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Budget Superannuation Horror Story

As we all know, the annual Budget presentation by the Federal Treasurer can be the most boring thing in the world to watch. Therefore, we tend to focus on the discussions afterwards. I happened to have the TV on last night and heard Scott Morrison start talking about superannuation – I was shocked. Usually the government leaks the detail, but this year even the leaks were wrong. Why did everyone not see that he was picking on Intralink and our clients?

Some clients have got away scot-free. Fortunately, we were cautious by processing contributions early where we could. For other clients there will be implications, most notably for those that plan to move large amounts into superannuation over time.

We believe there should be a philosophical discussion about fairness. The current public / government concept seems to revolve around evenness. Is it fair that a person who has paid a huge amount in tax, taken no government benefits, supported other businesses and employment through their spending, wants to have some ability to maintain their lifestyle in retirement without having to work their entire life? Seems reasonable to us.

Is it fair that another person can live off the government in retirement with a $2,000,000 house that they could use to fund their retirement, but want to leave to the kids? Seems generous in this time of an aging population.

“The world isn’t fair, Calvin.”

“I know Dad, but why isn’t it ever unfair in my favour?” 

Bill Watterson, The Essential Calvin and Hobbes: A Calvin and Hobbes Treasury

Winners and Losers

As advisers, our heads are already ticking about the best way to move forward with these changes, but for many, superannuation is never going to be as good as it was. Some of the changes are arguably reasonable, in some areas we think they have gone too far. In some areas their actions are retrospective in their implications, but will get “grandfathered” through a few of the proposed changes.

Importantly these changes will spill over into other areas. One never knows the actual Budgetary impact and more people will be forced onto the Aged Pension.

Who are the worst hit?

Copy of Intralink_Petal Savers trying to build up their superannuation to maintain a good standard of living in retirement – may be faced with reduced, or no more after-tax contributions and reduced pre-tax contributions;

Copy of Intralink_Petal People saving hard to build up their super pre-retirement – could be faced with reduced or no more after-tax contributions and reduced pre-tax contributions;

Copy of Intralink_Petal If you are planning on selling assets and moving them into super, the amount allowed may be reduced or may not be able to be done at all;

Copy of Intralink_Petal Large superannuation funds will have the downside of more of the balance being exposed to 15% tax, rather than zero tax. But this will also likely mean higher balances can be retained in the super system, as there is no need to pay out any of the accumulation balance. There may be no point moving to a pension, except for the tax-free status amount i.e. up to $1,600,000 per member. This will be all you have in pension phase.

Who gets through with little or no impact?

Copy of Intralink_Petal Retirees, who have already moved all their funds into super, completed their re-contribution strategies and have no more than $1,600,000 in each member balance.

Who benefits?

Copy of Intralink_Petal Another example of how the public and therefore the government that copy public opinion, has been unable to distinguish economic policy from their concept of fairness. That fairness does not mean everyone is equal, but everyone is given a chance – they have reintroduced Low Income Super Tax Offset. The idea is that it is “unfair” for someone who pays no or little tax to pay the 15% tax rate in super, so they get an offset.

To continue reading Mark Serry’s perspective on the Budget changes, please click here.

Mark-S-1-366

Should you wish to speak to an Intralink Adviser in regards to the above, please don’t hesitate to call the office on 03 9629 1100.

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