Superannuation. It’s our nest egg for retirement, our funds for our declining years. Or is it?
Long-term financial security is, of course, the intention behind superannuation. But as the old saying goes, ‘the road to hell is paved with good intentions’ and there always seems to be someone looking to exploit well-intentioned planning for personal gain.
Business writer John Beveridge has pointed out such a case when it comes to superannuation. He has highlighted a ‘rort’ that has become prevalent in the retirement funding world. The word ‘rort’ appears in quotes here and in Mr Beveridge’s article because the practice – at least for now – is entirely legal.
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So what exactly is this ‘rort’? It is to build up superannuation funds to well in excess of what is actually needed for retirement and then use the tax-sheltered environment as an investment account to be withdrawn at some stage after reaching retirement age.
Is that such a bad thing? Well, no, not if you are wealthy. If you are under retirement age and wealthy, you can take advantage of the lower tax rates that apply to superannuation contributions by channelling a much higher amount than is necessary into your super.
For anyone whose earnings are in the top marginal tax rate, this would represent a huge drop in tax paid. Mr Beveridge says: “More than 11,000 people now have super balances above $5 million, which many super experts have said is far in excess of what could be required in retirement.”
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This does appear to be, on the surface, another case of ‘one rule for the rich…’ and that extends to the rich young. Mr Beveridge says there are 370 Australians below the age of 30 who already have superannuation accounts of at least $2 million each.
All told, there are roughly 80,000 Australians Mr Beveridge describes as “uber-wealthy” with self-managed super funds that are way above what is required to achieve a very comfortable standard of living in retirement.
What can be done to rein in this excess? Retail funds management company Mercer has weighed in on the debate, calling for the amount that can be saved within super to be capped at $5 million. Mercer senior partner David Knox said: “We know that the biggest beneficiaries of the current super tax concessions are, in fact, those that need it the least – high-income earners”.
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Under Mercer’s proposal, those with excessive super balances would be compelled to reduce their balance to $5 million by the age of 70 or 75, with a transition period available to avoid forced disposal of assets such as property.
Such an idea, however, is not one Labor is likely to embrace if elected in May, according to comments made last month by shadow treasurer Jim Chalmers.
But other organisations are joining the push for a $5 million cap, including Super Consumers Australia and the Australian Institute of Superannuation Trustees, and Dr Knox remains adamant: “Taxation support for super is there to enable Australians to maintain their living standards in retirement up to a reasonable level [and not] to support flamboyant lifestyles or estate planning.”
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