wayne-swan-superannuation

SUPER NEWS: NO BIG DEAL

NEWS UPDATE: If you are one of the estimated 16,000 retirees with over $2 million in superannuation funds, you’ll be affected by the changes to the super system announced today.

According to Fairfax media, Wayne Swan’s changes hit rich retirees, who will lose their tax concessions on annual earnings over $100,000.

Mr Swan announced that from July 1, 2014, future earnings (such as dividends and interest) on assets supporting income streams will be tax free only up to $100,000 a year. Earnings above $100,000 will be taxed at the same concessional rate of 15 per cent that applies to earnings in the accumulation phase.

 

wayne-swan-superannuationWayne Swan’s changes to superannuation to hit ‘rich retirees’. Photo by Lyndon Mechielsen via news.com.au.
 

Mr Swan said there was a disproportionate level of government support that flowed to a select few.

”There is something wrong in the system where working Australians on average wages are providing excessive support to people with millions in their superannuation account,” he told reporters.

”Why should someone who has millions of dollars in a superannuation account pay no tax on their earnings while someone on $80,000 a year pays a marginal tax rate of 37 cents in the dollar on every additional dollar they earn?”

Mr Swan said the changes addressed that imbalance.

Here Jill Wilberforce looks at the big picture…

 

Hands up who’s feeling all nervy about the much-discussed changes to the superannuation rules in the upcoming Federal Budget and with a potential change in government in September?

No? Me neither.

Allow me to elaborate.

Fact Number 1. The Superannuation Guarantee system we have in place in Australia is a government-mandated scheme, which is subject to ongoing changes in the underlying rules and regulations deemed necessary/appropriate/favourable to voters by the government in power at any particular point in time. Bottom line is, like most things in life apart from death and taxes; we do not have 100% absolute certainty.

It is not surprising both parties are looking to make the rules more equitable for low and middle-income earners for which this system was introduced. In fact we should welcome that. Discussion and analysis is necessary and warranted.

But this leads me on to…

Fact Number 2. Women, in general, retire with much lower balances in superannuation due to interrupted working lives and lower earnings so I doubt there is too much sympathy for people on higher incomes having to pay more tax on their contributions.

In my experience, most women will cobble together a retirement income plan based on their (and their partner’s if they have one) superannuation savings, possible inheritance, bit of private savings outside super, a dash of aged pension and a potential cash injection through downsizing their principal residence.

For women who remain single, childless and independent for the duration of their lives it is stating the bleeding obvious to them about the need to provide for their retirement. Nothing quite focuses the mind better than when you realise the buck stops with you.

woman

More complicated is when we are in relationships. Which, let’s face it, is a good proportion of us at some point in our lifetimes. People tend to see financial advisers as a couple when they are a couple. Not always, but we are talking generalities here so bear with me.

When a couple is working out what their income sources in retirement are, they look at the picture as a whole. If she has $28,000 in super and he has $500,000 then the income is worked out on the total asset position of $528,000. At that point, assuming the couple is in a committed relationship, nobody’s worrying too much about the inequity.

The kicker comes when relationships fall apart. Suddenly, for reasons of guilt, greed or expediency the contribution of the non-or part time working spouse can lose its value in the eyes of the career partner.

Of course, this is meant to be dealt with in divorce settlements but all the statistics show that men recover financially a helluva lot quicker that women especially when there is disparity in income earning power. I am not saying that men don’t suffer financial consequences – very few people emerge from the financial settlement process saying “Gee that was just brilliant and I am so happy with the outcome of my divorce” – but on division of assets the reality check that you don’t take your partner’s income and future earning capacity with you hits home.

If you’ve been part of a couple who have paid scant attention to building their financial assets it will be even more painful when you split the marital nest egg.

In the aftermath of divorce no decision you have made is left unquestioned. I have spent many hours asking myself how and why I found myself to be in the position where, when equally educated and qualified as my ex-husband, his earnings are exceptional and mine are, well, not so much.

