Category: Save Our Super Articles

High taxes, more regulation? Sounds like Turnbull’s Coalition

The Australian

26 August 2017

Judith Sloan

Picture the scene. It was this year’s budget lockup and I was trying to keep my head down. I made the mistake of reading the speech that would be delivered in a few hours. Now these speeches are generally vacuous drivel, but this year’s really set the bar at a new low. Scott Morrison would be speaking as if he were a Labor politician.

“We must choose to guarantee the essential services that Australians rely on. We cannot underestimate just how important these services are to people. We must tackle cost-of-living pressures for Australians and their families. We cannot agree with those who say there is nothing that the government can do.”

My god, I thought; the Treasurer is our father in Canberra and he is here to look after us. His likely defence is that the focus groups made him say this.

If that weren’t bad enough, the next instalment came after the entrance of the Treasurer to our room in the lockup. When confronted by some awkward questions about the case for the major bank levy, he quoted the title of the song: Cry Me a River.

In other words, he simply didn’t care that the new impost was ill-considered and economically damaging. He couldn’t even outline a sensible rationale for seeking to rake in more than $6 billion in four years from the four big banks and the Macquarie Group. That the burden of the tax would be borne by customers, shareholders and workers was but a passing consideration for our caring father. But his flock — again thanks to those focus groups — was telling him they didn’t like the banks. The logic is that if you don’t like them, he will impose a whopping new tax on them.

The only way I could get the Treasurer’s preferred song out of my head was to impose another one. And it went like this: you’ve lost that liberal feeling / bring back that liberal feeling.

To my mind, this aptly sums up what has happened to the Turnbull government. It has abandoned support for liberal ideas; for the centrality of individual responsibility. Malcolm Turnbull and other senior ministers increasingly reject the importance of competition and choice as the means of ensuring consumers get the best deal. Instead, they (erroneously) think more government regulation, aggressive bully­ing of businesses and trammelling on legitimate commercial arrangements are the way forward.

There are many — too many — examples and I will go through some of them. But here’s an important general point: if the Liberal Party wants to turn its back on its principles — and I haven’t even mentioned its general embrace of higher taxes and its botched superannuation initiatives — then voters are likely to turn to the real deal when it comes to the rejection of free market economics and install Labor.

Labor’s embrace of big government, high taxes and more regulation is also a repudiation of the Hawke-Keating legacy. But, let’s face it, Labor can concoct a form of words that goes with its retreat from those halcyon days; think fairness, inequality, helping minority groups and the like.

These slogans play less well in the hands of members of the Coalition government even though some of them, including the Prime Minister, laughably think they can lay claim to that much-distorted adjective, fair.

So let’s go through some of the anti-Liberal policy initiatives the Turnbull government has implemented or is proposing to implement. Of course, the major bank levy is right up there as one of the most preposterous.

That the Treasurer could keep a straight face telling us that he was instructing the Australian Competition & Consumer Commission to ensure that the banks didn’t pass the levy on to their customers was a truly amazing sight. What does he thinks happen to taxes? Does he think that businesses absorb the GST?

And how does Morrison’s dub­ious intervention square with the Treasury’s modelling on the revenue that will be gained from the levy, firmly assuming it will be passed on to customers and therefore not affect the banks’ profits? Otherwise, the revenue from the normal company tax paid by the banks would be reduced, and we couldn’t have that.

It is almost impossible to list the new regulatory interventions affecting the banking sector, most of them simply costly and likely to prove ineffective. There are regulators falling over themselves to impose higher costs on the banks.

Arguably, the cost of all these new, ongoing intrusions — think, in particular, the absurd banking executive accountability regime — will be higher than the alternative of having a royal commission into banking, which for political reasons the Liberal Party has done everything to avoid.

Then we go to the energy space. Here the government makes the mistake of openly expressing its reservations for undertaking a series of extraordinary anti-market interventions but proceeding notwithstanding.

Consider the decision to restrict the export of gas for which there had been previous government approval. Or consider the government’s determination to remove the right of the transmission companies to appeal the decisions of the regulator, overriding the basis of good governance of regulated industries.

And then, willy-nilly, the government agreed to 49 of the 50 recommendations of the Finkel review on energy security, even though many of them are ill-conceived and add up to a new layer of costly regulation on a sector that is already overwhelmed by a labyrinth of complex and inconsistent rules and regulations.

And because we don’t have enough energy agencies — there are dozens if you add in the state-based ones — another will be added: the Energy Security Board.

There is also the truly bizarre decision of the Coalition government to support the entreaties of the Nationals to re-regulate the sugar industry in Queensland, turning its back on the previous difficult and expensive decision to remove the single desk selling arrangement in that industry.

