Retrospectivity ain’t what it used to be

Chad

DB pensions paid from unfunded sources (e.g. politicians' pensions) will be taxed at marginal rates above $100,000 pa from 1/7/2017.

There is also significant modelling demonstrating the inequity and unsustainability of the current system. Read the submissions to the FSI (although it didn't officially consider tax) and the Tax White Paper.

Phil

The old RBL would be about $2.3m, but it applied to the total amount that one could have in super. The $1.6m only applies to the portion that will be granted tax free earnings in retirement. People can hold a lot more than that in superannuation in retirement. Just not tax free.

I must admit to being quite phlegmatic about all of this. I think anyone who believes that the tax on any portion of their earnings will remain unchanged forever into the future just because it was set at some rate in the past is, frankly, naive and foolish. It has never been thus and never will be.

The simple fact is that the tax rate payable on the earnings on retirement savings will increase from 1/7 2017. Earnings on retirement savings prior to that date will be unaffected. The tax increases are not retrospective. They are also not unexpected. Nor are they unreasonable.

It was obvious at the time of Costello's 2006 budget that his changes were unsustainable and inequitable. (And reflect that the proposed $500,000 NCC cap conveniently misses the $1m NCC that had to be in by 30/6/2007). I was at a board meeting the following day where the consensus was 'Enjoy it while you can. It's unsustainable and can't last'. We did enjoy it. It couldn't last. It didn't. And now it's over. Time to suck it up and get on with life.

We all plan for the rules as they are and then adjust those plans as the rules change. Time to change again. And remember that a retired couple with $7m still only pays about the same amount of tax as a worker earning $80,000 a year. The cream and roses continue. The roses are just deep pink rather than red and the cream not so thick.

Scott Morrison of course was always going to be cute with the choice of words. His track record is littered with similar examples. He has delivered on his promise not to increase the tax on pensions!!

An interesting piece but there's not a lot of discussion on what is surely the most retrospective of the policy announcements i.e. a tax defined benefit pension payments above $100,000. Adding to the retrospectivity is that this would apply to in-stream payments and there is typically no option for defined benefit pensioners to commute their pensions. While this measure is likely to apply to only small number of current retirees, it is still retrospective. Further, what is not known is the number of future retirees that will be affected by this measure. And never forget: defined benefit super is not a marginal legacy issue - one of five dollars of employer money into the system goes into defined benefit schemes.

For the government to argue that the proposed $ 1.6m cap and NCC limit is not retrospective is plain wrong. They would be much better explaining why they figured the existing rules were too generous and why they did not grandfather the changes. The danger in this is that next time they could impose a limit of $ 1.2m and tax at say 30%. That is why this retrospectivity is dangerous-- once accepted by political spin it can be the thin edge of the wedge.

A recently retired politician can retire with an indexed pension of $ 180,000 pa for life. That would require an amount in the retirement account of well over $ 4m. How come they will not be impacted by the proposed changes. No one in the media is prepared to ask this question and seek a reasonable answer from the government.

This one issue of retrospective changes will make people think twice about the system.

Phil Brady: The skinniness of the proposed pensions balance of $1.6 million can be explained medically. In the past, stout, fat and downright obese physiques were considered strong to withstand episodes of famine. With agriculture, industrial growth and food preservation,being skinny is now in. Hence your GP recommends skim milk rather than straight off the teats. The wasted frame of the taxpayer can no longer afford the compounded TRBL anymore.

Martin Mulcare: Great, look forward to the next Philosopher parliamentarian. Pity I am not in your electorate. Our 'restrospective' fixation is due to the desperate human need to find fault with labels when we disagree with the substance of the changes. As Vince Skully ably shows.

Who said truth depends on objective facts?

I didn't hear too many people wingeing about retrospectivity in 2006 when Costello reduced the tax on retirement income.

In an orwellien society which Australia is fast becoming its called "double speak". Our mistake is assuming there is a thinking entity behind any double speak, it does not need to make any sense..
We need a visionary like george orwell, that knew back in 1949, what our australian policticians would be like in the year 2016?
Perhaps we can apply the same process to all past and current politicians generous (fully tax payer funded) superannuation from say 2007, set the amount equal to the current pension (cannot have a elitist attitude here), and then tax them from 2007 for all amount in excess of the current pension? After its not retrospective....
It's is a retrospective duck, pure and simple.

I would be interested to understand from the Gov't what a retrospective change would have looked like if they believe the proposed $500k NCC cap is not a retrospective change?

