Before we start… would you like to attend a free one-hour online money and-investing Q&A with yours truly?
This week, we've been running a series of seminars under the banner of 'Financial Literacy Week', covering important financial topics like budgeting, eliminating debts, saving and investing.
Today is the last day. But no prior knowledge is necessary.
It's going to just be a 60 minute Q&A session.
We've been collecting questions all week, and you can ask them live, during the webinar.
It's running for an hour from 12.30pm AEDT, today. (Also, I've been told we have a very special offer. So yes, at the end I will be selling something, but it's… cheap. By which I mean… cheap.
But you don't have to buy anything to attend, and I won't be doing a hard sell.
So, if you'd like to know more about it, reserve a spot, and sign up for a handy reminder email, just click here! See you at 12.30pm AEDT!
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So, Treasurer, can I fix the Superannuation and pension mess for you?
Yes, that's a bold idea. Especially from someone who isn't in the public service or politics.
But maybe that's the point.
I'm not encumbered by electoral considerations, political ideology or 'not invented here' syndrome.
Nor do I have the weight of vested interests: donors, impacted businesses, or anything else.
So, while I don't claim to have perfect insight, I have the benefit of physical and metaphorical distance.
First, though, let's look at the mess: there are contribution limits, and catch-up limits. There's preservation ages, transition to retirement, accumulation accounts and pension accounts. There's indexing, minimum contributions… seriously, the thing is a dog's breakfast. Then there's the new two-tier tax approach introduced by the government, based on the size of the Super balance.
And then there are the disincentives. How much can you earn before losing the pension? How much can you leave in Super, to benefit your heirs? How can you use Super to save paying tax?
Why is this such a mess? Votes, mostly. Some ideology. And so many vested interests, there's almost no-one to speak up against it.
But what if we weren't subject to any of this? How could we change, and dramatically simplify, our ridiculously complex retirement system?
Because Super was a spectacularly good idea that's been, well, bastardised by successive governments ever since. So fixing it should be a priority.
And it's stupidly simple. Here's how:
First, increase the tax-free threshold for over-67s by around $20,000.
Second, make all income (earned income, unearned income, the aged pension, and Superannuation incomes) taxable above that threshold, at marginal tax rates.
Third, mandate a larger minimum withdrawal (as a % of the current balance) from Super, so it can't be used as an estate-planning tool.
Fourth? There isn't one.
That's literally it.
I would scrap the ridiculous tax dodge of 'transition to retirement' pension. And you could roll back the 30% tax rate on higher Superannuation balances, because my system would capture its taxation as income.
And the benefits? There are many:
– You wouldn't need an accountant to work this stuff out.
– The government doesn't lose a truckload of tax revenue when people use Super for estate planning or to earn an untaxed six-figure income.
– It ameliorates the cost of franking credit refunds to higher income earners, because their Super income would be taxed.
– It wouldn't disincentivise working in retirement.
(It also opens up the option of giving everyone over 67 the aged pension, should we choose, as an alternative to raising the tax-free threshold, which would save a small fortune on administration and the frictional costs of people moving in and out of work.)
Why wouldn't we do it? There's no good reason.
Oh, people who are trying to use it as a tax shield would scream blue murder. And the accountants and financial planners might lose some business.
But that's okay.
(I don't dislike those people, by the way. They do a good job. It just shouldn't be necessary to engage a financial planner to organise what otherwise should be a plain-vanilla retirement.)
It won't happen, of course. For the reasons I outlined at the top. But it should. And a Treasurer (of either/any political stripe) would do it, if he or she started from first principles, with the national interest as the foremost objective.
(By the way, according to some numbers from the Super Members Council out this morning, the cost of raiding Super during COVID could be as high as $85 billion. I called it #RetirementWrecker at the time. And since. And I'm still calling it that, now. It might just have been the worst financial policy decision of my adult lifetime.)
It's time to return Super to its original purpose, to remove the complexity and to stop it being used as a tax dodge.
Over to you, Treasurer.
Fool on!