And what about the Treasurer’s decision to refuse to lower the prohibitive tariff on imported second-hand cars even though there will be no local manufacturing in this country from the end of the year?

Evidently, regional car dealers and parts suppliers were able to pressure the government to reject this clearly pro-consumer decision. Note that the importation of relatively new second-hand cars is commonplace in New Zealand and other countries, and causes no problems at all. Instead, the Turnbull government’s motto is: rent-seekers, come on down.

During the week, a senior member of the Turnbull government texted me to ask why I was so angry about the government. I’m not angry; I’m just bitterly disappointed. If the Turnbull government ever had a chance of convincing the electorate that it could govern well, it needed to stick with the principles it inherited from the Howard years. And those principles involved commitment to individual responsibility, competition, choice, low taxation and getting government out of the way as much as possible. On all scores, this government has been a complete flop.

Let’s face it, telling the voters that the government is here to look after us will always end in tears. Disappointment, frustration, enfeeblement — these are the likeliest outcomes.

Emphasis added by Save Our Super

Most superannuation nest eggs won’t save you from a pension

The Australian

25 July 2017

Judith Sloan

It won’t surprise anyone that I don’t regard myself as a victim — never have, never will. Can I also point out that one of the greatest
joys of my life has been bringing up children? I was lucky to be able to drive a balance between family and work.

So when I read the latest treatise bemoaning the shabby treatment of women in the workforce, I am generally uninclined to accept
the message or the recommendations at face value.

The recent topic has been superannuation and women. A study was conducted by think tank Per Capita and was funded by the
Australian Services Union. Note that the motto of Per Capita is Fighting Inequality in Australia. You get the drift.

It turns out that women’s superannuation balances are systematically lower than men’s, that the gap increases across the course of
working lives and that, at the age of 65, the average difference between men’s and women’s superannuation accounts is $70,000.

The median women’s balance immediately before retirement is less than $80,000. Mind you, the median men’s balance is only
$150,000. Anyone with these sorts of balances, and assuming a lack of other substantial assets (apart perhaps from a home), will
qualify for the full age pension and its associated benefits.

The authors of the study incorrectly describe the state of women’s superannuation as a wicked problem. A wicked problem is one
with inconsistent objectives and a lack of agreed information. This is simply not the case when it comes to women and

If there is a problem, it is the broader one related to the real purpose of compulsory superannuation. And this applies to both women
and men. For anyone on relatively low wages, all superannuation does is force them to accept reduced wages during their working
lives in exchange for possibly knocking off their full entitlement to the age pension. It’s a very bad deal.

Year after year these workers must forgo current consumption, which may now include buying a house but also help with the costs
of rearing children, meeting daily expenses and the occasional holiday, to be slightly better off when they retire. It really is a diabolic
trade-off for these workers, but from which they cannot escape.

So let’s return to the study. The reasons for women’s lower superannuation balances are obvious: on average, they earn less during
their working lives and they work less. This doesn’t mean that all women have low superannuation balances, just as this doesn’t
mean that all men have high superannuation balances.

Let’s take the working less bit first. Women are much likelier to work part time than men. In the most recent figures, women make
up 47 per cent of the workforce, a historical high. But almost half of women work part time, defined as those working 35 hours a
week or less, while only 18 per cent of men work part time.

Note, however, that the proportion of men who work part time has also been rising.

On this basis, it is hardly surprising that women’s superannuation balances are lower. They work fewer hours than men and hence
the wage on which their superannuation contribution (currently 9.5 per cent) is based is also lower.

But we shouldn’t forget that most women who work part time are doing so to balance their family and work responsibilities. And
many of these women quite rightly regard earnings and superannuation as a joint family product with both partners contributing to
the common pool.

It also should be noted that in the event of divorce, superannuation is regarded as an asset of the marriage to be divided up as part of
the financial settlement.

So what is the impact of the gender pay gap, an issue that attracts a lot of attention, most of it ill-informed?

At present, the difference between male and female earnings is about 16 per cent. It has fallen slightly as the mining investment
boom has come off and men have lost their high-paid jobs in that sector.

But the gross pay gap doesn’t tell us much about the explanations. After controlling for the many variables that affect earnings, such
as occupation, education, training, job tenure and the like, the pay gap narrows significantly, although it doesn’t reduce to zero.

But here’s the rub, at least for the Per Capita study and its sponsor, the Australian Services Union: the gender pay gap for low-paid
workers is explained entirely by wage-related characteristics. Moreover, the impact of minimum wages is to increase women’s
earnings relative to men’s.

