Reader Survey on retirement income

Basically we build our Super to enjoy the remaining years of our lives! Under the current system we pay 15% contribution when employed. That should provide insurance to the capital that is accumulated (It doesn’t) a fault by government. With the impact of Covid earnings are erratic and planning has gone out the window! I feel as we move ahead it’s increasingly difficult to plan on travel both locally and international (if available in 2024).
No doubt we are lucky to be so far away from the Covid hot spots and deaths. We are also unfortunate that our leaders have failed us on lack of vaccine. This may come home to harm us as we move ahead.

All SMSFs should be highly alarmed at this fee-generating proposal contained in the Retirement Income Covenant position paper:

"Trustees should regularly and comprehensively review the appropriateness, effectiveness and
adequacy of their retirement income strategy including the assumptions underpinning it, every three
years at a minimum ..... In line with the existing comprehensive review requirements for existing covenant strategies, the review of the retirement income strategy will be required to be undertaken by operationally independent, appropriately trained, and competent persons." (Pg15-16)

Treasury must be wary of industry groups that primarily represent the interests of their own members, making submissions in support of further regulatory impositions on SMSFs. Additional and complex obligations impose compliance costs on SMSFs, which is beneficial to accounting and financial industry professionals seeking to maximise fees, but detrimental to the objectives of SMSFs seeking to maximise retirement income.

Totally agree. People who run SMSFs are generally highly tuned in to retirement planning and given the sort of advice I have seen come from industry funds this would be a total waste of money for SMSFs. It is just another income generating scheme to intrude into the SMFS space.

Well said Allan and Stuart.

Alan B

Spot on.

Thanks

Absolutely agree with this comment.

It is clearly in the interests of industry groups to propose increased regulatory requirements (purportedly in the interest of consumer protection) as such regulation can become an effective protective moat against outside competition and effectively add unnecessary complex costs on SMSFs

Thanks for your supportive comments. I put in a submission to Treasury as a trustee of a two member SMSF expressing strong reservations about a proposed mandatory retirement income strategy. In my view SMSFs should be exempt. The position paper for comment is here:
https://treasury.gov.au/sites/default/files/2021-07/188347-retirementincomecovenantpositionpaper.pdf

Interesting survey

The inequity of the private -v- public sector superannuation is breath taking. How do they justify, jobs for life public servants getting 15% or better super? Surely everyone should be on same % guarantee - end of story? With the instability of governments, how can someone outside the public service seriously plan their retirement strategies, when governments at a whim change the rules without grandfathering for those already in the "retirement system" as happened when they changed the assets valuations in 2016. People wonder why we hate politicians, particularly the millionaire ones on both front benches, who seem only interested in feathering their own nests more and more.

I agree with this. Politicians and public servants having tenure, well paid jobs and accelerated super contributions which the private sector cannot afford. SG at 15% and defined benefit superannuation funds are much too expensive for the private sector

I agree that 15% super for public servants is too high. Imagine, those that earn say $250K pa are having $37,500 a year put into their super fund by the government, and you can match that with, I think, up to 6% a year. Most generous.L

Doug, are you sure this is actually still the case or are you recalling the situation way back in the dim dark past?
Certainly the most senior public servants don't have tenure - just ask Martin Parkinson!
And they make super contributions at the same rate as everyone else these days.

As for uncertainty about planning, well, that's the case for everyone and always has been! To expect any government to lock everything in with no changes for ever is unrealistic and unworkable. Especially if one government makes a decision that's too generous, like Peter Costello did, anyone who doesn't presume that will get clawed back is kidding themselves. The introduction of a cap on the amount that can be in super with no tax on earnings was a fair and reasonable clawback.

I don't hate politicians and I don't believe they're in it to feather their nests. They're in it for power, not profit.

I looked at a Commonwealth public service job a few weeks ago. It offered 15.4% superannuation. That’s way in excess of the current 10%, gradually increasing to 12% for non government employees.
We’re hardly in this together! Remember too that Public Servants get paid by tax payer money.

A lot of workers myself included have had years out of the superannuation system. I will now never be able to catch up as keep being taxed through the roof now so am earning a decent income. Superannuation is supposed to be a means for saving for retirement but seems to hampered by not allowing catch up of concessional contributions. I should be able to put a bulk of my income into super without being penalised by having to make it post tax. Just another way of keeping women out of building their own wealth.

