Baby Boomers prove masters of the superannuation tax scare

The Weekend Australian

April 29 – 30 2017

Peter Van Onselen – Contributing Editor

We are entering an era likely to be defined by an intergenerational standoff. Baby boomers are retiring en masse, with the political power that comes from a demographic bubble. The remaining generations who are of working age face increasing pressures courtesy of an expanding gov­ernment remit, which of course needs to be paid for through ­higher taxes.

Australians are living longer than ever, and the generation retiring now is the largest ­cohort in history. The financial costs of an ageing population are significant, even if living longer is a problem we all hope to confront.

There are more baby boomers than any other generation alive, despite their age, which gives them enormous political power — delivered to an activist generation who knows how to use it.

The battleground in focus is superannuation, and ­within the Victorian division of the Liberal Party it became open warfare this week when cabinet minister Kelly O’Dwyer was attacked ­repeatedly for having the temerity to reform superannuation — reforms, incidentally, that after the election last year (and admittedly after a little tinkering to get the settings right) were applauded by the partyroom. Those who claim dissatisfaction with the changes overstate their case.

We need to be clear when outlining just how insignificant the changes to super have been for most Australians. Ignorance is driving much of the fear in this ­debate.

While baby boomers are, as already mentioned, retiring en masse, most will continue to pay absolutely no tax on earnings in their superannuation accounts. That is the political reality. When I say most, we are talking about upward of nine of out 10 retirees living off their superannuation savings, and that’s before considering all those other over-60s living off the pension.

A small number of retirees will be required to pay a very small share of tax, courtesy of the ­reforms the government ushered through soon after the election last year.

The changes have left a rhetorically loud (if numerically small) grouping of elites very ­unhappy. They believe that years of earning huge salaries, and presumably often minimising their taxes when doing so, have earned them the right to pay no taxes whatsoever in retirement — notwithstanding the costs an ageing society im­poses on the rest of us in policy areas such as health.

Let’s put what they are collectively moaning about into context. How dare O’Dwyer support ­reforms that would see a 15 per cent tax on superannuation invest­ment earnings beyond the earnings on the first $3.2 million invested by couples (half that for individuals). That, according to O’Dwyer’s critics, is an unacceptable reform. I say it continues to be an unbelievably low rate of tax.

Assuming low investment ­returns of 5 per cent a year, $3.2m invested would return at least $160,000 each year. No tax is paid on that by retirees, not before the changes the government made and not after them. All that happens now (which did not happen before) is that 15 per cent tax is paid on any additional earnings. The principal ($3.2m or greater) is not taxed, which is important to be aware of.

So if you have super earnings of $200,000 each year, you now pay the whopping tax total of $6000.

Compare that with every generation X, Y or Z person paying marginal tax rates on their ­income earnings.

And if they are able to save money each year ­towards a home or investment loan, consider what they pay in tax on the earnings from those savings. Such taxes are levied at the marginal income tax rate their earnings fall into.

For example, if you earn $180,000 a year, you have just hit the top marginal tax rate (close to 50c in the dollar when levies are factored in).

If you manage to save $20,000 towards a home deposit, and invest it in a savings account earning you 5 per cent interest, you make $1000 after one year to help top up your deposit.

But ­because your interest earned is taxed at the top marginal rate, you effectively lose $500 of that $1000 interest earned — money that can go into government coffers to help fund the ageing of the population.

It doesn’t seem very fair, does it, when the baby boomer earning $200,000 on their super every year is paying only $6000?

Unbelievably, however, this debate isn’t about whether those baby boomers should pay more tax. Neither major party is suggesting that. The debate is about whether O’Dwyer should be challenged in her electorate of Higgins because she had the temerity to impose any taxes at all on superannuation earners.

This is how broken our political debate has become, and it’s also a sign of how powerful the baby boomer generation is politically. Not that the superannuation changes should exercise the minds of most baby boomers ­because, as already mentioned, the overwhelming majority of them simply are not affected by the government’s new taxes.

Critics of O’Dwyer are out of touch and driven by financial self-interest, yet they are scaring retirees unaffected by the minimal super tax changes into thinking the government is stealing from them — harming the financial ­viability of their retirement.