So what should you make of the recommendations of this dubious study? In a word, they are ridiculous.

Let’s take the last one first — that the superannuation contribution be lifted immediately to 12 per cent. What the authors are saying
is that all workers must immediately forgo an additional 2.5 percentage points of their wage to augment their final superannuation
balance in several decades.

Then there are all sorts of silly suggestions for fleecing taxpayers some more to top up the superannuation balances that the authors
regard as inadequate.

But this makes no sense at all. After all, these low super balance workers will qualify for the full age pension, which in turn is fully
funded by taxpayers.

Why ask taxpayers to pay now when they will be forced to pay later?

Then there is the typical recommendation of these types of reports — add another government agency to the very long list of existing
agencies. In this case, the re-establishment of the largely pointless Office of the Status of Women is the suggestion.

For heaven’s sake, we already have the efficiency-sapping and senseless Workplace Gender Equality Agency whose work is of such
a poor standard that no one takes it seriously. But it doesn’t stop the agency from imposing more demands for information on
businesses every year.

In point of fact, there is a big issue here: what really is the justification for the system of compulsory superannuation? The central
rationale for superannuation was that it would replace the Age Pension and give workers a more comfortable retirement than might
have been the case.

Given the forecasts of the proportion of workers who will break free from the Age Pension during the next 40 years — it hardly
budges — the debate we should be having is whether we should ditch compulsory superannuation altogether.

Transcript of the ABC’s 7.30 Report interview of Save Our Super’s Jack Hammond QC and John McMurrick on Kelly O’Dwyer

Click here to view the ABC’s 7.30 Report interview of Save Our Super’s Jack Hammond QC and John McMurrick on Kelly O’Dwyer.

Following is the transcript of the interview:

ANDREW PROBYN, REPORTER: A little over a week into maternity leave for her second child, Kelly O’Dwyer’s enemies have struck and they are not afraid to spell out what they want.

JACK HAMMOND QC, ‘SAVE OUR SUPER’ FOUNDER: Kelly O’Dwyer, in my view, doesn’t deserve to be our local member.

ANDREW PROBYN: One of Malcolm Turnbull’s five women Cabinet ministers, Ms O’Dwyer, is being targeted by a group of rich and powerful constituents, still furious at the use of the Government’s changes to superannuation. They say the timing of their intervention is incidental.

JACK HAMMOND QC: It’s a complete, if you pardon the pun, misconception. It has got nothing to do with her being on maternity leave or otherwise. They gave birth to an appalling policy which is affecting thousands of Australians and not only now but in the future.

They are the people who they should be thinking about.

ANDREW PROBYN: The Government argued that only the very rich were affected and with Labor support, the changes passed Parliament last November, including a 15 per cent tax on earnings for super nest eggs worth more than $1.6 million.

KELLY O’DWYER, FINANCIAL SERVICES MINISTER: Superannuation isn’t simply a revenue grab. It is about making sure the system is sustainable. It is about making sure that it is fair and, above all, it is about making sure that it is flexible and it is about making sure that we look after all Australians, not just a few.

ANDREW PROBYN: One of those angered is Jack Hammond, a barrister who lives in Ms O’Dwyer’s leafy suburban seat of Higgins who quickly moved to set up the ‘Save our Super’ group. It held a rally during the election campaign that attracted a modest crowd but included some backers with deep pockets.

JACK HAMMOND QC: What may have been lacked in numbers, certainly made up in vehemence and anger.

JOHN MCMURRICK, FORMER LIBERAL MEMBER: No, it’s very unfair. It affects a lot of people. And they are crucifying not only those who made a bob, they’re crucifying hundreds of other people.

ANDREW PROBYN: John McMurrick, a former insurance broker, now property developer bristles at suggestions his opposition is out of self-interest.

JOHN MCMURRICK: We have got a campaign to try and help people who have planned for 30 and 40 and 50 years and their whole plans are thrown into complete confusion.

ANDREW PROBYN: Mr McMurrick a big party donor, quit as a Liberal Party member last year. But the push to unseat Ms O’Dwyer got new potency when Tony Abbott’s former Chief of Staff Peta Credlin, was mentioned in dispatches as a potential replacement.

JACK HAMMOND QC: She speaks very plainly. She is a very intelligent person and thus far she hasn’t broken any promises to this electorate and the Australian people.

ANDREW PROBYN: Ms Credlin, no ally of Ms O’Dwyer, was slow to dispel the story, saying at first she had not been formally approached to run in Higgins.

But by Sunday when the optics of moving on a Cabinet minister on maternity leave sunk in, she made it clear.

