Leading Australian experts have established a new think tank focused on post-retirement super policy. The Committee for Sustainable Retirement Incomes is an independent group. They will look at making sure public contribution to retirement incomes is as efficient as possible.
Their first project was a submission to the government, released today. Unlike past reports by other groups, they’ve looked at both super tax and the cost of pensions. Their recommendations could have serious implications for how the government will treat your super after you retire.
What ‘sustainable retirement incomes’ really means
In this context, ‘sustainable’ means cheaper for the government.
Superannuation is meant to provide an income for you after you retire. Sounds simple, right? Unfortunately, people don’t always use it this way. According to some reports, super accounts provide a tax haven for the rich. For example, super funds get a discount on capital gains tax. This means a self-managed super fund can, say, buy and sell commercial property for a profit without paying as much tax as a real estate investment trust.
The committee has recommended that a review of the age pension means test. They want a means test that ‘better compels people to use their superannuation’ for retirement purposes. In other words, they want to make it harder to get a pension if you’ve got enough of your own money to live on.
Currently, a home-owning couple can get a part pension if their assets are less than $1,151,000. This doesn’t include the value of their home.
It’s not clear yet what changes the government might look in to. They might reduce the assets limit to an amount that would allow a modest average return each year. For example, last year the average median fund returned around 6%. According to the ASFA, a couple needs just over $58,000 a year to live comfortably. This means their retirement assets (if held in said median fund) could be worth just $967,000 and still not restrict their lifestyle.
They might also look at tax rules. The committee said that an ‘option [between full marginal tax and no tax] could ensure a more equitable distribution within the context of the current level of tax concessions.’ Getting rid of tax breaks could target those whose income streams are higher than necessary. For example, in 2012–13 there were 24,000 retirees with super account balances of over $2 million each. They received combined super stream incomes of $5.2 billion. That’s an average of over $216,000 each. All tax free.
How your retirement could suffer
There’s no need for you to worry — yet. The government hasn’t acted on the committee’s submission yet. You may not find out more until at least the May budget.
The impact on your super will depend on your retirement income goals. If you’re just aiming to live comfortably, reforms probably won’t affect you. Same goes if you don’t plan to claim a pension. If you want to maximise your retirement income, keep an eye out for changes to super tax rules.
Contributor, The Daily Reckoning