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’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.
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.
I 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.
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*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.