Government policy should allow or even facilitate family wealth to be built up over more than one generation. Otherwise our children will never own their own homes.

Via family trust…not a super trust underpinned by too generous tax concessions

The (national) savings system is not fair (or efficient)!!!

Your private super is not self funded and benefits from generous concessional tax breaks. It should not be a tax free "family" trust with no limits etc....that pass thru generations!!!

Average to rich income working Australians get a big tax cut on super contributions, capital accumulation and deccummulation .....effectively paying very little personal income or capital tax.

And of course, the private savings/capital locked up in the "family" home is completely capital gain tax free.

And the rich....then have a "family" trust to manage assets and after tax cashflows.

The poor and lower income Australians receive the publicly funded aged pension and a top up from small amounts of super - from a fund that paid 10-15c in dollar as they were forced to save. The latter tax rate is above their effective personal income tax rate.

Is that fair???

Great, over 500 responses in half a day, keep them coming so we'll have a good sample to show Treasury. Some surprising results and hundreds of good comments.

Rather than continuing the outdated focus on 'retirement', we need a national longevity strategy which oversees and co-ordinates the key Government areas that influence the cost and quality of later life - Treasury, Social Services, Health and Aged Care. While a great deal is spent on financial literacy, very little is invested in educating consumers from midlife into how their life could evolve for the next 30-40 years and what they can do to influence the outcomes. We need to re-orient our priorities and invest in education and incentives for people to take more responsibility for their rest of their lives, not just the financial outcomes. This would considerably reduce the cost to society of providing for people who can be more self-sufficient, provide better for those who can't and improve quality of life.

I object to the concept that the capital I have contributed to super in after tax dollars should be treated as income and taxed accordingly. I have already paid tax in accumulating my capital. On the other hand I have no objection to the income, including capital gains, being taxed within a pension fund, probably at 15%. I have always thought it ludicrous that the earnings of pension funds were tax-free even though I have obtained benefit from it myself. Something should also be done to discard the notion that the family home be not subject to CGT. In my view this is the major reason for disparity in housing affordability for those on lower incomes.

Government retirement tax and age pension policy should continue to aim for flexibility and fairness within reasonable limits. Meanwhile, I'll take what I can get. The return to a cap on maximum benefits in 2017 was overdue.

Lived experience tell us that people who have not retired are clueless about the reality of retirement. Previously available crucial choices are gone, eg: work harder, get a better job. This makes changes to the retirement rules very threatening. There are many more examples.

I am bemused that the Government is meddling in this. Surely, wealth is eventually transferred - whether from spending too much too soon, or from dying and leaving it to a beneficiary. This Government focus on "when" you spend it is just short-term nickel and diming with their cash flow. Get back to the big picture and start the think strategically over generations.

I have worked hard to build-up a retirement income. I think super should be taxed especially for portfolios over $1million. Negative gearing should be reduced and taxation of primary residences over $2million should be considered, with those over $10 million definitely taxed. The revenue should go to housing for disadvantaged and homeless. It is absolutely disgraceful that we have people without homes, especially older women living in cars. Utterly unconscionable. Australia needs to be a much more equitable society.

All worthy ideas that politicians (sadly) would not touch. And I don't think many self interested readers will agree either.

Socialism is not why I live in a Capitalist based country. I have worked hard all my life and by working hard contributed substantially in taxes and now by not requiring support from a Government pension! Leave the family home and superannuation alone.

Leaving the value of the family home out in the assessment for qualifying for part or all of the Centrelink Age Pension distorts the whole welfare system.

If we do not consider TOTAL WEALTH (including the value of the family home for age pension entitlement purposes) then a possible solution could be for the Centrelink Age qualification assessment to say treat TWO THIRDS of the NOMINAL RENT that would have to be paid for a similar property as income derived in the PENSION INCOME TEST assessable income and the amount of AGE PENSION ENTITLEMENT adjusted accordingly.

This could result in downsizing, thus a release of property available for growing families to purchase or keep the property to pass on or having to consider using a reverse mortgage to maintain the necessary cash flow to live a comfortable life.

Agreed!!

It is easy for me as I have an ongoing interest in investing. Most people, even well educated ones find it a mystery and boring. I am not sure how you counteract that perception.

Retirees, get over your franking credits. You'll be fine without them. We need the revenue for other things. Superannuation pensions need to be taxed again. The 2007 change to make them tax-free is obviously a far out-dated policy for a different time than today. People should seek financial advice if they are afraid of spending their money. No need to seek advice on their investments, just good old financial planning and modelling will help change beliefs and behavours leading to more comfortable, happier lives.