In irony of all ironies, there are polemic advocates from generations X, Y and Z who do the bidding of elite cohorts among the baby boomers, misunderstanding the changes or happy to attack political enemies such as O’Dwyer when they should know better as policy analysts. It’s so lowbrow.

As an addendum to the far more important policy ramifications of this whole debate canvassed above, I was criticised during the week by Peta Credlin (a colleague on Sky News) for not giving her the opportunity to comment within a comment piece I wrote for this paper. The piece criticised her for fuelling the story that O’Dwyer might be challenged for preselection.

I took the view, as a chair of journalism at a Go8 university, and aware of this newspaper’s editorial guidelines, that seeking comment for a comment piece isn’t necessary (news flash: it’s required for news stories, not comment pieces).

Peta and I can agree to disagree on the matter, but I do note that the following day she wrote her own comment piece on super, taking aim at O’Dwyer. So why wasn’t O’Dwyer given the opportunity to comment for that piece? Not that offering her such an opportunity is required, of course.

Peter van Onselen is a professor at University of Western Australia and a presenter on Sky News

Four selected comments (from 518 comments):


Out of all the whinging, the retrospective whinge is by far my favourite whinge. The golden rule is to highlight the hypocrisy of the whinger. It’s no good debating them on definitional grounds – They’ll never agree. To rebut the whinger who relies on the ‘retrospective’ changes, ask them the following –

Did they make the similar complaint in 2006 when Costello made all outputs from super tax free? Changes to super in 2006 weren’t grandfathered so clearly the changes were ‘retrospective’ in nature. Did the whingers of today whinge then too?

Enjoy the blank stare that lingers from the face of the (now silent) whinger…..


@Paul  The history which has shaped voters expectations for the last 40 years is that significantly adverse changes to people already retired/on a pension, or too close to retirement to change their plans, were ‘grandfathered’.  That has been the case since the Asprey Inquiry commissioned by Whitlam and reporting to Fraser set out the principles:  people who counted on lawful incentives in their decisions should not be undercut by changes after they can no longer change their plans. Beneficial changes, obviously,  need not be grandfathered. Indeed, if the point of those beneficial changes is to induce more saving, they should have effect as soon as possible, as it takes decades for super savings to accumulate.

Simple enough for you, Paul, or do you have a lingering blank stare?

Those principles served Keating and Costello well, and are also advocated by Shorten in respect of the proposed restriction on negative gearing.  Only the present government has trashed those principles.



Sorry to be the bearer of bad tidings, PVO [Peter Van Onselen], but your one-dimensional and uninformed commentary on super sadly reveals you don’t understand that he disaster inflicted by the Government on Australia’s retirement income system in 2017 is much, much wider than the $1.6m cap that is the sole focus of your article.

First, with effect from 1 January 2017, the 2015 Hockey budget reversed Treasurer Costello’s well-founded 2007 reduction in the taper on the age pension means test.  The increased taper gives such a high effective tax rate on extra dollars saved in super that it has created a very wide super saving trap.  It is now illogical to save additionally in super between about $200,000 and $700,000:  your super income in retirement goes up by no more, and sometimes less, than your part age pension comes down. The width of this super saving trap has important practical implications: the average male super balance for those in the peak saving to retirement years of 50 to 65 was around $200,000 to $300,000 in 2013-14.

Second, the Morrison/O’Dwyer changes to super in the 2016 Budget significantly reduce on 1 July 2017 the permissible concessional and non-concessional caps on contributions to super. This reduces the ability of any saver to hurdle the super saving trap, and greatly increases the time it would take to do so. To understand the implications of these problems better, read your colleague Tony Negline’s columns.  He and every financial adviser in Australia understands the Government’s anti-super message clearly, and savers’ behaviour will change accordingly.