May I express my frustration? I am running as a local Independent candidate for Bennelong because neither major party has a coherent strategy in this context and neither can be trusted (as per Grahams' quotes). There is no attention to principles or substance in their political responses.
Let's look at the $1.6m cap announcement. That should be a trigger for an intelligent debate about the purpose of superannuation and whether some limits on tax concessions are warranted. Instead, it generates a red herring exchange on the meaning of "retrospective".
When can we expect "grown up conversations"? How can we promote them?

I read that if the old Transitional Reasonable Benefit Limit was left in place it would now be at $2.3M. So, the $1.6M looks very skinny.

My wife and I are both over the limits for the $1.6M and the $500K NCC and these funds have been built up over many many years through hard work, sacrifices and some astute planning and investments. I think in many ways we are all missing the point. Its not about the limits on the amounts, its that we cannot trust governments. They waste it and then come looking for where they can take it away from the people who paid their taxes, employed staff and who have looked after themselves instead of being a burden on the welfare system and don't want to be. Under the rules prior to the budget announcements even with compounding interest and good investing I believe it would be difficult for a 30 something to contribute $25K a year plus the $180K NCC and achieve a $5M Super account by the time they are retiring. Its not until your 50's that you may have the spare money.
In June 2015 I received a newsletter from my local Liberal member (a very senior member of the front bench) with the heading on the front page "The Liberal Government has guaranteed there will be no changes to superannuation and certainly no double tax hit". I wrote to him asking clarification and received the following reply:

" I am happy to confirm to you that the Coalition Government has no plans to increase taxes on superannuants, either in this term or in the future. Indeed, the Prime Minister confirmed this on July 1, remarking that the Liberal Party made a very clear commitment prior to the last election that there would be no adverse changes to superannuation under this Government in this Parliament. We have made a very clear decision that we aren't ever going to increase taxes or restrictions on super"

Of course now they have a new leader. I have since written to my local member stating that we will no longer be voting for him as he can't be trusted.

Bigjulie,

Howard Costello regime made all post 60 benefits tax-free. Till then the members had accrued benefits with pre and post tax contributions and earnings thereon fully expecting to pay tax. Then all of a sudden the past promise was changed in their favour and the detriment of the taxpayer.

Did you, I or any other fund professionals protest this gross injustice? No, don't answer, the reply inheres in the rhetorical question.

Despite the undoubted reach back into the past, all changes ('reforms' if favourable; 'tinkering' if complicated; 'toxic' if it reduces our share) will impact past expectations.Even the proposed increase in SG rates has the employer groups protesting the administrative and financial burden. Fair from their perspective.

As in other walks of life, we have to reassess and play by the revised rules. Or, as many will, find loopholes to circumvent. This is fair game for future Treasurers.

As for your Judas analogy, without Judas, there would have been no betrayal, no crucifixion nor mankind's redemption (per the Bible)! Almost as inscrutable as super....

It is immoral duplicity to change the conditions re super for PAST events. The retrospective adjective is irrelevant as it obscures the deceit, the smarmy treachery & Cromwellian dupery of this tilt to perdition.

The fraudulent impact of this financial train to Hades is that we were actually duped sheep and alas, now, awaiting sequential financial slaughter.

We were promised by numerous red and blue governments:

"Support yourself - do abcd and we will do xyz".
"But" we asked, "is this a trap?"
"No, put your savings into super to save the taxpayers the burden of paying you a pension. Plan when and how you retire - rely on MY word as Treasurer of this great (sic) country".

So now because these deposits are open targets to be grasped by government sticky fingers, those precious savings will be safer under the bed or off-shore benefiting other countries infra-structures.

The betrayal of those who scrimped and saved predicated upon the false promise is gargantuan and merely a warning signal canon and prelude to further raids.

To those legislators who intend to vote for this Judas beguilement:
Shame upon your fame.
A pox on your wallet.
Yes, we were fools to trust you.
Mend you own lavish ways first but always honor past contracts with citizens.

It is natural for sectors in our retirement income regime (savers - accumulators pensioners and hybrid, providers, white-label owners outsourcing all activity, planners, professionals providing independent assurance, technical advice and helping clients game the rules, regulators who must make rules ahead of crises and are scared of another failure, policy-makers who must balance all the claims in three year elections...) to push their own interests.

It would be good if we could have a lobby group for taxpayers who fund the subsidies, and oil the machine. Governments become their default proxy.

Take Rick's list of issues. It accurately lists shared negative perceptions, but unfairly omits any positive. Relative to most countries, our compulsory and concessional saving model has avoided the insolvency rampant elsewhere. It has firmly sheeted home the responsibility to where it belongs (citizens) , with tax subsidies to help.