Comments that retirees should "get over franking credits' simply do not understand the imputation system. It is all about avoiding double taxation, not about free handouts to undeserving old people. Labor's vendetta was a cynical ploy to win voters but created intergenerational hostility instead. A dreadful error that cost Labor the election. Just remember you young millennials: you too will be old, if you live long enough. And growing old is not a pleasant thing as you will discover.

Super system should be changed to no tax on contributions & super earnings but pensions taxed with limits on amount into super and min. withdrawals from super.

We are considering how we might be able to use some of our super pension fund balance to assist our children (35 and 31 years of age) enter the housing market. That decision may influence me to return to paid work for another 3 - 5 years so that we can use our pension fund payments for the financial assistance and use my salary income to live on.

The providers of investment products charge and make their money on a percentage basis. The “selling” intermediary now referred to as “Financial Planner” is expected to advise and charge exorbitant fees for giving holistic advice ONLY. True financial planning is a lifelong two way commitment and a percentage renumeration style would be preferred rather than the now current practice of having to produce expensive exorbitant statement of advice complying with current regulations and fund the last resort compensation fund. Investment Products need to be stress tested by ASIC and APRA. Total disclosure of illiquid assets declared complete with periodic valuations. The taxing of Superannuation Trust funds be made on an accruals basis and there is no indefinite capital gains tax deferral which is never ever collected as perpetual Superannuation Funds do not need to ever realise assets. The current tax deferral system is a PONZI bubble that will burst and we will have another Royal Commission.

Like my father before me, I have concentrated on super income to fund retirement. But I did not build the capital by making tax free contributions thus depriving the tax payer of tax revenue. The build came from my fund investing in a start-up company at $1.00 per share and selling at nearly $14 per share many years later. My fund has benefited from the low tax on earnings during the accumulation phase and now benefits from the zero tax in pension phase. I retired at 59 years of age and if I had drawn the full single aged pension in the years since it would have cost the tax payers a lot more than the value of the concessions I have received! The govt. should amend the Capital Gains Tax legislation to tax house sale proceeds of say over $2M.

Super pensions should be taxed with a 15% rebate as they were before Costello made them tax free. Super is to finance your life not for an inheritance. If you want to leave an inheritance it should be from another source. Taxes (capital gains tax, negative gearing and land tax to name a few) need to change on land and property to give more intergenerational equity.

Costello was being generous, he was being politically expedient as I explained here:

www.firstlinks.com.au/myth-costellos-generosity-tax-free-super

Jon Kalkman: Your comment reads: "Costello was being generous, he was being politically expedient...". I think you mean "wasn't" ... 

I must confess to being rather surprised by some of these comments. Didn't expect so many closet socialists on the Cuffelinks website. I agree super pensions should be taxed (to the extent they represent income, not return of capital), but only if contributions were not taxed 15% at the outset (but Keating put paid to that - imagine how much higher super balances would be with all that compounding - and it will be difficult to unwind it now).
As for intergenerational equity, some seem to think that requires people who die with money still left in super should have their super balance transferred to other people's children rather than their own. I don't accept that other people's children are somehow more deserving of my unused super balance than my loving and hard-working children. Or should I just accept that we will all soon be living in the Socialist Republic of Australia (with Dictator Dan as President-for Life, no doubt)?

Agree. Well said! The progressive tax system already ensures that wealthier people contribute more and will continue to do so.
Fairness is equal opportunity, not equal outcomes.
I’m sick of wealthy, woke Socialist’s. It’s easy to be so when you’ve got a lot more.

I am also surprised that so many comments posted here are generally negative about Australia’s Superannuation/retirement income system.
Hard to believe that anyone who has managed their own SMSF, and who over many years, has taken an active interest in investing for the purpose of funding their own retirement, with all the risks and rewards that that has entailed over a lifetime, would come out the other end thinking that the system was inherently unfair.
Do readers of this wonderful site, with all its insights into investing, financial planning and superannuation, really believe that the answer to improving Australia’s retirement income system is for government to tax more, and that those who have made sacrifices during their working lives so as to grow their nest egg for a rainy day, should have their wealth and assets redistributed to others in society on the basis of someone else’s idea of fairness and equity?
Having arrived at retirement after a working life as a business owner, and taken on such risks that most people in society would never contemplate, such as having a mortgage over my home as security for a business overdraft, and in some years being the only person in the company who wasn't paid, either a wage or superannuation, I now feel that as a retiree, for the first time in my life, I have earned a sense of financial security I never enjoyed over most of my working life.
Whilst I sympathise with those who have not had the same opportunities (or appetite for risk) as I did, I think it’s a shame that as a society, we begrudge those who have earned financial security. I do not feel the answer to solving retirement incomes in our country is to somehow take it away from those who earned it during their lifetime, and who were simply working with rules of their day.