PETA CREDLIN, TONY ABBOTT’S FORMER CHIEF OF STAFF: Regardless of whether it is Kelly O’Dwyer or anyone else, I don’t think challenging sitting members is a good look. It certainly is not something that is rewarded in the Liberal Party.

ANDREW PROBYN: As the minister with responsibility for superannuation, Kelly O’Dwyer is feeling the heat for a collective Cabinet decision made almost a year ago, but the undermining of her just days after giving birth is very ordinary indeed.

And that’s only half of it. Ms O’Dwyer is at the pinch-point in an increasingly toxic Victorian Liberal Party division.

She’s caught up in a factional war, involving state party president Michael Kroger. It’s a split that could have implications beyond Victoria.

STEPHEN MAYNE, FORMER LIBERAL STAFFER: Michael Kroger is a very controversial figure. He is the President. There was a failed coup against him recently involving Peter Reith as an alternative candidate, which was backed by all of the old Peter Costello supporters like Kelly O’Dwyer and was also backed by the Victorian state Liberal Leader Matthew Guy. And obviously there is a state election in Victoria next year. So, it is the Kroger versus the rest forces at work.

MICHAEL KROGER, VICTORIAN LIBERAL PRESIDENT: I don’t comment on Liberal Party preselections. That is a matter for branch members. We had this trouble recently in the Victorian party, where various MP’s were commenting on the presidency. And that goes down extremely badly with branch members.

ANDREW PROBYN: Former Howard government member Peter Reith suffered a stroke in late March, forcing his withdrawal from his challenge for the presidency. Kroger loyalists say that their man would have won anyway. Perhaps by as many as 150 out of 1150 votes. The Reith camp says that’s rubbish and Stephen Maine, a former Liberal staffer, agrees.

STEPHEN MAYNE: Matthew Guy, coming out publicly and endorsing Peter Reith was the decisive factor in that contest and many believe that Reith would have won because Kroger was on the nose.

ANDREW PROBYN: Liberal insiders say there is a real prospect of tit for tat preselection challenges between the Conservative and moderate wings of the Liberal Party and not just in Victoria.

Tony Abbott is facing a possible challenge in Warringah and his staunch ally Kevin Andrews will likely face a fight for his safe seat of Menzies. Ironically was once touted as a seat fit for Peta Credlin.

STEPHEN MAYNE: It might be a case of leave Tony Abbott alone or we will proceed with this challenge against Kelly O’Dwyer and it might be that the Abbott forces are looking for a bit of peace based on “you wouldn’t want a war, would you?”

ANDREW PROBYN: Not that any of this would particularly perturb any of those who have their own personal beef with the Liberals.

JACK HAMMOND QC: It is not rich people intervening to protect themselves. It’s people who have relied on promises of government over decades, who have done nothing more than obey the law and then on budget night without any forewarning, you are suddenly sprung with a completely changed policy.

The way in which it is framed is, this will only affect a few wealthy people. How puerile, really.

JOHN MCMURRICK: They will never raise any money until they get the trust of the people back. They have lost the trust of their constituents and they will find this out at the next election. Now we have heard from some politicians, the way it is looking, we will lose 20 seats at the next election. What a mess.

Government push for income retirement products mired in division

Australian Financial Review

14 July 2017

Alice Uribe

The idea behind it is simple: Australia needs a way to ensure retirees do not outlive their savings. The solution sounds simple too: Create a suite of products that can provide a minimal additional level of income or a guaranteed level of income, with the expectation that it will stay constant (in real terms) for life.

But the path to creating the federal government’s Comprehensive Income Products for Retirement regime (also known as MyRetirement) is proving anything but smooth. Many believe what the government has come up with is at best unworkable and ineffective, and at worst unnecessary .

The peak body for the superannuation industry, the Association of Superannuation Funds of Australia, says in its 27-page submission to the inquiry into CIPRs that the framework “as currently designed … is neither necessary nor sufficient to achieve its stated objectives”.

KMPG’s superannuation director Katrina Bacon is blunt. She doesn’t believe many retirees will embrace the annuity-style products the regime envisages.

“I believe the launch of retirement products will continue to be a slow burn. From the individual’s point
of view, the framework does little to address the impediments to members taking them up,” she says.

Private pension
With the majority of super funds’ memberships soon to stop working, a so-called private pension product could well become their most important product offering.

This move towards the CIPRS framework stems from people’s uncertainty over how to make their retirement funds last across an impossible-to -predict lifespan.

Statistics show that 50 per cent of males currently aged 65 will die before 85, while 50 per cent will live longer and many will hit the ripe old age of 100.