What I came to is this. I did not value my human capital.

capitalI once heard that the biggest and best asset you have is your human capital – the talent, experience and qualifications you build up over a lifetime that add up to your ability to earn an income. Yes, there is huge structural, gender and historical issues that come into play to make the issue a complex one for women but we need to be asking ourselves some hard questions, too.

When I hear Sheryl Sandberg, the COO of Facebook and author of a recent book called “Lean In: Women, Work and the Will to Lead”, talking about women “leaning in” to their careers and not “leaving before you leave” I know exactly what she is on about. I was “leaning out” in the early days of my career with a deep desire for children and to be a homemaker.

My behaviour, actions and decisions around my career have had a consequence. Although I made them for what I thought was “for the good of the family” I paid a price – in financial terms as well as self-esteem and confidence.

Of course, not everything comes down to the mighty dollar. Life is more than just some black and white number representing earning capacity or a superannuation balance. But I am much more conscious of the consequences of my decisions around my career and work life than I was when I was 27 and pregnant with my first child.

In my opinion, having this discussion with future generations is key. Younger women can learn from our wisdom and different experiences. I want my daughters and nieces to understand, protect and treasure the value of their education, their job choices and opportunities and the huge potential that resides within each of them.

So, let’s not lose sight of the big picture of superannuation.

Uncertainty and rule changes are frustrating, I agree, and in this case affect only a small portion of the population.

But let’s remember the shift in focus we need to make for there to be a difference in superannuation outcomes for us as individuals is more to do with the big and small decisions we make around career and money every day rather than what happens with the Federal Budget in May.

 

MORE ARTICLES FROM THE HOOPLA MONEY WELL

Kids and Money: Walk the Line

Arguing About Money?

Something Lost. Something Found

Happiness is not a Dirty Word

 

*Jill is a qualified chartered accountant, starting her career at Arthur Andersen in Perth, Western Australia and then in London at a satellite communications company. After relocating to Sydney from Perth in 2000 and raising her children to school age, Jill worked in asset management and business development at Access Capital Advisers for three years. Jill left Access Capital Advisers in 2009 to start wisewomen, a business aimed at educating women on personal finance and investing. Jill has a Diploma in Financial Services (Financial Planning) from Kaplan Professional.

 

Follow us on

35 Comments

  • Reply April 5, 2013

    Rivka

    thanks for this article, it’s helpful

  • Reply April 5, 2013

    Moorie

    This has been such a beat up in the Media as per usual they are using anything they can to denigrade the PM and the Labour Party, what a pity the mainstream media do not have fair and equitable reporting such as yours. As I am female and do not have anywhere near millions of dollars in my Super I was not worried for a moment anyway, it is just the hysteria the the Media like to ignite. Where is the Monk in all this, he has been particularly quiet of late, I believe he has been instructed not to say much so he doesn’t look stupid……

  • Reply April 5, 2013

    Caroline B

    Great article Jill – thanks!

    The hype about class wars & scare campaign about Wayne Swan “coming after” your super is complete BS. The current tax concessions for high earners are ridiculous – unfair & ubnsustainable.

    Sure, in theory they were avaiable to anyone who put extra into Super – but on say, an average combined family income of $120K, with a hefty mortgage, school-age children & bills, there’s no disposable income for lower/ middle income earners to squirrel away ‘a bit extra’, even if they wanted to.

    Bad enough, but how much worse would it be for a single-parent family, especially if renting & not even able to build up equity in a home?

    It’s only the wealthiest people who have, in reality, been able to take advantage of this perk. They don’t need further tax-paid subsidies.

    This isn’t class warfare – many of my friends are high earners & I don’t resent people who have the smarts & luck to earn a high income, but we need those tax dollars for education, health, public infrastructure etc.

    Not mentioned in the article but should also be looked at in this discussion – isn’t Tony Abbott planning to cut super entitlements for lowest-income while maintaining tax breaks for highest-income?

  • Reply April 5, 2013

    Melinda

    I don’t know how to say this without sounding a bit like the Princeton Mum, but careers advice for women at high school is so important. I chose to do law, and worked at one of the top law firms in Sydney when I graduated. I worked hard during my education and early years, and was suitably rewarded. However, when it came time to have my family, I found that I simply couldn’t go back to that lifestyle without compromising the quality of the work I was given or the time spent with my family. I chose to spend the time with my family.

