used to pay for their income in retirement.
I think the $1.6Million each (a couple can have $3.2 million) in a completely tax free environment is pretty generous. My understanding is that earnings on assets above these limits is taxed at 15%, which once again is generous. The age pension issue is completely separate and should not be thrown in with this discussion as it applies to two different groups of people.
If people save above these amounts they then have it to spend – and potentially get below the cut offs to get the tax free status you think they deserve.
I would prefer a bit of balance in the reporting.