“Because of the uncertainty, many retirees scrimp and save, and live on the minimum drawdown from their superannuation assets, driven by the fear of running out. As a consequence their lifestyle in retirement is curtailed and bequests are high,” Bacon says.

Those who are well-off can draw down the minimum amount from their super pension, keeping it in a tax-free environment.

“But for the population in between – who have a reasonable amount of super savings that can usefully supplement the age-pension and non-super assets – the challenge is how to spread this amount over retirement,” she says.

Super funds began thinking about the particular issues faced by retirees as far back as 2009, with ING becoming the first to market with a product that provided a guaranteed income for life. But these products have received a mixed reaction because of their cost and the challenge of explaining them.

Default offering
“The importance of this issue has increased as the number of retirees has grown. The concept of a MySuper-style default offering in retirement was contemplated as part of the Stronger Super reforms but was not implemented,” says Bacon.

“It was raised again as a recommendation of the 2014 Financial System Inquiry, eventually leading to the government’s release of the CIPRs framework for industry consultation.”

Treasury manager, retirement income policy division, Darren Kennedy told a Financial Services Council forum in May that the CIPRs framework aims to balance flexibility and risk by combining products like an annuity and an account-based pension.

Kennedy says the CIPRs framework is not intended to compel retirees to take up a certain retirement income product, to encourage annuities, to eliminate bequests for super or replace the need for financial advice.

Burden for retirees: Monitoring $1.6 million transfer balance cap

The linked article,, originally appeared at – a free Australian website for simple superannuation and retirement planning information. Trish Power is also the author of DIY Super for Dummies, Age Pension made simple, and many other books on retirement, and investing.

Burden for retirees: Monitoring $1.6 million transfer balance cap

 March 29, 2017 by Trish Power
The linked article reproduced with permission from Trish Power and Trish Power.The linked article,, originally appeared at – a free Australian website for simple superannuation and retirement planning information. Trish Power is also the author of DIY Super for Dummies, Age Pension made simple, and many other books on retirement, and investing.

SMSFOA Members’ Newsletter #4/2017 10 May 2017

 SMSFOA Members’ Newsletter

# 4/2017         10 May 2017

In this newsletter:

  • More detail on Budget measures
  • A super incentive for downsizers
  • But levy on banks may be a pain for SMSFs
  • And more complication for those with LRBAs

The morning after…

Last night we sent members a brief email with key points from the 2017-18 Budget. We’ve now delved deeper into the budget and have more detail on the measures relevant to SMSFs.

The first obvious point to make is that this year’s budget does not contain any nasty surprises for SMSFs. That’s a relief after last year’s shocker.

The budget contains an incentive for older Australians to downsize their homes, which may be attractive to some SMSF owners; but there’s less welcome news in the form of a new levy on bank deposits over $250,000 that may have a flow-on impact.

Incentive for downsizers

From 1 July 2018, individuals over 65 will be able to make a non-concessional contribution of up to $300,000 to their superannuation from the proceeds of the sale of their principal place of residence which they have owned for more than 10 years. Typically, a couple will be able to top up their super by $600,000.

The contribution can only be made to your untaxed pension account if you have a transfer balance of less than $1.6 million. If that’s the case, you can top up your unused cap space.

Otherwise, the contribution goes into your taxed accumulation account.

There’s no age limit (normally you can’t make contributions over 75) and no work test.

However, there’s very little information in the Budget about how the ‘downsizer’ incentive will work, including a definition of ‘downsizing’. We assume ‘downsizing’ will be a one-off option but this is not stated.

Some general information is in the Treasury Fact Sheet at the end of this newsletter.

The ‘downsizer’ option is an interesting move that may encourage some older people to sell their home and move to a smaller one though it may mean moving value from an untaxed asset (principal residence) to a taxed asset (accumulation account). There are also transaction costs (stamp duty and agent’s fees) to consider. It remains to be seen whether the incentive for downsizing will add to demand pressure on middle market housing as both downsizers and homebuyers compete for the same housing stock.

Super saving incentive for homebuyers

This measure probably won’t be relevant to most SMSF owners.

To help people save to put a deposit on a house, they will be able to contribute up to $15,000 a year and $30,000 as a concessional contribution to their superannuation fund.

However, these savings must be within the existing $25,000 per year concessional contributions cap.

This super earmarked for a house purchase can be withdrawn when members are ready to buy. Withdrawals will be taxed at marginal rates less 30%.

It will mean more administrative work for the major funds.

Perhaps the Government will now amend its objective of superannuation legislation to say the purpose of super is to “substitute and supplement the age pension…and help to buy a house”.