    Ten years later I am retraining as a teacher because it seems to me that I can either go back to law and do the boring bits so I can still do the things I want to do with my kids, or I can go back full time and do the fun legal work. I decided instead to have some fun teaching children in a career that works with my family.

    I know there are lots of other channels in law I could have chosen, but I didn’t at the time, and I was never advised to think about what it is I wanted from my long term future. I was also interested in pharmacy at that time – a career which offers more flexibility. Perhaps I might have chosen differently if I had received advice to really think about how my life might pan out and what my dreams were.

    I am not disappointed with my choices, except that I have ended up in the financial position described above where I have very little super. Thankfully I still have a supportive husband.

    I think the conversation needs to be had with both young women and young men about career choices and potential family choices so that they can find a good balance for themselves. Many men miss out on family time to gain the financial security. We all need a balance.

  • Reply April 5, 2013

    Helen

    Great piece, Jill! The changes announced by Wayne Swan will affect 16,000 people – according to Fairfax, that’s 0.4% of people with super – and yes, mainly high income-earning men.

    It’s always wonderful to read such clear advice for women and their super. We need all the help we can get!

  • Reply April 5, 2013

    Not fooled

    If they are trying to restore the balance why did they also cut the government super contribution for low and middle income earners from $1,500 a year to $500?

  • Reply April 5, 2013

    Loz

    Thank you for pointing out the real issues in this hot topic.

    Having worked in the superannuation industry for 20 years I can safely say that the system favours the wealthy. Without getting into arguments about what constitutes ‘wealthy’, those with substantial super balances are the ones making the most of the tax concessions available.

    The purpose of the superannuation system was to ease some of the demands on the age pension for those not so well off and helping those in the middle income range to become self funded retirees. These two objectives have not quite met government expectation and statisticians have been raising the red flags of unsustainability for a number of years.

    Instead the ablition of the Reasonable Benefits Limit regime in the 90’s has seen superannuation being used as a tax minimising sheme by those who least need a superannuation payout. That’s because you can contribute up to $25,000 in pre tax money and $150,000 in after tax money per year and earnings will be taxed at 15% rather than your normal marginal rate. If you’re on the top marginal rate and can afford it, this is a nice way to invest $175,000 per year tax effectively.

  • Reply April 5, 2013

    Lindy

    I have been hearing those involved in the superannuation industry and financial services using all kinds of scare tactics re the potential changes to super for the well off but not one of these experts have gone to bat for the changes to the lowest income people that Abbott has stated that he is going to change. They don’t care because it doesn’t affect them or their well off clients disgraceful I’d say.

  • Reply April 5, 2013

    Caroline B

    Exactly, Loz! No one on a lower income could possibly afford to put that much extra into super because 90% or more is going into the day to day expenses. I live quite frugally but have never had any money left over to take advantage of it.

    If you’re on a high income & living comfortably & still have money over at the end of the month, it’s been a great tax dodge. The sooner that party’s over, the better – spend the tax where it’s needed, not to make the rich richer.

    Wayne Swan & Bill Shorten – bring it on & let’s hope you cut through the BS & fear campaigns.

  • Reply April 5, 2013

    Lucille

    I agree the media has hyped this up, but again, the ALP has handled this badly. They have again failed to explain succinctly what this means to people living off their super. A friend of mine said she has under $100,000 invested in super so now would have to pay 15% on it.

    I would be perfectly happy to pay 15% if I was earning $100,000 PA from my super. Unfortunately I lost the ability to do that in the GFC. I still have money frozen in a bank account which is no where near the government guarantee of bank accounts being safe. Penny Wong advised me when I queried why it was frozen, that it was in this particular bank’s (which shall remain unnamed ‘The Challenge Bank’ – whoops) constitution that they could freeze funds. I guess, when investing, or even just depositing funds in a bank, we should request to read their company’s constitution first. Everyone does that, right? Silly me.