Was the Government equally untrustworthy when it introduced unsustainable concessions being partly unwound now? Like an employee keeping quiet when overpaid but whingeing when it is partly clawed back, we moan as we can.

Viewed sectorally, and in the heat of the present, many grievances are legitimate. Given super's inter-generational reach over six or seven decades, I think history will judge Australia's attempts more generously, for all its irksome faults.

Grandfathering should have applied and then it would have been prospective. Without grandfathering it is retrospective. It has negatively affected many of my clients and all people with transition to retirement pensions.
To date have voted liberal but not any more. This is a significant breach of trust. As politicians do not have the same super system as we do they don't have skin in the game and will constantly fiddle detrimentally with the super system. A poor strategy from the government who long term want people to fund their own retirement

I think it is more about the trust issue and how the government acted. This has undermined confidence in the system for all generations. It appears the treasurer wants people on middle income to borrow for negatively geared property to reduce their tax and speculate on future capital gain instead of wisely saving. We are now looking at other structures and locations that hold less government risk. I am not sure I want my hard earned in the super system

Interesting to read all the comments. I am scheduled to give a superannuation seminar next week to members of a super fund. The fund has 100 members with an average age of 30 and an average balance of $30,000. According to the Colonial First State website, assuming an average salary of $60,000, 9.5% employer contributions and an average return of 7.5% pa, they will only end up with enough money to deliver $42,861 a year in today’s dollars before it runs out when they are 75. It seems unlikely that this will deliver a comfortable lifestyle considering the average life expectancy is north of 83 and the line-up of expenses these generations face.

There are many issues here. Firstly, the government is seen to be completely untrustworthy which is driving Gen X and Y away from even thinking about how they fund their post working life. Secondly, with the spiralling cost of housing, mammoth indebtedness, etc, there seems little chance that Gen X and Y will be able to make significant additional contributions. Thirdly, with one in three families reportedly getting more in benefits than they pay in tax, there is much more pain in the pipeline. Lastly, tax free pensions were never going to last - we all knew that - but to claim the changes are not retrospective is weasly in the extreme.

I am over the new NCC limit. So no more NCC contributions.
I don't follow the new CC rules? It appears the work test for over 65s has been dropped, and $25000/year can be contributed. I am over 65 (and under 75) and am retired. Can I still make a yearly CC of $25000? This money is obviously coming from after tax savings, not wages. What are the tax implications? I am still under the $1.6m cap.
Clarification welcomed. Thanks.

Reasonable retirement outcomes depend largely, but not solely, on super balances. Non-super assets and even non-financial networks cannot be excluded.

One consequence of the seemingly harsh proposals (if they are enacted) might be to increase the incidence of reverse mortgages.

Given that finance is increasingly global in its content and reach, perhaps we should consider what role adult, financially capable, offspring should play, instead of outsourcing this to the taxpayer. Shall we introduce Confucius to Keating?

Let's do the sums ...
Say a 40 year old starts contributing the max $25k per year till retirement.
Say the elderly dad/mum die and leave the 30yr old $500k in their will.
NCC = $500k.
Total superfund would be 25yrs x $25k plus $500k.
Balance is $1,125
"Just enough" for a comfortable retirement (at 4% avge interest income).

This is the max super balance, as most workers would not be able to put away $25k pa now could they count on $500k NCC's.
Therefore this policy does little to help youngsters out, and especially so given the loss of confidence in government and their inability to resist changes to super rules.

Keep the $35k pa concess contrib.
Lifetime cap of $1m NCC's going back to 2007.
Tax of 15% pa on earnings above $100k on the pension balance.

Sally - you've missed the massive effect of earning on those contributions. During a working life, earning can be 300%the value of contributions. Even more amazing, earning after retirement can be a further 600% of the initial contributions. Youngsters have every opportunity to build up very healthy balances well within-the caps - it is their ability to earn and save that will cap most people.

It is high time that politician's own super had to abide by the same rules as the rest of us.
They have very generous CPI indexed risk free super in perpetuity that's not tinkered with every couple of years.
Since their interests are not aligned to ours when it comes to retirement income they don't feel the same pain when yet again the rules are changed.
The only pain they feel is at the ballot box .
For the first time in his life this staunch liberal supporter will not be voting for the coalition as fortunately I have an independent I can vote for.
Disgusted and dismayed!

If we think its unfair that a couple that have more than about $4.5m put away for their retirement have to start to pay 15% tax on the earnings, we have lost all connection with reality.

A well advised couple would hold say $700k each of their lowest earning defensive assets each outside super (and pay very little tax thereon due to the tax free threshold) and $1.6m each in their pension account. That would be a total for the couple of $4.6m invested tax free. Lets assume they were really rich and had another $4.6m in accumulation accounts, total invested $9.2m. They would pay 15% tax on the earnings on that money, giving an average tax rate of 7.5% ($4.6m tax free, $4.6m at 15%).