Levy on banks not good for SMSFs

Among a raft of measures aimed at the big banks, a levy on deposits that will raise $6.2 billion over four years is not particularly good news for SMSFs. This new cost to the banks will likely be met either through reduced profits and dividends or increased bank fees.

Speculation that banks would be hit drove down their share prices yesterday ahead of the Budget from which they did not recover today.

Typically, SMSFs are large holders of bank shares and some have sizeable deposits with the banks.

The new levy will apply not only to deposits but also to similar products such as corporate bonds, commercial paper and certificates of deposits.

The Budget says the new bank levy will not apply to deposits protected by guarantee, that is up to $250,000. The median SMSF deposit with banks is $293,000 so some will be affected. The average SMSF deposit is $105,000.


Borrowings to be grossed up for cap limits

There’s a new rule for SMSFs that borrow to purchase assets through limited recourse borrowing arrangements (LRBAs).

The Budget says:

“From 1 July 2017, the Government will improve the integrity of the superannuation system by including the use of limited recourse borrowing arrangements (LRBA) in a member’s total superannuation balance and transfer balance cap.

Limited recourse borrowing arrangements can be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation phase to the retirement phase that is not captured by the transfer balance cap. The outstanding balance of a LRBA will now be included in a member’s annual total superannuation balance and the repayment of the principal and interest of a LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.

This measure will ensure the 2016‑17 Superannuation Reform Package operates as intended and is estimated to have a gain to revenue of $4.0 million over the forward estimates period.”

It is not clear exactly what mischief this measure is intended to prevent but the revenue leakage is evidently not significant as the Government expects to raise only $4 million over the next four years. But it will complicate matters for some of the minority of self-managed funds that borrow to invest in assets to grow their retirement savings, typically small business owners who buy the property from which they run their business.

We recently expressed concern to Treasury about draft legislation giving effect to this measure because it means that gross rather than net (after interest) borrowings will be used in working out the $1.6 million balance caps. Practitioners tell us it may mean that some people relying on non-concessional contributions to help pay off their loan will not be able to do so if they exceed the $1.6 million caps when the gross value of their loan is counted.

Another integrity measure in the Budget that makes more obvious sense is to prevent dealings between related parties on a non-commercial basis. For example, if business owners are renting premises from their super fund, it must be on a commercial basis.

This measure to enforce the existing rules is expected to raise $10 million over four years.

Budget Fact Sheets

Fact Sheets can be found here:

For the Fact Sheet explaining generally how the ‘downsizer’ incentive will work, see below.


SMSF Members’ Newsletter #4 2017

10 May 2017


7.30 Report interviews Save Our Super on Kelly O’Dwyer – 24 April 2017

Click here to view the ABC’s 7.30 Report interview of Save Our Super’s Jack Hammond QC and John McMurrick on Kelly O’Dwyer.

Click here for the transcript of the interview.

Save Our Super submission cover letter to Tony Shepherd AO – The Shepherd Review

Mr Tony Shepherd, AO
The Shepherd Review
Menzies Research Centre
R G Menzies House
Cnr Blackall and Macquarie Streets BARTON ACT 2600
PO Box 6091

Dear Mr Shepherd

Save Our Super submission on retirement income reform

We write on behalf of Save Our Super in response to the invitation in your Review Panel’s Statement of National Challenges of 27 March 2017:

The Review Panel now calls for submissions in response to the Statement of National challenges. Submissions will inform the drafting of the options papers which are due in June 2017. We seek submissions with a view to building consensus and agreement on the pivotal challenges. Submissions close on 12 May 2017. (p 1)

Our submission relates to your Panel’s forthcoming options papers 2 and 3, and the comment in the Statement of National Challenges that:

The 2015 Intergenerational Report showed even after 50 years of compulsory superannuation there is no significant reduction in the number of Australians drawing on a publicly funded pension. In 2050, some 80 per cent of Australians beyond retirement age will be entitled to the Aged Pension in full or in part. It represents almost no change to today’s call on the public pension system which costs Australia $44 billion in 2015-16. (p 11)

About Save Our Super

Save Our Super was formed in response to the Coalition Government’s superannuation tax increases and regulatory complications announced in the 2016 Budget. We have made extensive submissions on the Government’s regulatory package during its rushed consultation processes. Those submissions are available at the Save Our Super website, and the attachment to this letter draws on material from those submissions relevant to your Panel’s work.[1]

Since the formation of SOS, the interaction of the restrictions in the 2015 Budget on the age pension asset test with the restrictions in the 2016 Budget on superannuation have become clear. Although intended to make retirement income policy less costly, the interaction will instead likely cause retirement income policy to become unsustainable. This will necessitate more policy changes which will have to be carefully designed to rebuild trust and confidence in both the age pension and superannuation.