In the deccummulation phase of retirement, the income tax system is not progressive.
On or before death, tax aware pensioners pass on their capital/savings to their beneficiaries paying a small amounts, if any tax. Under generous tax concessions, many older Australians are oversaving in super albeit the new super caps have put a limit to that. And Australians with wealth still have the family trust; or are able to give to their kids with a warm hand rather than a cold hand.

Income is income, capital is capital and ours. The current arrangements though restrictive, may be a reasonable balance. Governments seem only interested in milking our savings to buy the votes of those who have been more profligate.

What about the women who don’t have the chance to accumulate capital or wealth, and are turfed out when the bloke leaves them…. and don’t have financial literacy?

You should pay tax on your earnings so people have food, shelter and comfort.

I am in Ray's court - let the young guns grandfather everything already in place and leave us alone. My pet dislike is the 'negative gearing". This is surely from the ark .. gambling is just negative.. isn't it?

I am unconvinced of the proposals so far for these problems in our present political/economic state. Unless we can address overpopulation and its consequences in climate warming and the political and legal adversarial trends I am very pessimistic for future generations and at present see little hope of implementing remedial measures. For instance I was incensed about the attempt to remove repayment of franking credits without serious discussion of a wealth reduction scheme and a block on the use of overseas tax havens for the extremely wealthy for only those who by chance have access to preserving capital across generations whilst taking populist ineffective measures against those who don't.

We have been retired 18 years. Our assets are our SMSF and our home. We invest our SMSF ourselves, we have an Admin/Tax provider. We have 33% more in our SMSF than when we retired. We regard our wealth as Family Wealth. We have funded our children in their purchases of their three homes. We will fund the education of our nine grandchildren We hope to fund the houses of our grandchildren.

Please adopt me!

ahhhh the DNA lottery of life..........

Richard A
August 05, 2021
"ahhhh the DNA lottery of life..........
Dear Richard : You can read and write , you have a sense of humour [ sarcasm qualifies ! ]
you obviously own a computer or electronic device to post your comment , and you live
in Australia !
Congratulations mate ! YOU have already WON THE DNA lottery of life too !

Superannuation savings should be used for generating income in retirement and access to lump sum withdrawals should be minimised. The current system is way too concessional and we need to move back to having a maximum amount that can be taken out each year. I also think we need to move away from the reliance on age pension. The aged pension should only be for people that don't have any assets (less than $100,000 as an example) as it is not a god given right as most people believe. Asset depletion ie spending your money to get age pension benefits needs to be addressed. The family home also needs to be taken into account.

The only way to safely fund retirement is to save plenty. Governments need to accept that if people are willing to do this during working life, their descendants should not be penalised if they manage to leave some behind, having been no burden on the taxpayer during their retirement years.

Cultural change is required so people expect to draw down on superannuation and savings in retirement. - The need for fit for purpose retirement products is obvious. Solutions to manage longevity risk are not currently providing value.

Include any excess of market value of family home over median home price in that city in aged pension assets test. Remove tax free status of superannuation income streams (even tho it will mean I have to pay more tax!). Re CGT, either increase time period from 12 months for 50% discount or reduce discount amount or both!

Stop Central Bank manipulating the Interest rates

Retirees have worked all their lives to have what we have. If we want to leave our nest egg to our kids, why not.How dare the Govt; of any party tell us what to do with our estate. With bureaucrats and public servants on extremely generous super schemes(over 15%) just keep out of our retirement decisions. It's not as if they spend our taxes very well as the late Kerry Packer said.

Says it all, We worked hard and saved to make ourselves independent, but the bloated Public service seem to think they have a right to control our savings.

Too small an individual to change the apparent inequities between generations however a bit of frugality as experienced by older generations might not go astray.

Good survey.

Agree, looking forward to reading the results and good to hear they will be will passed on the government.