    The most interesting thing about this is that the frozenmoney is counted as an assett by Centrelink and affects my part pension. Also Challenge continues to advertise on the tele.

  • Reply April 5, 2013

    Loz

    Lindy, I hope you don’t think the public voice of financial institutions represents all those working in the industry. Some of us take our custodial responsibilities seriously. Myself and a number of my collleagues are pleased with today’s announcements even though our views may not reflect that of our employers.

    • Reply April 5, 2013

      Lindy

      Loz My concern is that he industry was threatening a “mining tax” like campaign against super changes to the well off but I haven’t heard a word about the Coalitions repeatedly stated changes to super for the low income workers. Will the industry fight to stop these changes, I think not.

  • Reply April 5, 2013

    carole/m

    Bugga !!!!! I knew I shouldna put that lazy
    Two Mill. Into bloody Supa.

  • Reply April 5, 2013

    carole/m

    ” It is not surprising that BOTH parties are looking to make the rules more equitable ”

    HULLO !! I guess you thought you’d slip that in just to show your impartiality , Jill .

    One parties trying to make things more equitable.
    The others are screaming “Class Warfare” because a few very wealthy people will lose their usual tax dodge.

  • Reply April 5, 2013

    Gee

    Wayne doesn’t sound well. Sick or stress? I do hope he’s ok.

  • Reply April 5, 2013

    anne louise

    I just can’t stand the way Abbott and his disciples ignore the facts and get away with it. The reporting in the msm has been, as usual, abysmal.
    On abc local radio this morning when Shorten and Swan were announcing these plans, Linda Mottram broke from a light weight segment for as small a window of talk as possible. It was obvious that they didn’t want to broadcast any positive information from the government. When she got nervous that Swanny was going to say something which reflected well, she went back to her mindless little topic for 90 seconds till Shorten came on. Then he too was cut off nice and early so as not to divulge too much.
    abc on line also lop sided and limited.
    When our national broadcaster is treating such important issues as this, I think it is no wonder that so many people are ignorant.
    Lucille, your friend needs to understand that nothing changes for her. The truth is that only the EARNINGS over $100,000 are going to be taxed differently under this new plan. You need to have over $2mill to earn over $100,000.
    not fooled – huh? http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview201011/Superannuation
    You should be able to satisfy yourself that in fact, low and medium income earners have not suffered any ill effects of this government.

  • Reply April 5, 2013

    billie

    The legislation still needs to be passed and some Labor MPs like Simon Crean might not pass it because he will have accrued more than $2 million in super assets.

    If it doesn’t pass before Sept 14 then Abbott will have to introduce something in which case I better normal people will have lower limits and politicians will be exempted

  • Reply April 5, 2013

    Jennie

    Wayne Swan, the 2 faced liar. I have no problem with this legislation except for one glaring omission, it doesn’t affect the super for politicians. Gillard, if she retires in September, will have around 7million in super. Why don’t you ask her if this legislation affects her super? Ahh, Labor voters. Their simplicity never ceases to amaze me. Don’t worry, we need you. You make the rest of us look good. I’m also glad that some of you call Abbott the “Monk”. I’ve been hearing that only Juliar gets called names.

    • Reply April 5, 2013

      Rosie

      Jennie: I hate to state the obvious, but all politicians, regardless of Party, fall into the same category. Abbott has been in politics as long as Gillard and therefore would have a similar amount of Super. But why get so nasty about personalities? Isn’t it policies which are the most important thing?

      • Reply April 7, 2013

        Gee

        Why get nasty about personalities,, Rosie? If I were Abbott I’d sue this site for the les and religious vilification directed at him.

  • Reply April 5, 2013

    Terry

    It’s a shame Jill doesn’t want the same for her nephews and sons as she does for her nieces and daughters. It sounded like good advice for all youngsters.

  • Reply April 5, 2013

    Nan

    George Bernard Shaw once said “A government which robs Peter to pay Paul can always depend on the support of Paul”. Nuff said.