A summary of our key points follow, with page references linking to the detailed explanation in the attachment.

Key Points

  1. Australians expect to be able to enjoy rising living standards in retirement by building their life savings in a trustworthy and predictable system. Proposals to reduce the demographic challenges and budget costs from the retirement income system (both the age pension and the compulsory and tax-assisted superannuation system) should be designed to meet those expectations, or they will be unlikely to be politically acceptable. (p 1)
  2. The pension and superannuation systems modelled in the 2015 Intergenerational Report cited at p 11 of your Statement of National Challenges were essentially those implemented in 2007 as a result of the well-researched and carefully modelled Simplified Superannuation System, introduced after extensive public consultation. (p 3)
  3. The 2015 Budget changes in the age pension means test reversed a 2007 adjustment designed to reduce reliance on the full age pension and encourage saving that would lead to transition, over time, through partially self-funded retirement with some recourse to the part age pension to more fully self-funded retirement. (p 2)
  4. The 2016 Budget changes in superannuation were introduced without appropriate grandfathering provisions, without published modelling, and with extremely rushed consultation. They have consequently destroyed trust and confidence in superannuation as a uniquely long-lived, legislatively-restricted repository of lifetime savings to finance increasingly long life expectancies and periods of retirement. (p2)
  5. Saving in superannuation is therefore now more risky. The new rules are less credible and durable in the public eye than those they replace, and attempts to create innovative retirement income products for the distant future lack all credibility. (pp 2,3)
  6. The 2015 Budget’s restriction in the age pension asset test interacts, perhaps unintentionally and certainly without any official, published modelling, with the 2016 Budget’s restriction on superannuation. Jointly they create from 1 July 2017 a very wide ‘savings trap’ which significantly discourages additional saving over time for wholly self-funded retirement. The changes perversely encourage limiting superannuation savings and increasing persistent reliance on a part age pension. (pp 5,6)
  7. APRA data on voluntary saving in super suggest the discouragement to super contributions is already marked. (pp 10-11)
  8. The placement of that wide ‘savings trap’ is likely to be of great practical relevance to many mid-career superannuation savers and those nearing retirement: it falls right where many males’ super savings balances end up. (p 6)
  9. The prospect for wholly self-funded retirement and reduced reliance on the age pension is, therefore, now worse than in the 2015 Intergenerational Report and its modelling that you cite. Moreover the very healthy trend (not emphasised in your Statement of National Challenges) of an evolution over time from reliance on the full age pension to transitional reliance on a combination of declining part age pension with rising superannuation savings will likely halt. The new rules make it irrational to save over about $200,000 to $340,000 in superannuation, unless one can envisage saving over $1,000,000 — a vaulting ambition rendered much more difficult by the 2016 Budget’s restrictions on concessional and non-concessional contributions to superannuation. (p 8)
  10. There is published Treasury modelling using RIMGROUP of the long term effects of the 2007 Simplified Superannuation system showing likely trends to 2049. But there is no equivalent publicly available modelling of the net effect over time of the complex and perverse interactions of the 2015 Budget age pension means test restriction with the 2016 Budget superannuation restrictions.[2] Future retirement income reform should require clear, publicly available modelling such as foreshadowed in the construction of Treasury’s new MARIA model. (p 5)
  11. The necessary urgent reforms of the misguided 2015 and 2016 Budget changes should rebuild trust and confidence in the retirement income system by using the grandfathering principles that served Australia well for the last 40 years. (p 12)
  12. Until trust is re-established by adopting appropriate grandfathering principles, it is futile for the Government to load new incentives on to superannuation – for example to develop deferred income products, or to encourage savings towards first home ownership. If savers cannot trust existing legislated incentives which they have lawfully followed to build their life savings but are instead abused as tax minimisers and estate planners, why should they respond to new incentives which are equally open to be altered in future with effective retrospectivity?

If you would find it useful, we are happy to meet with your Review Panel to discuss these issues further at your convenience.

Kind regards,

Jack Hammond, QC                                        Terrence O’Brien, B Econ (Hons), M Econ

[1] Save Our Super’s submissions to Treasury’s exposure drafts one, two and three of the legislation, and to the first of two inquiries by the Senate Economics Legislation Committee chronicle the absurdly rushed ‘consultation’ processes for all but the last of these five opportunities for comment.

[2] RIMGROUP is a cohort projection model of the Australian population, which starts with population and labour force models. The model tracks accumulation of superannuation, estimates non-superannuation savings and calculates pension payments and the generation of other retirement incomes (after taxes). Such modelling needs to be extended over decades to capture the lifetime impacts of changes in the super guarantee and changing super incentives and age pension rules.