And yet many of us are bleating that its unfair!

No its not - it was ridiculous that we could have that much money previously tax free. Now having to pay 7.5% tax on the earnings on such a huge nest egg is still a very highly concessional arrangement.

Most of the changes are totally appropriate. The only group I feel sorry for are those in their late 40's to 50's with relatively low balances who are just starting to get their heads above water from the mortgage and the cost of kids who had a plan to pump lots of money into super in their last 15 - 20 years. They are going to really struggle to get more than $1.6m into the super system with a lifetime limit of $500k.

Its time to move on guys, accept that the overall direction is right, and both parties are doing the right thing for the country. Forget our self interest, and start to pay a little tax - it won't hurt us too much!

I don't understand how you can say the direction is right, and acknowledge that those in their 40's and 50's are significantly disadvantaged. It is that demographic that pay the most tax now under PAYG, and it is also the next generation after that. Also the 40's and 50's year olds have had to deal with the rising cost of decent schooling because Govts are not funding that as well as the past and they want their children to have every advantage. You can only bleed them for so long, and this is another hit.

Following the rules of the land, over many years my wife and I have applied our assets to investment in our SMSF. We have made NCCs beyond the $500k Cap and our Member Balances are north of $1.6M. Also a large proportion of our assets are in companies paying franked dividends. One outcome is the SMSF receives from the ATO a sizeable franking credit rebate each year.

Whilst I argue against the $500k NCC Cap (measly for younger folk building up their retirement nest egg), I think the RETROSPECTIVITY issue is a furphy. My understanding is that under the Government's proposal, members of Super Funds can retain balances in excess of $1.6M in Accumulation mode, with the income lightly taxed at 15%. For these fortunate people this is hardly a disaster.

Yes but as you point out it is the next generation who will not be afforded the opportunity that you had that has got you to a position that you can now 'wear' the change that effects you.

As with a number of other commentators, the author has been highly misleading with his table regarding additional tax.

Firstly if I ended up with $2M in super, I would be
a) splitting the amount above $1.6M with my partner or b) withdrawing the excess and investing the $400K outside super . If that earned $20k, I would only be paying tax on the $2k above the $18k tax free threshold.

Secondly, so many commentators appear to not understand what "earnings" inside a super or pension actually are. I have seen comments which
i) Think it is the amount I draw down from my fund _ NO!
ii) Think it is the amount that it goes up by each year_NO!
iii) It is actually the sum of the interest, dividends (adjusted for imputation), rents, and discounted realised capital gains.
If the author can get 5% taable return let alone 10%, please let us all know how you do this in a low risk fashion

Assuming $1.6 million limit instituted what is position of someone who currently has, say $2million.?The announcements indicate they will have to reduce balance to $1.6million or less on 30 June 2017. But they will not know balance until sometime afterwards. Should not Government give some appropriate period (say 6 months to withdraw excess over $1.6 million? (and what happens to defined bebefits pensions?

Its important to have trust in any relationship (including our relationship with politicians and political parties) who are now asking us to vote for them on July 2.

Trust went out the door on Budget night. Which ever way you look at the proposed super changes re the introduction/changing of caps, they are retrospective, regardless of politicians "spin". In previous years, we had "grandfathering" to ensure those who had planned for their retirement under the rues of the day, particularly as self funded retirees, were not adversely affected by future policy changes.

I am amazed that a conservative government would try this subterfuge, particularly as it will lead to more people accessing welfare benefits including the aged pension. And we are meant to trust and vote for these people??

I suspect what most are really complaining about is being worse off than they were before. Retrospective legislation is simply a convenient supporting argument. When these overly generous super concessions were brought in years ago, there were lots of people made worse off by the reduction in revenue causing a reduction in government services. Didn’t hear the beneficiaries complaining about that retrospective legislation.

Rules in life are changing all the time. You make decisions based on the current rules. If the rules change you re-evaluate your decisions based on the new rules. Super isn’t any different. As my kids would say, get over it.

I do agree with that somewhat Graeme, but as per what Jack said above and the article, it has all but been set in stone by the current government that no changes would be made retrospectively - therefore the issue is a breach of trust. Gullible? Yes to believe them in the first place I guess but the country needs leadership it can actually trust and get behind to get confidence going in the economy - we've simply had too long without it, and this to me is another step backwards.

If two members of a SMF have say $1.5m in each account, what options are open to the remaining spouse should one partner die? What taxes on the withdrawal of on excess monies over $1.6m would apply should the remaining partner be only able to add $100k to their account?

