As an aside, I no longer contribute to super and my wife has ceased her salary sacrifice arrangements to super. She continues to contribute an after tax 5% of income to her employer fund. Rationale is that, all things being equal, we decided that we have more than enough in retirement assets. Nevertheless, we will continue to invest outside of super to mitigate the possibility of legislative risk and, more importantly, it's fun.
http://www.theaustralian.news.com.au/bu ... 18,00.html
Political meddling with retirement funds
Tim Blue | July 30, 2009
Article from: The Australian
PERHAPS one day politicians will turn away from raiding our retirement money, and no one will be more surprised than Michael Rice, a man with his actuary's eye on politicians and honey pots.
"I accept that Wayne Swan has a mega deficit to deal with," says Rice, a director of actuarial consultants RiceWarner and a longtime superannuation expert.
"What we see is another example -- you might say the 26th in a row -- of politicians playing with the system.
"It's unfortunate, as it means the broader changes we need have been ignored in the focus on the huge budget deficit."
Wayne Swan let slip a few bombshells on budget night to do with how we live the last years of our lives, and while Kevin Rudd has since claimed we can get hold of our super before 67, there's much suspicion on what might pop out from the Harmer Pension Review and the Henry Retirement Income Report later this year.
For starters, how do you like the idea of counting the family home in your asset pile? Or having to spend everything before you get a cent of the pension?
Politicians will choke at such heresies, and there's not much enthusiasm among professionals for the other ideas so far bandied about in the preliminary papers.
"Well written academic studies with some good findings," says Rice, "but lacking in vision and not delivering any material reform."
We are right to be worried about more rule changes in super he says; the trust is gone.
So should we have any money at all in the system?
"Super is still a good thing, in that it is the only tax-preferred way to save in Australia. Leave it in a bank account, for example, and you pay tax on the interest at your marginal rate.
"This is harsh compared to other countries, which encourage all forms of savings.
"For example, the UK gives tax breaks to individuals on savings and investment accounts and the USA taxes dividends at a concessional rate, but we have none of that."
Saving for one's retirement is without doubt a virtuous act: it means you have more to spend at the time and will free a minute slice -- collectively, a whole cake -- of the government's money for other good work.
But there are issues: paying the compulsory 9 per cent of your salary over a working life will really not be enough.
Rice is critical of the government's actions, which make it harder to build super. "In times past, people paid off their mortgage first then turned to building their super, sometimes by plonking in the equivalent of their mortgage payments and starting a transition-to-retirement arrangement so they could keep their take-home pay about the same.
"Now you can't; the cap is $25,000 if you want to enjoy the tax concessions involved.
"Someone who is 45 now and tries to build super in a hurry at that age will have a struggle to get it up to reasonable levels.
"People will start looking to do things differently.
"A middle-income person might say 'I am going to put 12 per cent into super -- the compulsory bit plus 3 per cent of my own money -- but above that I might go and buy an investment property and pay that off over 20 years'."
Listening hard, one can almost imagine Ken Henry saying of super what he said of the big stimulus: "Go early, go hard, get the kids."
That's shorthand for encouraging people to start super as early as possible to make it work.
"Treasury says 9 per cent is enough," says Rice, "provided you start young, say 25 onwards, and plan on picking up $24,000 a year in an age pension. Add in, say, $10,000 a year from super and you might think that's enough to live on at $35,000 a year.
"But it won't be terribly exciting -- not much overseas travel and not much eating out.
"Maybe when we are sedentary and sitting in a retirement home with a bad back and when going to Sunday lunch at the RSL Club is a big day out, then it might be, but not in the active retirement years before that."
As an aside, the 9 per cent compulsory super is not really 9 per cent -- you lose a bit in tax going in, so the contribution rate is actually 7.65 per cent; it takes that much longer to build a pile.
Rice suggests that if you really want to live comfortably, put in 12-15 per cent a year, for 40 years.
As another tip, pick up the government's co-contributions. Those earning less than $31,920 a year can put in $1000 a year and the government will add another $1000.
For those earning more, the government will pay something but it reduces to nil on income of $61,920.
Start young and it will build over time.
And get all your insurance through super, too -- the premiums are tax-deductible.
Rudd's declaration that he won't push back the retirement age for taking super to 67 is welcomed by Rice, but he is wary.
It shouldn't happen anyway, Rice says, as all it would do is grow the disabled class on a disability pension. "Lifting the retirement age means you will get more people, mainly men, who will be on a disability pension after a lifetime of arduous physical work -- skilled tradesmen and farmers, for example. Disability pensions are already going out to 200,000 men aged between 55 and 65 -- that's one in six."
Super is still worth having. "Work out how much you need to save for the lifestyle you want. Agree between you and the boss that you put in 12 per cent of your salary, tops, and in the meantime, think about working part-time between 55 and 65. If you are worried about future changes to the rules (and there will be more), then diversify by taking on other savings -- for example, an investment property.
"This way you have all bases covered, with the flexibility to move -- to step around any government ram raids on your retirement money."
Political priorities abound in the government's policies. Super could have been left untouched if Rudd had ditched the former government's promised tax cuts, as had been suggested by shadow treasurer Joe Hockey.
Yet there is one elephant in the room that the politicians talk about in whispers: counting the family home when it comes to determining eligibility for the age pension.
The idea was aired -- with scant detail -- in a strategic issues paper released with the budget. Broadly speaking, if your home is worth $1.2 million, the first million might not be counted, but the remaining $200,000 might be deemed to be earning a bank account level of interest and nudge down your pension.
The economic rationalists might love the idea, but it won't play at all well in the suburbs.
