2016 Federal Budget Part 2 – Super

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6 Responses

  1. Great explanation and analysis. I’m similar to you in that I’m not in the top brackets or close enough to Preservation Age for it to make a big personal impact to me.
    The limetime contributions could also be helpful for mums on maternity leave although not many would be earning enough to think about contributing to super as they’d be paying child care and probably a mortgage.
    Our extra money is still going to pay off our house and investment property, the latter which seems to be not a bad strategy given the limits on super contributions and tax free limits in pension mode. Plus for FIRE I’m worried they will increase the Preservation Age closer to the Aged Pension age (not that we would be eligible).
    Agree it is annoying when the keep changing the rules and making it more complicated, it just undermines trust in the system. Oh well at least we get compulsory super in Australia.

    • tom says:

      Indeed – it is easy to complain about changes in Super, but I also think it is fantastic that Australia has Super! I was just talking about that on twitter and comparing it to NZ. When I recommend saving 10%, in reality that is like saving around 20% when you factor in Super. In 50 to 100 years (I hope) the burden on our tax system will hopefully be a lot less. I think I read somewhere that the US spends around 50% of their budget on aged care (not sure whether that is just pension or pension and aged health etc).

      • I completely agree with this. In theory, Australians are pretty much saving the ‘recommended’ 10% a year anyway. What isn’t so great is a lot of people are being charged way too much in fees, choosing the wrong investments for their age and aren’t trying to add more.

        The main problem with a lot of other Western countries is they don’t have ‘actual’ investment accounts with an amount backing what they are paid. So many countries and Govts just pay out of that year’s revenues, without a built up fund. Super is great in that regard. The main issue is making sure that all the people who will end up on the aged pension (which probably can’t be as generous in the future) is that we are taking away their consumption (by going into Super) and yet they STILL end up getting the full pension.

        Tristan

  2. I think nearly all the changes are reasonable. Reducing the concessional amounts by $5k is okay, even just $25k going into Super is a very large amount, which over several years adds up. From my perspective, Superannuation is meant to provide good retirement income, not incredible amounts. Plus the Govt wants to take a bit more tax.

    The retrospective change, back to 2007 is a bit harsh. It would have been fairer to do it from 1st July 2016.

    The $500K lifetime cap is reasonable I think. By anyone’s standards, $500K is a huge balance transfer. If you include a spouse, that’s $1M.

    The $1.6M is along the lines of what I was saying in my first point, Super is meant to provide a good income, not millions and millions. You can have an incredible lifestyle just on the tax free earnings of $1.6M. Add in 2 tax free amounts of $18,200 for 2 spouses on a normal tax return, and that takes the total up to like $3M easy.

    Overall, I think the system is still very good. For the fairness of generations, I think this was needed now. It will not be as generous when we get there.

    Tristan

    • tom says:

      Indeed – I very much dislike retrospective changes. By all means change it from now on, but back in time seems a bit unfair. As I sort of said, I don’t really mind what they change the rules to (i.e. make it a good balance of having a good retirement and not being a tax break) but just keep it the same, or review it every 12 years or something like that. Long term savings need long term rules.

      • Very true. Super is long term savings, so make long tern choices and rules for it. Changing the rules every election (or even more frequently) provides no certainty.

        Super is the kind of thing you WISH the parties would come together and decide on what’s best for Australia. Of course that’s practically impossible.

        Tristan

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