Bloggers

Future proof or fool proof – Part one

Dec 04, 2016

Paul dives into the real meaning of those super changes.

I have just read Starts at 60 articles ‘Government passes superannuation changes to save nearly $3 billion’; ‘How your superannuation compares to the average’ and ‘Push for early retirement, but only for a select group’. All make interesting reading. The changes to superannuation have received maximum press, but I find the reasons given by the government for the changes to be confusing to say the least whilst the superannuation averages given out by various departments and companies have been so cleansed and massaged as to bear little resemblance to the truth. As far as a push for early retirement for a ‘select group’ is concerned, well I can’t believe any person who has any credibility could come up with such a stupid request. But before we get into that let’s have a general talk and a bit of a preamble over a cup of coffee.

Call me stupid, and many of you will, but what is all the fuss about? Let me explain. Like many other readers, my wife and I are retired, six years next month. We receive a part-pension relative to and adjusted depending on the value of our assets. Superannuation is not a problem for us, we do not have any, never believed in it, always thought property had more appeal and as it happens it turned out to be so. We have had some good luck, but bad times as well just like most people. We are happy with our lot and take each day as it comes and if possible enjoy it. Changes to superannuation have no effect on us, but it will on our kids and grandchildren therefore the interest is there.

Feel free to correct me but my understanding of the situation is that the changes to superannuation will not effect those currently retired receiving a full or part age pension. The changes are futuristic for those who have yet to reach retirement and is not a one size fits all situation. Changes that effect current age pensioners and retirees come into effect January 2017 and have been talked about so much that everyone should now understand them, notwithstanding they may not be liked by all. Therefore, I do not propose to discuss those changes.

Let me put it another way. In simplistic terms, as I see it there three categories to be considered:

Current retirees
People retiring in the short term, say, within the next 10 years
People who have a long way to go, such as, up to 50 years before retirement rears it head

Current Retirees are required to make decisions based on their current financial circumstances. They have little or no chance of increasing their current ‘assets’. Put another way, now is as good as its going to get. Learn to live with it. Those who are receiving a part-aged pension should be looking to reduce current assets to obtain higher age pension payments in light of the changes coming January 2017. I was not going discuss the January 2017 change, save but to say it’s an individual decision how you go about doing so or if you do so, but not many avenues are open to current part-age pension recipients. Perhaps renovate the house, but do not over capitalise; perhaps buy a new or newer car, the difference between purchase price and resale value after purchase will reduce assets; go on a good holiday or add more money under the mattress, which is not honest but that’s a problem between you and your conscience.

Age pension recipients have to consider whether it is worth listening to all the advice being given out by so-called experts who have a vested interest in giving the advice or get on with life. In real terms, however, aged pension recipients unfortunately have to rely on the Government of the day to first realise they exist and then to ensure a fair standard of life is maintained.(Every article needs a joke). This requires an increase in the age pension or further concessions. The announced changes to superannuation fundamentally have no bearing on current aged pensioners.

The next category is the short termers who have up to 10 years to go before they consider retirement and therefore only a short period to increase their superannuation or assets. In theory you have what time is left to reach the tax-free superannuation threshold of $1.6 million if you so desire and I suppose beyond if you wish. If you do the sums based on your income, chances of getting to $1.6million may be just about zero. If you have $1.6 million in tax-free superannuation why are you working now anyway, unless you enjoy it.

So many people have been brain washed into believing an exorbitant sum is required for retirement, but figures bandied around over the past couple of years have mostly been without foundation or self indulgent. With $1.6 million, I think I’m right in saying you won’t get any age pension anyway. Having said that the biggest majority would have assets far below $1.6 million and should really concentrate on current asset value to achieve the best outcome aimed at obtaining the highest part-age pension. Or, if assets are below $375000 for a married couple with a house, the full age pension. Remember retirement can be before the age of entitlement, it just has to be funded from your own resources. Doing so may assist the reduction of assets thereby increasing the amount of age pension payment that can be received. To finish this category, if you can currently afford to put into superannuation $100,000 of after-tax contributions, I don’t really know why you are reading this.

Persons who have more than 10 years until retirement will have to get used to all the restrictions the current Government impose on ordinary people. If you are under the illusion the rules will be the same when you retire, you are fooling yourself. The goal posts will move who knows where. Let’s face it, at the moment you can only guess what the retirement age for obtaining the age pension may be. The best thing to do is continue to do the best you can, enjoy the current life, your family and pay off any property you have. If you have $1.6 million worth of tax-free superannuation at todays value or assets of more than $816,000, I suppose you really have nothing to worry about. If you can contribute $100,000 in after-tax contributions each year then you are earning enough not to worry about the aged pension.

However, to the vast majority of people staring retirement the face, all this talk about money means absolutely nothing. Whether we like it or not we have bred a leisure society and by that I mean a mass of people who will never work for whatever the reason. Others are statistically at work, but in reality are only working part time, or full time in positions paying well below the average weekly wage. For these people every day is a struggle and superannuation seems miles away. They will remain dependant on the aged pension.

Lets get back to reality, the capping of tax-free superannuation to $1.6million and the capping of after-tax contributions to $100,000 will not affect normal hard-working Australians. Only the top 1 percent of high earners will be affected. All others will carry on and without noticing any thing different. Normal workers have no possibility of making $1.6 million in tax-free superannuation. The Government’s reading of this matter has been very wrong and they seemingly have very little, if any real knowledge, of what real people earn let alone the cost of living.