  • Reply April 5, 2013

    anne louise

    Jennie, you may have to change that tho Bill Shorten:
    BILL SHORTEN: Our changes are not retrospective. They will be prospective. This effectively means, and you can assume over the last 10 years on an average of a 5 per cent return, that people who have accounts currently in retirement above $2 million will be the only people affected.

    This measure I also must stress will apply to members of defined benefits schemes, including members of the Commonwealth Parliament, both Government and Opposition.

    Jennie, read the whole 2 paragraphs. Then go off sprouting the same old nonsense.

  • Reply April 5, 2013

    anne louise

    Nan, I don’t believe this will be the case, since not a lot of people are hearing or seeing what this government has done for them courtesy of the Murdoch/Abbott Alliance.

    • Reply April 5, 2013

      anne louise

      … oh, and I don’t believe anybody is being robbed here.

  • Reply April 5, 2013

    janet

    I was never worried. I know anything the LOTO et al say is a beat up and the media are playing in the same sand pit.

  • Reply April 5, 2013

    Rosie

    Different Rosie from the one above.
    Personally I think everyone needs to rethink the idea of what is wealth and what we REALLY need to live off comfortably.
    We as a society seem to be getting greedier and having a larger sense of entitlement. And I am not just talking about the younger generation.
    I for one, think $120,000 a year is very wealthy and I can’t understand how people earning this much could describe themselves as middle income earners. It is a shitload of money!
    Unfortunately it is those that do have more money who are complaining about any changes to superannuation.
    The poor are too busy working and bringing up children to take any notice of how much or little super they have. I wonder if there is a ‘Non and Low Income workers Union’? There should be so our voices were as powerful as the shouting rich.
    I guess the government has taken a small step towards equality but as a mother of a few children I know I still won’t be able to live off my super in a decent way for even a year when (if) I retire. Long way to go yet…

  • Reply April 5, 2013

    carole/m

    Thanks Anne Louise , for ” The Truth “.

    I ‘m just amusing myself imaging ” Jennie ”
    Desperately trying to get her Giant Foot out of her mouth. She seems to have ” Tones ” problem ; doesn’t read anything.

    I’m sure an apology is on it’s way .
    Aaaahh LNP voters. Gotta Luv Em .

  • Reply April 5, 2013

    anne louise

    Rosie the 2nd, I am so with you.

    I have great respect for the parents who have sacrificed far more than many know.

    I hope that your kids will respect and honour you for your commitment to them, and maybe even one day you will see considerable support from the community at large.

  • Reply April 5, 2013

    anne louise

    So sorry Jill Wilberforce, I was interrupted and lost my thread during my first post.
    Thank you so very much for your article. It was prompt and succinct, no gobbledygook but so much more information than the msm (which includes abc).

  • Reply April 6, 2013

    John Michael

    A malicious media beat-up from go to whoa to damage the government.
    This finance article illustrates why the loophole for the wealthy must be addressed:-
    http://www.initiativeaccounting.com.au/_blog/Initiative_Blog/post/Australia,_a_new_tax_haven/

  • Reply April 6, 2013

    miranda

    Thanks Jill for the great story – it certainly puts the changes in perspective. Labor should be concentrating on the $2 million super investment figure if they want to sell the reform – as you say an unheard of amount for most of us!

  • Reply April 7, 2013

    carole/m

    Gee/. Gee
    I’d like to see that.
    You can’t sue people for telling the truth.
    Phony’s latest effort is to lie to older people about their superannuation . His claim the government is taking money from their Super & that we will be heading down the same path as Cyprus . His first reaction is always to lie to people , then to obfuscate & then say later , that’s not what he meant because he actually hadn’t read up on the subject he is commenting on or whatever.
    Only a moron or a deceitful liar would make the comments that he did regarding Superannuation.

  • Reply April 7, 2013

    carole/m

    Thanks John Michael for the Link.

  • Reply April 7, 2013

    carole/m

    Wendy Harmer ,
    This is off subject but am wondering if others have noticed that an Abbott government If elected WILL privatise Medicare Private.
    Am wondering if this might be the precursor for Privatising the ” whole kit & caboodle”.
    Maybe we could have an article on this from one of your excellent journalists.

Leave a Reply