May 16, 2014

Why we should continue to tax earnings into retirement

Everyone knows the current superannuation system is unsustainable. But there is a solution, according to a senior superannuation industry lobbyist.

While oversimplifying the issue of a misallocation of tax concessions in superannuation, Bernard Keane’s article yesterday is correct that the system needs reform to more effectively achieve its dual goals of: 1) reducing the cost of the age pension to the government; and 2) increasing standards of living in retirement.


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8 thoughts on “Why we should continue to tax earnings into retirement

  1. Jude

    I am 70 and continue to pay tax. This is because I am a member of the Commonwealth Superannuation Scheme which was closed to new members back in 1991.

    When Peter Costello exempted superannuants from paying tax, this privilege was extended to all except those members of this scheme. At the time his reason was that this was an unfunded arrangement, even though members were required to contribute. So I’d like any superannuation review to look at every inequity, not just those the debate centres around.

  2. bushby jane

    I just don’t get why Labor’s attempt at taxing super income over $100k should be so difficult. Wouldn’t it just be calculated from tax returns?
    Also, what is wrong in reverting back to what tax arrangements there were before Howard declared tax free super withdrawals? (I admit to not knowing much about super)

  3. AR

    Jude – I’m in the same position, after a career in public service.

  4. CML

    @ bushby jane – I agree with you. It can’t be that hard. Almost seems the likes of Anonymous don’t want it to happen?

    Also, his/her suggestion that $4 billion dollars could be raised/annum by continuing to tax “earnings”, simply doesn’t cut it. Not when Bernard is talking about this rort being worth $30 billion currently, rising to $50 billion in the near future.
    There has got to be a better way than reducing the old age pension, and leaving the bulk of retirees worse off, while the wealthy continue to get away with ripping off the system, scot free!

  5. Gavin Moodie

    I’m no expert either, but from this article I gather that Labor was trying to tax increases in each member’s superannuation assets of more than $100,000.. But one of the strengths of superannuation and similar investments is that each member’s investment is pooled with each other’s rather than held in a separate account.

    So to calculate each member’s increase one would have to take the increase of the fund overall and divide it by each member’s notional share of the increase. To do that one would have to make some judgements. Would one calculate each member’s share assuming that the scheme was liquidated at the end of the tax year, or would one take into account each member’s share should they stay in the scheme until they retire. Would one assume that members would stay in the scheme until 65 (the new 70)? Would one assume that members would continue contributing at their current rate or project future pay increases? Etc.

    Such calculations are made to apportion superannuation assets upon dissolutions of marriage, but I imagine it would be much more complicated for all the members of a scheme. Apart from everything else, one would have to collect new data about members’ retirement plans and likely future earnings. Not impossible, but difficult and expensive. If there is an easier and more efficient way to impose such a tax it is much to be preferred.

  6. Daly

    My understanding of Labor’s policy was to tax the EARNINGS over $100,000 on super. Your super savings would have to be worth over $2million to be eligible to pay tax only on the earnings in excess of $100,000. (I’m using a return of 5% for this illustration).
    I understand the average person has less than $100,000 in their super and women half that so they have a long way to go to reach $1m.
    The baby boomers who have lots more than $2m are by definition in the top earners groups. Currently they pay 15% on the money going into the fund and nothing when it comes out. In fact they don’t even have to declare it as income if they fill in a tax form.
    Now that under 30 ‘youth”, single parents and age pensioners are doing the heavy lifting, I am of the opinion that the 15% on earnings over $100,000 in the fund should be taxed to make for a more equitable society. If not even those well off boomers may have no hospitals to go to, no schools for their grandchildren and no NBN to scype them.
    The premise in the article that super funds could not tell who had earnings in excess of $100,000 is either rubbish or an indictment of our trillion dollar super funds business. After all they do the most complex calculations to tell us the returns on our investment in that inComprehensible statement they send us each year. Managing our own super fund, I need to be aware of our earnings each year to see how successful my management is. It is the first order question of any fund manager.

  7. Mary Henderson

    I can understand why the author claims anonymity. I have worked for many years in the financial advising industry and the mere suggestion that super pension recipients are enjoying a free ride risks being painted as a socialist. When Howard introduced his reforms it was clear that they wouldn’t be sustainable and now, as
    their true costs balloon, it would be nice to think that the recipients would be grateful for the tax break they have enjoyed rather protest at any change.

  8. David Sanderson

    The entire Superannuation system needs a drastic review.
    It is obviously not reducing the pressure on the public purse, and is probably not serving many Superannuants well either.
    The new sustainable model should be as follows:
    All contributions up to a level which provides a sustainable income should be tax free. So if the average income is

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