Third, the 2016 Budget’s central concept of a $1.6 million General Transfer Balance Cap which you support is absurdly complicated, with its extravagant ornamentation of Personal Transfer Balance Caps, Transfer Balance Accounts, Total Superannuation Balance Rules, First Year Cap Spaces, Crystallised Reduction Amounts, Excess Transfer Balance Earnings and Excess Transfer Balance Taxes. In 2006, Treasurer Costello explained how to simplify an excessively complex super law which taxed retirement income in up to 8 different parts in 7 different ways in just 144 paragraphs in his measure’s Explanatory Memorandum. In 2016, the corresponding part of Treasurer Morrison’s re-complication of the taxation of retirement income took 379 paragraphs, about 160% longer.  Australia’s super laws are now more complicated than they were in 2005.

Your benchmark for judging tax on super in retirement is apparently the marginal rate paid by gen X, Y and Z on their current incomes. But super savers also paid the relevant marginal rates on their lifetime earnings and on the income from their savings. The front-loading of progressive tax on nominal saving discourages saving, and discourages it more the longer the saving is held.  Super savings are, compulsorily, the longest held savings of all.  That is why it is perfectly defensible for there to be zero tax on the drawdown of those savings.  That is just like your paying zero tax at the ATM when you withdraw from your savings account.

In February 2016, Scott Morrison rightly cautioned against what he called the ‘effective retrospectivity’ of raising taxes or restrictions on the pension phase of super after attracting and trapping savings in super for some 40 years under the earlier legislated tax rules.  Then in May 2016, he did just that. By failing to use the grandfathering that has accompanied every major adverse change in pensions and super tax for the last 40 years, the Government has destroyed confidence and trust in the retirement income system. It is unclear whether Morrison and O’Dwyer have any idea, even today, of the interaction of their package with Hockey’s. Certainly there is no public Treasury modelling of the effects on the costs of the pension and super system over time, unlike the modelling available on the Costello package.

If you think this policy train wreck is merely opposed by ‘rhetorically loud (if numerically small) elites’, you (and the Government) are in for a big surprise.


Peter [Van Onselen] is talking coddswallop! What he ignores is that the baby boomers paid enormous tax rates during their lifetimes, marginal rates of up to 60% or at least 50%, they paid their taxes, like me paid to go to University, and did not have Childcare subsidies. They worked dammed hard, put off children until they could afford them. They paid supertax on entry, during the Accumulation, and the Pact with Govt was that their Nest Egg would not again be raided on exit, nor would the Earnings.

I am an Accountant, and the sheer complexity of the SMSF system imposed is so complex, that it adds another $3,000 to each Superfund with over $1.6M which is not unusual with a lifetime of savings accumulated for a 67 – 70 year old baby boomer.

The Legislatin is equipped with so many land mines that unintended error carrys punitive penalties, if disregarded, unintentionally or not, means ultimately the ATO removes the pension taxfree status and converts the Account balance to 100% taxed Accumulation balance.

This is the Generation that saved Australia in the Vietnam War, built infrastructure with their bare hands, gave their children benefits they never had. They are angry and offended that the increased complexity now introduced to their Super Accounts means they can no longer manage their Super peacefully by themselves – they have to hire experts who even they are unsure of the new hastily assembled Rules will work.

Now given that Peter maybe tied to a University, it is also galling to us that many Universities are paying their full time staff a 17% Super employer levy on top of salary when the rest of the poor sods in the Private Sector are paid lower caps of 9.5% Super Guarantee Levy.

Inequality and unfairness is making the baby boomers furious. Given that the Government and Mandarins in Public Service and PMOs office example – Martin Parkinson who can take a $850,000 wage plus a hugely unfair defined benefit Super Pension guaranteed without market risk which the rest of us can only dream of. Given Baby Boomers personally risked the markets, have now twice or thrice taxed after taxed savings nest eggs in Retirement Accounts have earned the right to retain tax free earnings in the twilight of their years.

Who I wonder is Peter Van Olsen being paid by to write these biased Articles?

Lastly I want to return to the thought that the Baby Boomers born out of the end of the Second World War learned life lessons from their parents, were frugal, paid taxes, spent what they could afford and respected their Generation. Now they are vilified by a Canberra Press for Political Gain. I suppose it is not a far call for Mr Van Olsen to demand that our 90 year old Second World War Veterans give up their Gold Cards, Pension Cards and Veteran Affairs free Hospital and Carers and pay tax too like their Children are being asked to now.