Click here for the Save Our Super submission to the Shepherd Review dated 12 May 2017.

Superannuation changes in Budget 2017-18 Treasury Budget Paper No. 2

On 9 May 2017 Treasurer Scott Morrison delivered the Coalition Government’s 2017-18 Budget. We have set out below the three superannuation changes announced by the Treasurer.

In Save Our Super’s opinion, the Coalition Government has undermined Australians’ trust in superannuation and created uncertainty by not providing appropriate grandfathering provisions in last year’s (2016-17) Budget changes. Therefore Save Our Super doubts  there will be a substantial take-up of the Proceeds of Downsizing to Superannuation Scheme and/or the First Home Super Saver Scheme, when Australians realize there is no certainty that their superannuation savings are safe from future Governments’ adverse changes.

Budget 2017-18 Treasury Budget Paper No. 2 – PDF download – Page 28:

Budget Measures 2017-18—Part 1: Revenue Measures

Reducing Pressure on Housing Affordability — contributing the proceeds of downsizing to superannuation

Revenue ($m)

2016‑17 2017‑18 2018‑19 2019‑20 2020‑21
Australian Taxation Office .. ‑10.0 ‑20.0

The Government will allow a person aged 65 or over to make a non‑concessional contribution of up to $300,000 from the proceeds of selling their home from 1 July 2018. These contributions will be in addition to those currently permitted under existing rules and caps and they will be exempt from the existing age test, work test and the $1.6 million balance test for making non‑concessional contributions.

This measure will apply to sales of a principal residence owned for the past ten or more years and both members of a couple will be able to take advantage of this measure for the same home.

This measure reduces a barrier to downsizing for older people. Encouraging downsizing may enable more effective use of the housing stock by freeing up larger homes for younger, growing families.

This measure is estimated to have a cost to revenue of $30.0 million over the forward estimates period.

Budget Measures 2017-18—Part 1: Revenue Measures

Budget 2017-18 Treasury Budget Paper No. 2 – PDF download – Page 30:

Reducing Pressure on Housing Affordability — first home super saver scheme

Revenue ($m)

2016‑17 2017‑18 2018‑19 2019‑20 2020‑21
Australian Taxation Office ‑50.0 ‑60.0 ‑70.0 ‑70.0
Related expense ($m)
Australian Taxation Office 2.8 2.1 1.8 1.6
Related capital ($m)
Australian Taxation Office 1.2

The Government will encourage home ownership by allowing future voluntary contributions to superannuation made by first home buyers from 1 July 2017 to be withdrawn for a first home deposit, along with associated deemed earnings. Concessional contributions and earnings that are withdrawn will be taxed at marginal rates less a 30 per cent offset. Combined with the existing concessional tax treatment of contributions and earnings, this will provide an incentive that will enable first home buyers to build savings more quickly for a home deposit.

Under the measure up to $15,000 per year and $30,000 in total can be contributed, within existing caps. Contributions can be made from 1 July 2017. Withdrawals will be allowed from 1 July 2018 onwards. Both members of a couple can take advantage of this measure to buy their first home together.

This measure is expected to have a cost to revenue of $250.0 million over the forward estimates period. The Government will provide $9.4 million to the Australian Taxation Office to implement the measure.

Budget Measures 2017-18—Part 1: Revenue Measures

Budget 2017-18 Treasury Budget Paper No. 2 – PDF download – Page 33:

Superannuation — integrity of limited recourse borrowing arrangements

Revenue ($m)

2016‑17 2017‑18 2018‑19 2019‑20 2020‑21
Australian Taxation Office .. .. 1.0 3.0

From 1 July 2017, the Government will improve the integrity of the superannuation system by including the use of limited recourse borrowing arrangements (LRBA) in a member’s total superannuation balance and transfer balance cap.

Limited recourse borrowing arrangements can be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation phase to the retirement phase that is not captured by the transfer balance cap. The outstanding balance of a LRBA will now be included in a member’s annual total superannuation balance and the repayment of the principal and interest of a LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.

This measure will ensure the 2016‑17 Superannuation Reform Package operates as intended and is estimated to have a gain to revenue of $4.0 million over the forward estimates period.

The SMSF Owners’ Alliance Members Newsletter

The SMSF Owners’ Alliance Members Newsletter dated 10 May 2017 provides:

  • More detail on Budget measures
  • A super incentive for downsizers
  • But levy on banks may be a pain for SMSFs
  • And more complication for those with LRBAs (Limited Recourse Borrowing Arrangements)

Click here for the newsletter

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