People think this is about rich baby boomers bleating about a new tax. It isn't. It is about the people in their 40s and 50s who have just had their aspirations of a comfortable retirement taken away from them. These new caps on concessional and non-concessional contributions make it impossible to accumulate enough retirement savings.

They will never trust super or the meddling politicians again. This is a breach of trust.

Hi Jack, great comment. It shows this issue is not only old farts like me complaining because we've lost a generous benefit, but the super balances of the next generations are compromised.

"These new caps on concessional and non-concessional contributions make it impossible to accumulate enough retirement savings."

No they don't. Super is a tax structure, not an asset class of its own. You can still accumulate more than enough assets over a lifetime to be self funded in retirement. That was the case long before 1992 and will never change. The devil is in the detail as always and people are only now beginning to see that superannuation is a contract between two partners, you and the government. I've always found the legislative risk of entrusting my savings to the government to be unacceptable and so I don't contribute any more than necessary but at 33 I'm not one bit concerned that I won't have enough when I choose to leave the workforce. I might have to pay tax along the way, but is that so terrible?

That is the crux of these new rules. As an adviser I now have to warn every younger client that rules may be changed retrospectively so they have to hedge their bets with alternative back-up strategies.

To quote Alice in Wonderland, words mean what they say, no more or no less. Politicians defaulting into political pedantry treating the public as pawns, would be comic if they had not been herded into preserved savings. This has often meant paying capital gains taxes in moving listed securities as contributions in specie.

How about requiring both parties to legislate, for example, that any taxpayer found by ATO cheating on taxes can provide a copy of their un-lodged returns to prove all income was declared, it is just that the technical requirement to lodge the correct return was missed? The ATO would choke on it (and the Panama-listers would kill for it).

Ironical that in super, required to be held as trusts, trust has become a collateral casualty. The smoke we see on the horizon? It is the Keating vision going up!

A retrospective action is to undo what has been done. This policy would be retrospective if you were required to take out of super amounts about $500,000 (rather than not be allowed to keep adding amounts above the $500,000). To argue otherwise is ridiculous. Having said that, do I like it? Not one bit. Might it make me bit vote for the socialists? Perhaps it will.

But you are required to 'take out' amounts greater than $1.6m. Therefore it is retrospective

I structured my SMSF investment strategy based on no tax in pension mode. It is proposed to cap this at $1.6m going forward and have effectively signalled to independent retirees that they cannot be trusted to evolve consistent superannuation policy.The current arrangements should have been fixed for existing SMSFs.

Malcolm Fraser said people will be wiser hiding their money under the bed. If you cannot trust government to not pillage your nest egg..... either hide it under the bed or ... join the inevitable flight of capital overseas?

some retirees already have more than that in their ABP or are working towards having that. I believe any caps should be prospective - ie on new pensions commenced after a specific date, but that pensions in existence at that date should continue to enjoy exemption. Administratively complex, I know, but that is the nature of our super system

We cannot continue with the far to generous old system.

The rules obviously affect strategies that were implemented before the Budget - therefore they are retrospective.

So I'm a mug who throughout his working life, both pre and post compulsory super, made contributions so that I would, if I lived long emough, not call on the workers paying tax to fund my retirement years. Some years ago as I was contemplating retirement , my accountant warned me not to trust what politicians said as nothing was for ever, especially when spoken by said either side of parliament. Now comfortably retired and, fully self funded with hopefully a minimum of 20 years to live, I find my trust in politicians was foolish at best and downright stupid.

How can anyone plan if you have people such as we have making tax issues retrospective rather than grandfathered. I was a fool to save and should have simply bought the exotic sports car when it took my fancy, travelled to Aspen annually to ski the slopes.

Now a question to both sides: If you went intp a supermarket and at the checkout the operator advised you were to be charged a make up margin for goods bought since July 2007, what would be your reaction? You would not go back, would you!

Simple message to Shorten and Turnbull: get your sticky little fingers off of my hard earned savings because neither side is worth a vote.

Personally I take very little or no notice of what our local politicians say – before, during, or after elections. Not sure why anyone would. What ends up being legislated is important of course, but that could be months away, if ever, and even then it is full of trade-offs and modifications anyway.

Superannuation should be taken out of politics and only have amendments if there is bipartisan support and then agreed by an independent tribunal of some sort. Its just too important a piece of people's lives these days to have the issues we have with it and constant change. If there are trade offs to come, then it is poor politics to come out with the announcements all guns blazing, particularly after the 'no changes' rhetoric. It's really frustrating. I've done the survey - to me its retrospective.